Monday, September 30th, 2013
When people talk about chasing investors for their business idea it often sounds like they’re chasing after free money. But the simple fact is there’s no free lunch in business.
Investors aren’t gift givers. Investors supply the capital to get your idea off the ground with an expectation of getting their money back with a premium.
They’ll ask you one big question: “What’s in it for us?” Equity in the business? Control? Or cash?
If they’re a smart investor they know exactly how to calculate their expected return multiplied by an appropriate risk factor. And they’ll compare that to alternative investments. The only way you can really beat the smart investor down is to get them on board with your ideas – where they accept greater risk or less returns because they believe in you.
But this is where the trade-off occurs. You have to also ask yourself what’s in it for you?
Without an investor you could possibly bootstrap your idea. Slow growth. True. But you retain ownership of the business and control of the direction your idea takes. Any cash in the door can be fed directly back in without the pressure of returning that $20,000 with interest to the investor.
Bringing other people into your idea can be as difficult. What if there’s a tussle for control over the business’ direction, but they own all the assets or you owe a significant amount of money? It’s not hard to find examples in business where passionate people find investors or partners who end up redirecting the business to another direction and booting the original person out onto the footpath.
For Morgan’s Barn Mead the bottom line is about the direction to take our ideas and retaining our ethos that there are no rules in Mead Club.
And it’s a major concern, at least to me, that making good mead doesn’t pressure us towards entering the market as just another faux-wine traditional mead follower. That market is well served and constantly filling with new entrants. Rather, we’re about carving a niche and owning it. Not just with brand and story, but with innovative products.
Investors and partners will always be a temptation. But you have to choose those paths carefully.