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My company helps new and expanding businesses grow via several different approaches, one of them being the addition of what I like to call dry powder (capital). For those of you in position to do something similar, be it putting money behind new ventures or investing your time and energy to enable small business growth, it’s important to know the risks (and rewards) of such endeavors. Believe me, when it comes to sinking some of my hard-earned cash into an investment, I don’t take the process lightly. It requires research, interviews, evaluations and, at the end of the day, trust in your own gut and intuition.
My team and I always walk any investment candidate through a checklist of 10 guideline questions before we even consider taking the next steps with an individual or company seeking our capital and our commitment. I’m not saying these guidelines are a sure path to success, but they always help me and my team at least get to a solid foundation of comfort with a potential investment before moving forward. Here they are:
1. What is the business model?
You need to know if the company has a clear path to its goals, including proof of concept, marketing, customer acquisition and a unique approach to making it all work.
2. Is there a white space for the solution?
The company or product should solve for a problem, answer a question and fill an empty hole in a marketplace. If consumers don’t need or want it, you should consider whether your time or money can change that.
3. Is the company pre-revenue?
In my opinion, any company asking for a capital investment should be able to show an ability to generate capital in the first place. I recommend you invest in companies that are already making some money, essentially proving their concept is viable and primed for growth with your help. (Though Facebook and Uber seem to be doing OK.)
4. Can you activate your network?
We’re not a company that writes a check and says, “Good luck!” to an investment. We are hands-on. So you want to make sure your own network and connections can play a key role in accelerating growth quickly, therefore making the capital infusion worth your while.
5. What are the biggest challenges and risks?
You want to know right from the start where and why the company or individual sees possible rough waters ahead; this is where you can determine if there are valid concerns and also whether your potential partner is being honest about them. That is a big moment early in the process.
6. How much capital has already been raised and by how many other investors?
Ideally, you want to go in on something where you can get as much equity or shares as possible, and if that pool is already pretty full, there may not be enough room left to make the kind of splash you’re after. It has to be worth your money and time to dive in.
7. Can the business be sold?
This is a personal preference, but I’m not interested in legacy businesses. I suggest you look at companies that are explicitly more interested in attracting a strategic acquisition in the shorter-term versus someone looking to build an empire. You want to know your investment has a defined purpose and, ideally, an end goal.
8. How will our capital and time be utilized?
You should always expect to see exactly what your input will be put toward, whether a financial investment in infrastructure, inventory and staff, or more abstract needs such as marketing and social media. You don’t want to see your time and money evaporate into thin air with nothing to show for them but an idea.
9. Who would acquire the company?
Think big picture! The company may be six months old and essentially unheard of, but a good founder or CEO should already have their eye on who would scoop them up on the open market and, more importantly, why. It’s the “why” that will allow you to compile your own list of potential buyers based on your knowledge of the space.
10. Do you believe in the founders and executive team?
This is, by far, the most important question I ask myself before making any investment, and you can only find out the answer by going through steps one through nine. I always bet on the jockey before the horse. You need to know, or at least feel reasonably assured, that the individual or team that started the company or created the product has it streaming through their blood; they need to eat, sleep and dream this endeavor. You want to see a level of intelligence of, dedication to and determination for the business that goes beyond anything you’d expect even from yourself. The greatest idea, invention, solution, company, service or concept will fail if the people behind it are not 100% on-board and operating with a clear vision for success.
And finally, ask yourself this: Would you want to sit down and have a drink with the founder or CEO of the company you are considering for an investment? Are they good people with good intentions and honorable ethics and morals? Would you enjoy sharing a cocktail or two with them? Because in the end, life is too short to spend time and money on those you wouldn’t. And with the success you hope to see together, some Champagne toasts are surely in your future. I’ll take a bourbon.
May 2, 2019 at 09:00AM
Forbes – Entrepreneurs