CRAFTING AN OFFER – KNOW YOUR LIMITS
Karl Dakin
I help you overcome challenges to raising capital. Take advantage of my Motivated Money Method to identify those investor candidates that are most likely to invest. Top expert in fundraising.
QUICK CALENDAR
Tuesday, July 30, Successful Funding, 8 a.m. MDT, TBD
Thursday, August 1, Community Investment Funds, 8 a.m. MDT, Community Revitalization
RCI COMMUNITY FUNDS INVITATION
Join Me for the Inaugural LinkedIn Live Show of RCI Community Funds!
As a member of the management team, RCI Community Funds is excited to announce the launch of a series of community investment funds aimed at revitalizing selected underserved communities.
You are invited to our inaugural show, streamed live on LinkedIn:
?? Date: August 1, 2024 ?? Time: 8 a.m. MDT
Register now to be part of our interactive audience:
What to Expect:
Featuring Speakers:
I look forward to your participation and engaging with you on this exciting journey toward community revitalization.
FUNDING POINT – CRAFTING AN OFFER – KNOW YOUR LIMITS
The crafting of the investment offering may be the most important activity that will lead to a successful funding campaign.
As presented in yesterday's edition of this Instant Funding newsletter, the basic questions of an investor are:
·?????? How much and how little can I invest?
·?????? How much money can I make?
·?????? How long do I have to wait to get my money back?
·?????? How likely is this a sound investment?
There is a significant chance that a small business cannot meet the needs and preferences of certain investors. A small business has to know its own limitations in crafting offers.
With a capital strategy in hand and having set goals for a capital campaign, how many investors will it take to meet these goals? Setting the minimum price for an investment will dictate how many investors are needed. For example, if raising $5 million with a minimum investment of $100, then the small business will need up to 50,000 investors, while if raising $5 million with a minimum investment of $50,000, then the small business will need only 100 investors.
Common sense suggests setting the minimum dollar amount for an investment as high as possible rather than setting the price low.
However, the higher the minimum price of investment, the fewer investor candidates will have that amount of money and will be willing to spend it on an investment. It may turn out that few candidates have that much money and that no one wants to risk that much money. Going to the other extreme, setting the price low will enable a much, much larger group of investors to invest. However, a low dollar price may result in very many investors. The cost and time of pitching and closing investors will grow with the number of investors. A small business may not have the time, money, or infrastructure to conduct this scale of capital campaign. To amplify this problem, the more investors who do not have any prior relationship with the small business increases the likelihood of the opportunity being rejected. This means even higher costs or raising capital by needing to pitch to more candidates.
The small business will need to set a minimum investment amount that is 'affordable' to enough investors that the small business knows or people through whom it can influence the candidates to make the investment, yet does not overwhelm the business.
With a good cash flow projection, a small business can determine how much profit it may earn and what percentage of its revenues or profits may be distributed to investors. The portion of cash flow or profits distributed to investors will determine how much money they can make. For example, a company earning a 20% profit on sales of $1 million dollars can distribute a maximum of $200,000. Small businesses should not pay out more profits than they earn or they will run out of money. Distributing all profits to investors leaves nothing for the founders and operators of the small business. If investors want more than $200,000 in return for their investment, small businesses cannot change their pricing any more than they can afford to sell their products or services at a loss. The small business must determine how much it can pay out to investors under different conditions and how much they need to retain to reward owners and staff of the business for their work.
Some businesses try to address this challenge by simply increasing their revenue and profit projections. This results in a valuation of the business which becomes unbelievable. This challenge is most difficult when the business is pre-technology, pre-management team formation and pre-revenue. Concepts are almost impossible to fund.
With a good business plan, capital strategy, cash flow projection, and a determination of the maximum share of revenue or profits that may be distributed to investors, a small business can determine what an investor may receive over what time. The business plan will identify key milestones in advancing the business that will increase the value of the business. The cash flow projection will determine how much funding is needed to attain these milestones. A startup business rarely pays back an investment in its first year of operations. A small business needs to attain the milestones to put itself in a position where it can not only pay back investors but also complete its next round of funding. If it takes the small business three years to attain the milestones, it may be necessary to set the term of the investment to no less than three years. Small businesses cannot meet the criteria of investors seeking shorter-term investments.
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Again, small businesses are tempted to jump earnings projections to provide investors with a shorter-term payback. However, when the small business fails to hit these self-inflicted deadlines, the investors may challenge the integrity of the promises.
There is always some risk that an investor may lose their investment in a small business. The threat of a complete loss will automatically disqualify most investors. Small businesses need to know what they can or cannot do to improve the likelihood of success and reduce the possibility of failure. Where the risk of business failure cannot be managed, the small business has to provide some protection to the investor in the form of collateral, guarantees or other value. It is common for entrepreneurs to guarantee a loan, placing their personal wealth at risk if the business fails. This practice is not recommended, and alternative forms of protection for investors should be established.
A small business has to know its limitations. It cannot meet the criteria of all investor candidates all the time. It has to craft its offer knowing that it can perform at a risk level acceptable to enough investors to complete a capital campaign.
SUCCESSFUL FUNDING
YESTERDAY, my guest on the Successful Fundin show was Bill Huston with Crowd Max. Bill and I discussed investment crowdfunding. Bill described raising money from the crowd, and in particular the customers of a business, as the best choice for a small business that may find no other options.
You may see a recording of this show at:
You may view recordings of all past Successful Funding shows at my LinkedIn profile under Events:
DON COHEN SHOW
MONDAY, I was a guest with Ford Saeks on Don Cohen’s show. We discussed what it means to be an expert. As always, Ford provided wisdom from his successful career, while Don contributed his own experiences. #LinkedIn #Experts #Speaker #Event #Publishing
You may register to be in the audience for this event at:
Don is an expert on LinkedIn, particularly on the use of Live streaming to build brands and communities. We will discuss using LinkedIn as a social media platform for building communities that support raising funding.
All shows where I have been a guest can be viewed on Don Cohen's LinkedIn page under Posts.
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Karl Dakin, the Capital Coach
Dakin Capital LLC
TEDx, Keynote & Motivational Speaker | Author | Business Coach for speakers and aspiring speakers | Founder & CEO at 100 Lunches & 100 Speakers| 40 under 40 Business Elite | People Connector
4 个月It's essential for small businesses to understand their limits when crafting offers for investors. Your Motivated Money Method is undoubtedly valuable in identifying the right investor candidates. ??
I help you overcome challenges to raising capital. Take advantage of my Motivated Money Method to identify those investor candidates that are most likely to invest. Top expert in fundraising.
4 个月What are the limits on what you can offer an investor?