The following is a media release issued by Club Red CEO Tony Inman on 1st February 2013…
Imagine you had an opportunity to pitch your business idea, product, service or concept to a panel of five multi-millionaire captains of industry, with a view to gaining even one of them as a business partner who will inject capital and expertise that could lead you to a level of success beyond your wildest dreams…
Perth-based business coach, consultant and mentor, Tony Inman is an avid fan of the BBC’s wonderful television programme, ‘Dragons Den’ and he loves to see how these multi-millionaire investors make their investment decisions.
“Here are the questions I have noticed that are most commonly asked by the dragons (business investors or venture capitalists) of the entrepreneurs, who are pitching for investment funding”, said Mr Inman.
- What exactly is your product or service? (If not made clear in the pitch)
- What problem does your product or service solve?
- Does the product stand up to scrutiny? E.g. does it work and is it robust?
- Do you have any patents on your intellectual property?
- If Q4 is yes, where are you up to with that process? I.e. is the patent pending or approved, and does that patent stand up to scrutiny? In which countries are they patented? Do you personally own the patent or is it under the company you are asking me to invest in?
- What is unique about your product or service compared with your competition? (USP)
- What is your trading history? – Usually last 3 years turnover; gross profit and net profit.
- If it made profits, what did you do with them?
- Did you draw a salary out of this company or project?
- What are your projected figures for next year / 3 years? – T/O, GP and NP.
- How many units have you sold?
- What is the unit cost of production?
- What are the wholesale and retail prices?
- Who have you approached so far? (wholesalers and retailers)
- What was their response?
- Do you have any offers or commitments to buy certain quantities once the product is manufactured? (And do these offers stand up to scrutiny or are they vague?)
- What advertising have you done, if any?
- How are you marketing this product or service?
- What qualifies you to do this? What is your background, skills, expertise? I.e. are you, as the entrepreneur worth investing in as a person, or team? Can you actually do what you are claiming you can do?
- How much have you invested personally in this project so far?
- Is your business worth the valuation you are putting on it? (E.g. if you are asking for $250k for a 25% stake of the company, then you are valuing the business at $1m)
- What amount of my (the dragon’s) time will this project take up?
- In what ways can I (the dragon) assist you to achieve your goals?
- What are your long term aspirations with this product/service/company?
- Do you have an ascendency plan? (I.e. what spin off/ up-sell products can be developed?)
- How scalable is this business? I.e. would the profits increase with the economies of scale? E.g. would the unit cost of product drop with mass production?
Tony Inman summarised his observations by saying that the Dragons (venture capitalists) want to be as sure as possible of the following:
- The risk/reward ratio is worth the punt. After all, it is their money that they have earned themselves that will be at risk.
- They want to know that the product or service is a good one with a strong USP.
- The product or service is stronger if it is really unique or if it can be protected by a strong patent, ideally in multiple countries.
- They want to assess how long it will take to get a return on their investment and at what rate. Otherwise they might as well stick the money in the bank!
- They want to be sure that the entrepreneur is capable and competent to run a business, or that they could be, with the right guidance.
- They are looking for passion, enthusiasm and absolute commitment from the entrepreneur.
- They will sometimes take a punt on the person or the team, rather than just the product, if they see potential.
- They ideally look for investments where they perceive that they can add value, in terms of industry knowledge or experience, contacts (database and networks) or general managerial mentoring, without it being a big drain on their time, or requiring further investments of working capital.
- They want to know that you have done your homework. They will expect you to know the answers to the preceding questions, or at least, to have a good idea.
Tony Inman’s Overall Summary of ‘What it takes to secure the investment deal’
Dragons understand that you may not have all the experience or knowledge required and that perhaps this where they can add value because of their vast experience. What they will not do is tolerate time wasters or people who try to bluff or ‘b/s’ their way through the Dragon’s questions.
It has often been said that people buy on emotion, not logic. The dragons’ evaluation process also has an emotional and ‘gut feel’ or instinctual element – after all, operating at that level is what helped them make their money in the first place.
If they like you, they like the product and it is an area that interests or excites them personally to become involved with, your chances of success are significantly increased.
The biggest difference between dragons and laymen though, is that their experience has taught them to trust in the numbers as well as their instincts.
Sometimes very good ideas brought to them by very good people just don’t stand up to scrutiny as products or services that can be scaled up to become an investable business.
Sometimes, the ideas are so whacky or zany, that you wonder what planet these entrepreneurs come from!
If you do have a good product or service or concept, that can be up-scaled and you have done your homework properly, there is a good chance that you will receive an offer, though you can expect that the dragon will want to see a return on investment commensurate with the perceived risk or level of assistance required.
On the whole, these are good-hearted people who have done it the hard way, so they know the importance of a helping hand. They are also in the fortunate position of being able to be benevolent.
If they respect your effort but the deal is just not a match, they will wish you well and may even still offer advice.
Conversely however, they are nobody’s fool, so if you go in unprepared with a fanciful idea, be prepared for a ‘reality check’ in the form a fire-breathing dragon who will tell you it like it is, followed with the unequivocal words, “I’m OUT!!!”
Mr Inman’s company, Club Red Consulting helps business owners to be more effective, so they can lead more fulfilling, less stressed and happier lives.
Information is available from http://clubred.com.au or by calling (08) 9328 2203.
Tony Inman is an entrepreneur, presenter and author with over 34 years of management experience, mostly in retail, tourism, transport and cleaning, of which over 19 have been spent running his own businesses here in Perth. He has also mentored at Curtin University’s Centre for Entrepreneurship.