“People don’t hand over money for good ideas. They invest in businesses that can make them more money than other uses of those funds.” “If you don’t look serious about your business, why should someone else be serious about his/her money?”
Bryan Emerson (Managing Principal of Starlight Capital) offers the following three pieces of advice for entrepreneurs hoping to commercialize their inventions: Be prepared, be patient, and be flexible.
Be Prepared (be Realistic) Although family and friends may support inventors because they trust and respect them, “that is too much to expect from anyone else.” Serious consideration by other investors requires four items: 1) a working, tested prototype (preferably with paying customers), 2) a succinct executive summary (2-4 pages), 3) a full business plan which demonstrates knowledge of the costs, profit margins, sales pipeline, competition, 4) an investment-oriented PowerPoint presentation. Technical people who do not regard themselves as skillful business writers familiar with what the investment community wants to hear should hire someone to convey the commercial logic of the invention. Emerson observed that a common misconception by inventors is that investors are interested in a product per se. This is not true. Inventors who spend a whole meeting with investors talking about the widget miss the opportunity to talk with investor about what THEY care about: scalable, profitable or potentially profitable companies, preferably with multiple revenue streams that aren’t all vulnerable to the same market fluctuations. Emerson recommends that entrepreneurs find a mentor who has successfully commercialized an invention, preferably in their niche. Why make costly mistakes when a mentor can warn you in advance?
Be Patient (and Proactive) “Launching a business, seeking investors, and finding customers all take longer and cost more than one might expect. Take a long term view and use that time well,” says Emerson. Work at getting visibility in the finance and investment community. Listen to how other companies present their value proposition to the finance community. Listen to the questions that financiers ask so you won't look like a “deer in the headlights” when you get the same, logical questions. Although investors may be cautious now, they may be more interested in a year, especially if they have gotten to know you and your business in the interim. Also, set technical and commercial milestones and achieve them. Build a prototype, test it, write expert commentaries, etc. Follow up with people you have met to let them know what you have accomplished since last time you spoke. Some people may suggest goals because they are serious about your business enhancements; others may set goals to get rid of you. Learn to tell the difference by ascertaining whether they have really invested in this space or are just talkers.
Be Flexible about financing Ask a financial professional familiar with start-ups about all financing opportunities. Should you locate in an adjacent county since government grants and loans vary by district? How much money do you seek to raise? Consider angel groups for less than $1 million and investment bankers for more. Should you consider receivables financing? Companies with assets and cash flow have more financing options than those without, including both debt and equity-based loans and loans based on factoring inventory or receivables. Vendors, customers, and partners are also funding source options. Inventors and other entrepreneurs have many resources available to them, including time, documents, public information and professionals. Explore them and use the ones that make sense to ensure that your worthy invention becomes a viable business rather than a tax write off.