What investors want from founders
My law firm supports supports investors who want to invest and participate in start-up enterprises. In the course of this, we made the experience that the founding entrepreneurs always have one question: What do investors actually want when they invest in start-ups? Over time we were able to observe many investment projects and talk to many investors and the answer was made very clear for us. Therefore, it´s time to formulate a response.
Every investor wants to support a company that provides a high yield with the lowest possible risk. Investors calculate the probability of losing the invested money or to redouble it. Founders must always keep this calculation in mind when they approach investors. As founder wants to get close to the investors’ money, they must be able to demonstrate that their company is profitable or will be profitable.
Every start-up business has risk factors. That is inevitable. Founder should try to put themselves in the mind of the investor: he needs to understand what the risks are, so that he can make a rational decision. The job of the founders is to provide the basis for this decision.
Therefore, founders need to know exactly how much money they need, how the money is to be used and they must be able to submit documents that give explanations for the need and the use. When founders are not able to explain these simple requirements, they shouldn´t even try to cut a deal with the investor.
We experience time and again, the founders have a good idea, but cannot explain how money should be earned with this idea in the market. As beautiful as an idea is — if an investor should put money on the table, he wants to understand what happens to his money and what the chances are that he will not only get his money back, but also earn a profit. That´s the whole point — to put it bluntly. Everything else is merely romantic musings.
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Carsten Lexa is the President of the G20 Young Entrepreneurs´ Alliance (YEA) Germany and the Chairman of the Steering Committee of the G20 YEA. A corporate lawyer by profession and equipped with his own law firm (link to the law firm website), he advises international clients, who want to do business in Germany, in corporate and commercial legal matters. He is, by invitation of the European Commission, a participant in the annual SME Assembly. He is also a member of the B20 Task Forces and since 2014 a member of the national board of JCI Germany (WJD — Wirtschaftsjunioren Deutschland), the biggest organization for young leaders and entrepreneurs in Germany.
Interested in more information about Carsten Lexa and his adventures? Follow him on Twitter (kanzlei_lexa), “like” the Facebook fan page (kanzlei.lexa) or visit the blog (Link).
