A simple formula for presenting your investment offering

A simple formula for presenting your investment offering

A wise business person shared this great formula for communicating about your investment offering:

  • The proceeds of this raise will be used predominantly for X and Y.
  • These initiatives (X and Y) will lead to increased sales and profit for the company, which makes this a great financial investment
  • In addition, these initiatives (X and Y) allow us to further our mission.  Here’s how . . .

Here is an example of how this might sound:

  • The proceeds of this raise will be used primarily to help us grow our new professional publishing division.
  • Growth of this division will improve our profitability because margins in the professional publishing market tend to be higher than those in the trade segment of the market where we have traditionally operated.
  • Growth of our professional publishing division will also allow us to reach more people with our world-changing message.  The professionals and academics who are the consumers of information in the professional publishing space are people of influence — reaching them will allow us to greatly broaden our influence.

 

 

How to tell an investor what return on investment you’re offering

How to tell an investor what return on investment you’re offering

What do you say when a potential investor asks what return you’re paying?

Let’s use this example of a projected payback (this could be equity or debt):

Original Investment Amount (year 0) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Return
 (1,000)  50 75 100 125 150 175 200 250 300 400  1,825

The simplest way to calculate return is called “cash on cash return.”  This tells you the amount of cash the investor can expect to receive from her investment.

This is what venture capitalists mean when they talk about 10X return.

In the example above, you could say you are paying a 1.825X return (you are paying back the investor her original investment multiplied by 1.825).  You could also say that you are paying an 82.5% return (you are paying back 82.5% on top of the original investment.

To calculate this you use the following formula:

(Total cash received by investor – Original investment)/Original investment

Using the example above: ($1,825 – $1,000)/$1,000 = 0.825 or 82.5%

One thing to note about this measure of return is that is says nothing about how long it takes for the investor to receive the return.  Because of that, it is not the best measure of return.  A measure of return ideally should take into account both the amount of money received AND how long it takes to get it.  Why?  Because of a concept called the “time value of money.”  This means that a dollar today is worth a lot more than a dollar ten years from now.

If you want to calculate the return on investment in a way that takes both money AND time into account, you use something called Internal Rate of Return (IRR).  The good news is that this can be calculated a spreadsheet program.

Here is the formula: =IRR(A1:K1)

(A1:K1) means you highlight all the cells that contain the original investment plus the annual projected return.

Here is an example:

A B C D E F G H I J K L M
1 IRR Original Investment Amount (year 0) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Return
2 9%  (1,000)  50 75 100 125 150 175 200 250 300 400  1,825

 

The formula in cell A2 is “=IRR(B2:L2)”

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How to choose an investment crowdfunding platform

How to choose an investment crowdfunding platform

So you want to raise money under Title III of the JOBS Act.  You know you are required to use a platform but you have no idea which one is right for you.

Here are some questions to ask the platforms you’re considering to help you choose the best one:

  1. What are all the fees and costs for using your platform?  What exactly is included and what isn’t?  If I have my own lawyer, are the fees/costs lower?
  2. Do you specialize in any particular type of business or type of offering?
  3. Can I offer any type of security or do you only allow certain types of offerings?
  4. How do you choose who can raise on your platform? Is there an application process?  How long does it take?
  5. Once approved, how long does it take for me to be able to launch my campaign?
  6. Specifically what services do you provide:
    1. Pre-raise – do you help with the design of my crowdfunding page?  do you help with completing the Form C?  do you help with marketing and communications strategy?  anything else you help with?
    2. During raise – do you promote my offering to your list?  if so, how big is your list?  do you offer any other support during the raise?
    3. Post-raise – do you help with the required reporting following the raise?  do you service the investors in any way or help with investor relations?  do you provide W-9s for the investors if I need them?  how long does it take to disburse the funds and provide a final accounting?

Also: Ask others who have used the platform about their experience – how is the customer service?  did things get chaotic right before you were about to launch?  how long did it take for them to send you the money and the final tally of the amount raised?  what kinds of support did they offer and what was the quality of the support?

Next Gen Crowdfunding is another resource you can use to compare platforms.

 

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Bull market may be nearing its end

Bull market may be nearing its end

Stock market investors are rewarding companies that are able to show high growth, while fleeing from companies that are not able to meet ambitious growth projections.  This preference for growth stock results from lower earnings and narrower profit margins.  Stocks are hitting records and valuations are at 15-year highs.  But how much longer can companies like Amazon, Apple, Alphabet, and Facebook continue to sustain high levels of growth?  This is exactly the situation that preceded the last two recessions.  As the Wall Street Journal puts it, “the rally in growth stocks will probably end badly.”  (For complete article click here.)

Now may be a great time to sell some of your publicly traded stocks and invest in a small private business you love!

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What is the Bootstrap Trap and are you in it?

What is the Bootstrap Trap and are you in it?

Here are some signs that you are in the Bootstrap Trap:

  • You are using personal credit cards to pay for business expenses
  • You have or have seriously considered doing work outside your business to pay your expenses (consulting gigs, freelancing, driving uber, etc.)
  • You have taken out a second mortgage or home equity line of credit to pay for business expenses
    You know you need support like a bookkeeper, web developer, administrative assistant, etc., but you can’t afford it so you do all of those jobs yourself
  • When you do get outside help, you always go for the cheapest option even though the quality is not up to your standards
  • You desperately need some new equipment or supplies to be able to run your business effectively but you can’t afford to buy it or you buy the lowest quality version of what you need
  • You aren’t paying yourself a salary
  • You’re using unpaid interns which can put your business at risk (this could be a violation of labor law)
  • You know your business would grow if you could hire a sales team, professional marketing support, or some other kind of support, but you simply can’t afford the things you need that would help your business grow

How many of these are true for you?

Should you continue as you are and keep hoping that you will finally get enough revenues to be able to do all the things you want with your business?

If you have been trying to reach that goal for a while and you keep falling behind, it is time to acknowledge that a lack of resources is making it impossible for you to have the business you want. You are in a vicious cycle – without upfront resources, you can’t buy what you need to create a business that generates sustainable revenue.

If you need help escaping the Bootstrap Trap, take my new course, Escape the Bootstrap Trap 30-Day Challenge. You can start today!

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