As a rule, sooner or later an inventor comes to the understanding that inventing something is only half a deal (or even a quarter, or less). The next part is bringing your idea to life and turning it into a product or service followed by manufacturing. Nevertheless, it’s not the end – the final step is the commercialization and sale to the consumer.
If the idea already exists, all other steps still have to be implemented by using an investor’s money. After realizing this point, usually the author can’t afford to offer an investor a share of 10% for all necessary investment but also isn’t ready to have his 10%. Imagine his indignation when an investor is considering a project and offers the author 10%.
What is it? Is it an investor’s greed or capital dictation? Or could it be the uselessness of the project?
If the project was obviously bad, it would be simply declined. So, obviously, the project attracted an investor.
Perhaps, an investor intentionally underestimates the cost of an idea, experience, or intellectual property? Far from certain. In case an idea was obvious, effective and if it included all the necessary stages to a successful realization, investors would line up for the opportunity to invest in the project. Then the project owner would be the one to dictate terms.
Therefore, a project makes an impression of a promising business, but it isn’t so obvious. Thus, “hazard pay” appears. The investor will feel as the cat that would eat fish and would not get her feet wet. If investor accepts the risk, he will require proper feedback. Investor supposes that he is the one who risks the most if the project fails.
Unfortunately, project authors who are passionate about their idea often forget that investors can be far from technological details and project features. Thus, the project presentation should be very capacious, concise and lucid. You can do whatever you want but do your best to explain to the investor that you will certainly get the claimed result and it will be demanded by the market.
It is hardly possible to ask the project author to imagine himself in the investor’s shoes, but take my word for it: if investor is far from the technological area that is introduced, then every formula that you present will take 1% from the share the investor will finally offer you. Actually, everything isn’t so straightforward, but close to it…
Let’s try to define some ways of raising a project value in the eyes of an investor (which is almost the same as decreasing the risks):
- Refer primarily to investors who specialize in your technological area.
- Be able to explain the key points of a complex scientific and technological project basing on clear analogies and examples.
- Collect and provide views of independent authoritative experts on your project.
- Split the project into phases so the first investment phase starts to pay off at the second stage.
Last but not least, you should investigate all related questions which might interest an investor. For example, ones listed in the application form for project review by the GS Venture corporate venture fund.