Seven Deadly Errors of Home Business Funding - Part II

Continued from part I...

1. Not showing the sales and sales potential of the business.

Investors want proof that your business is capable of making sales. It is proof to an investor that if your product will sell it is a business; if it won’t then you don’t really have one. An investor will walk very quickly if they discover that there is a product with no effort to sell it or a product that does not have a market.

* Do extensive market studies and show that investor what the potential is to your product. It is the only thing that will encourage him or her to invest. Show them what they will gain by an investment in your product.

2. A failure to see the ‘sale to value ratio’ is a reason that will sour an investor on your business.

If the investor sees that the entrepreneur has sold a majority of the business before the first vc round they will unlikely invest. What this entrepreneur has failed to see is the sale to value ratio. You must not sell too much of the business when the valuation of the business is too low. You should only sell off enough to get the business to a point where that value will improve and the next money will buy significantly less of the business.

3. Investors will not typically invest in a business that is trying to hide its intellectual property.

Investors want to be sure that if the business fails they have the option of selling the intellectual property to recoup some of their money. You must show investors that there is less of a risk in investing in your business. If investors see that there is no potential chance to get back any of their money they will be less likely to invest any of it with you.

4. Unwisely incorporating is another tip-off to an investor that this business should not get their money.

Some entrepreneurs believe that it is wise to incorporate in certain states that don’t have income taxes. It may seem like a wise move, but typically these states have laws that make it very unfriendly to investors. Make sure you do your homework on the laws in the state you are considering. Be certain that these laws are favorable to investments. You may end up losing more than you gain if you don’t.

* Show your investors that you are a reasonable business person by investigating all the potential risks of incorporating. Do your homework and your investors will know it and respect your business enough to invest their money. If you want to live the dream of a successful entrepreneur then you must be willing to do the hard work that comes with the job.

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