Money
Issue No. 25 - October/November 2005
Three rules for dating your investor
by Tony Catt
So you’ve created your business plan, and made sure it looks very attractive to investors: you’ve inflated your sales forecasts, expanded the market size as high as you can, and identified a route to an ASX listing.
You have done so well that you’ve signed up the investors: toasting the deal with French champagne. And when you were pored out of the taxi at midnight, said to your spouse: “Honey, I’m home, all those months of slogging away at getting investment has been successful, the money’s in the bank. All the hard work is over.”
Then at 7am, there’s a call on the mobile — the one you were too befuddled to switch off the night before. It’s the investor.
“I’m a little concerned about this month’s results. They’re behind the forecasts you gave us three months ago. How are you going to fix it?”
It would be a simplistic, but correct, answer to say that all an investor wants is for the project or business plan to cost what you said it would cost, to take the length of time you said it would take, and to deliver the returns you said it would deliver.
Ultimately, any investor buys in to the plan that is provided to them.
If you have pushed the boundaries on the figures in order to lure investors in, then you only have yourself to blame.
In my experience, most early stage companies do try to push the boundaries and it hurts rather than helps them. If you take the most optimistic of several forecasts of market size, overemphasise relationships with potential customers, or gloss over IP difficulties, then normally you will be found out in Due Diligence. But you might be able to get away with it, and get the money in.
Power playing
You might think that the power equation has shifted. Your company has the money, the investor is locked in, and in any case, optimistic arguments are ‘sort of’ true.
These days, investors ha...
