Last week, I discussed creating a good business plan. This week as promised, I’ll dig into seeking potential investors. This subject is a major crossroads for many businesses. Does your business need this? Should your company do this? What are the positives? What are the negatives? Good questions. How do you go about getting the funding? What does it cost? These are even better questions. First, you need to be ready to attract investors. Is your business plan complete? Have you already began to make revenue? Do you have exclusive rights to your intellectual property? Patents, trademarks, copyrights. I know this may sound like a lot but imagine you were about to invest in a start-up or failing company. You’d want all the proof in the world that you can not only make your money back but make money from your investment in perpetuity or via a future sale of the company. There are lots of questions. What are the answers? That is why we are here.

Let’s begin with you preparing yourself for investors. Business Plan is number one. It gives you a complete understanding of your company and the industry. It will supply you the confidence to stand in front of any potential investor: a person, a company, or a bank. The business plan is the ultimate confidence booster. As stated earlier, protection of intellectual property, if any, is just as important. These moves protect your business’s advantage. The most common defense comes in the form of patents. A Patent is a government authority or license conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention. An investor sees this as assurance that they have an opportunity to make their investment back. Other crucial forms of protection are trademarks and copyrights. A Trademark is a symbol, word, or words legally registered or established by use as representing a company or product. A Copyright is the exclusive legal right, given to an originator or an assignee to print, publish, perform, film, or record literary, artistic, or musical material, and to authorize others to do the same. General things that are copyrighted are Books, Blog Posts, Musical Works, Plays, TV Scripts, Movies, Pictures, and Architecture. You have to protect your intellectual property. It is part of the cost of doing business. If you don’t defend it, the price will be sizeable.

Now you are ready for investors. The thing is investors are prepared for you too. These investors are seasoned. If you get a deal, don’t think you are getting over on these professionals. Investors know what fits their criteria of a “good deal.” As soon as you supply sufficient information about your business their wheels are spinning, thinking of the best way to structure the investment offer. What will the offer be? You simply want money for your company. It should be simple. It’s not. The funds of investors comes in complicated forms. The simplest form is they give you money and, you pay them back. This deal is usually a family deal. There is no money in that deal and, a stranger will not do it. The most common deald are debt deals, equity deals, or a combination of the two. A debt deal scenario is an investor giving your company 100,000 dollars at an 18% rate. The investor makes 18% of the standing debt until it is paid off. This is very similar to a credit card but with a lower rate and a higher funding amount. An equity deal is an investor giving you money in exchange for an ownership stake in your company. An example is a person giving you 100,000 dollars for 35% equity in your company. You get the money to expand your business. You also get a partner. What you should ask yourself is what that person’s partnership is worth? If you believe it is not worth it, remember it is your company. Don’t think about the deal after it is made. 100% of the company is easier to control than 65%.

The combination of the two is usually used as a compromise for equity. Let’s say both of the aforementioned deals were presented to you. An alternate combo offer would be 100,0000 at 23% and 25% of the company. It all depends on you. What is best for you and your company? Do you see the company exploding in value? If so, it will be best to keep as much equity as possible. An obscure investment type is a royalty deal. A royalty deal gives the investor a set amount of money per sale. This can also be combined with equity and debt. This deal is only for owners with high margins. If your product is 2 dollars and you sell it for 12 dollars a 1 or 2 dollar royalty may be doable. Anything more and you can say by to your profits. Another obscure investment type is in the form of an advisory percentage. This is a small percentage of your companies revenue or profit paid in the form of a yearly advisory fee. There is a big difference between revenue and profit make sure you understand the deal. Profit is the way to go here if you can get it. You can put yourself in a bind if you are paying out fees based on revenue.

In closing, seeking potential investors is a great stage for yourself and your company. If you are prepared, considered yourself in the driver’s seat of the car taking you down the road to success. You have done everything to set yourself up to attract investors. You are an expert in your field but be careful. You can hand over all of your hard work and its future spoils if you make the wrong deal with a crafty investor. Understand the different types of deals and what you are looking for. Go into the meeting with what you are willing to take because again the investors already know what they are willing to give. Remember, you are the boss.