Out of 50 applications entrepreneurs place out to venture capitalists or angel investors only about 2 get responses and this are the things they look out for when valuing your venture.
This are some of the pickings from today’s talk on Masterclass valuation event at The Hub East Africa, Nairobi.
How big is your market, and how much competition is there, investors are likely to go for a venture with a huge market potential.
People and implementation capacity
Investors are also keen on the level of skill, talent and the commitment the company has to realise its potential. If no one is available to deliver the dream or the product, then savvy investors will not put in money.
What value is the company adding to its customers, how is it adding to the existing choices the market has to offer.
What is your margin
How much profit per product is the company making, if the earnings cannot cover costs and generate earnings in the medium term, then no one will put in their money.
Money for what
What do you need the money for? Do you want to increase your distribution network. Have you tried to see whether your project works in the market before seeking funding.
Absorption capacity for new capital
Can your company absorb the money you are asking for or the money will be left lying idle in the account?
Proof of concept
To maxmise chances of success you need to have a very strong proof of concept, if you can’t make investors quickly grasp your concept then they will switch off.
There are many ways investors value your business and one of them is earnings before income tax depreciation and amortization multiplied by 4 or 5.
Investors normally get thousands of business plans and their aim is to eliminate as many as they can and narrow down on a few. So they look for any mistakes to eliminate them your proposal.
At the onset it is good to tap three Fs or FFF which is Families Fools and Friends to get affordable capital.