Three critical things about investors

Rose-Marie Almond, Toronto, ON, CYBF volunteer

A few weeks ago a friend invited me and another friend to dinner to discuss his idea for a new product. He wanted to use my product design skills and our other friends’ electronics skills to form a three-person business partnership. We left the meeting without a partnership, and a scrapped product idea. Why?

Firstly, he had next-to-no research to present. He had no idea of the size and composition of his target market; his unique selling proposition (USP) in comparison to competitors; or even his sales strategy. His defense was, “I’m not looking for investors yet.” Secondly, the more he talked the less any of us could understand his role in the business.

The idea wasn’t bad, but his presentation was poorly executed because he forgot three critical things about investors:

1. Investors don’t just contribute money. By becoming partners in the business, both his friend and I would be making a sweat equity investment; as such, we needed to know what our potential return would be. Also, as his friends, we have an investment in his personal welfare.
2. A solid business plan is essential. Knowing the numbers would have helped all of us understand how feasible the product plan was, and helped him know where he fit in, so he could better sell himself and his idea to us.
3. Most investors invest in the entrepreneur over the business concept. By not having a clear idea of his own role in the business, he made himself obsolete and the business un-investable.