What Investors Really Want

They're Investing in You

Next in importance is the strength of your management team. "Investors more than ever want to invest in people," says Lydecker. "And they want to invest in people with a track record. If you are starting a fast food restaurant franchise, does your management team have experience in both fast food and franchising?"

Gaps in the management team are a sure sign that a company is not "ready for prime time." I once performed due diligence on a company that was launching a "community" Web site for stay-at-home mothers. The founders were all former top consumer marketing executives with Rolodexes full of super business contacts. There was only one problem--and it was a big one--the company, which planned to target mothers, had no women on its management team. The company is not around today.

Next, never, ever tell a potential investor you have "no competition." "I wince whenever a client tells me [that]," says Lydecker. "Every business has competition. You have to be honest with yourself about who your competitors are, the likelihood that you will beat them in a fair fight, and the strategies you will use in confronting them."

What about financial projections? "They should be simple and straightforward," he advises. "You should make your projections on a cash basis, and be sure that you've really thought through your assumptions. Investors want to know where your revenue, cost and income projections have come from and how realistic they are."

If you are not sure about this, present your investors with three separate projections under the headings "best case," "worst case" and "our expectations," preferably side by side in columns so the investor can make an easy comparison.

When selling your company to investors, it's helpful to remember the "three Cs" of successful business plans:

1. Compelling idea: The appeal of your products and services to the marketplace should be direct, obvious and immediate; if an investor has to ask you why people will buy your stuff, the ballgame's over.

2. Competent management: Do your people thoroughly understand the technology and, more important, the market?

3. Cash flow: If you are not making enough money to pay your electric bill each month, don't expect your investors to pay it. It may take longer to generate profits, but revenue (the number of things you sell multiplied by the price per thing) should be sufficient to cover your basic operating expenses and pay you some sort of salary within your first 12 to 18 months in business. Ideally, you should not be talking to investors (other than your partners, friends and family members) until you have reached this point. In business, nothing says "success" better than piles of cash rolling through the door.

Cliff Ennico is host of the PBS television series MoneyHunt and a leading expert on managing growing companies. His advice for small businesses regularly appears on the "Protecting Your Business" channel on the Small Business Television Network at www.sbtv.com. E-mail him at cennico@legalcareer.com.

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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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