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Thinking Like an Investor

Written by: Ken Hollowell

Article Overview: To successful raise capital, it would be wise to know how an investor thinks.

Thinking Like an Investor

Private investors are everywhere ready to invest in a project that captures their attention and imagination. Most private investors are looking at many different opportunities at any one time therefore your project needs to "jump" out and grabs the investor, otherwise it will be passed over. Most private investors consider investing in start-up projects like gambling in Las Vegas -- A private investor keeps placing bets in hopes that one of the bets will hit big enough to more than pay for all of the other losses that virtually every private investor is bound to take. Private investors spend a great deal of time on due diligence and hedge their bets by funding several different startup businesses at any given time. They do not just slap down money for every idea that comes across their desk. However, despite their best efforts, most of these bets fail. However, when one of their funded companies hits it big, it really hits it big! A private investor wants "home runs", not "base hits".

What is a home run?

A home run for most private investors is a significant return on their investment, somewhere along the lines of 10 times their original investment within four or five years. There is no absolute definition of what a home run looks like to every private investor, but it is certainly not "doubling their money in ten years". You can do that with the stock market on just a modest gain. There are countless businesses that are great ideas and can be well executed, but just cannot provide the potential returns that an early stage investor requires.

Is my idea a home run?

Does it have the potential to make hundreds of thousands of dollars? Or does it realistically have a chance at making tens or hundreds of millions of dollars? If your idea can return five to ten times to a private investor and you and your management team can execute on the Private Placement Memorandum, then you might be a good candidate for early stage investment. If you have a proven business model and just need funds to quickly scale the growth, then it could be time to shop your business around to private investors. They'll be the first to shoot holes in your dreams of being the next Google. And if they like your idea, you might be able to sale your stock to the private investor.

It's all about making money

As with any type of investor, a private investor is looking to make more money with the money that they already have. Sure it's nice to have the luxury of existing capital, but managing these investments is a full time job. Unlike you, this is what they do for a living, not as a side job.

Private investors spend a great deal of time weeding through new funding proposals looking for a great opportunity--and if the planets are aligned right, they might hit the next Google.

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Article Tags: capital, fund your company, funding, ppm, private placement offering, raising capital, raising funds



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