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What Investors Really Want

Forget what you think you know about getting start-up or expansion capital. Here's what investors are looking for.

I'm feeling a lot like Sigmund Freud these days. You may recall that people often asked the famous psychiatrist "What does the opposite sex really want?" Since the bursting of the high-tech bubble, people around the country frequently ask me "What do investors really want?"

Let's face a hard fact. Many of the companies that were looking to raise money in the late 1990s were not real businesses. They were ideas--often brilliant ones, but they were not companies. They had not developed, tested or launched their initial product or service. They had no clue (although some had done some market research) whether the consumer would buy what they were offering for sale. They had no revenue or cash flow from operations. And profits? As they say in the Bronx, "Fuhgeddabouddit!"

Wyn Lydecker, a business development consultant based in Darien, Connecticut, helps early-stage companies craft their business plans to attract outside capital. I asked him to share some insights about what's working and not working these days when it comes to attracting outside capital. "We are finding that angels and venture capitalists are only looking seriously at businesses they can understand," says Lydecker. "Investors tend to invest in what they know. They don't have the time or inclination to learn a new industry."

Lydecker reminds business owners to do their homework before asking for money. "Target your pitches to investors who are interested in your business category. If you have invented a new pump for boats, for instance, try to find investors who are yachtsmen or sport fishermen."

Investors are not really interested in how your products work. Believe it or not, most are willing to trust you to work the bugs out. What they want to see, preferably at the beginning of your presentation, is an in-depth knowledge of your marketplace, and how your products and services serve that marketplace. What problems do your products and services solve, and why will people part with their hard-earned money to buy your solution?

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Cliff Ennico is a syndicated columnist and author of several books on small business, including Small Business Survival Guide and The eBay Business Answer Book. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.

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