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Originally Posted by Luxe Studios
I just wanted to know if anyone else has had experiences with investors, and what the outcome was. I know that Venture Capital Firms expect to triple their original investment (in profit back) in a few years, but what do private investors expect back?
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Yes, I've had experience with investors; angels, vcs and LPs
OK...I'll try to cover the central issue and we can go from there.
First off, the outcome with all venture investments is always bad for the entrepreneur (with some sparse exceptions, which are usually the ones reported in the media). The whole point of venture investment is to get the entrepreneur to sacrifice their life, only to kick them out of the company and reap all the rewards. That's just how vc works....for a lot of no-so-obvious reasons (e.g. founders do not make good managers, they make good founders, that's why they're called founders)...Not to fear; there are ways to deal with this problem of asynchronous motivations.
Second, the expectations of angel investors are different in order of priority to vcs. The expected rate of return is the same (circa 30% p.a) but importance placed on qualitative outcomes has greater priority. Angels, foremost, want to leave a legacy, rather than vcs, who are gambling with other people's money, and have to be accountable to people other than their wives (or husbands). If you request, I can provide you with an independent report on the differnces between various financiers, so you can better tailor your pitch depending on the kind of financier you're pitching.
All in all, these facts can assist you in decision making.
Now.....me being nice: if you'd like to, I can can answer your further questions, and help you ask the right questions, to get the right answers, so you can make better decisions and keep your job as CEO.
Now, the unpleasant bit: from the facts you've given me (an angel pumping $30k into a concept stage, web hosting company, with no proof of an "all star" team), I can tell you that some thing's wrong;
a) I do not have the full facts
b) You're dealing with a flake
c) You're dealing with dumb money, and you're about to get an allowance rather than an investment.
Private investors do not fund people's salaries, enter saturated markets without a competitive advantage, or invest in vapourware. The only rational funding scenario for a hosting company in 2006, is 7 figure expansion capital for an already profitable, medium sized company that needs risk capital to fund its expansion strategy. Anything outside of this scenario - is weird (to use a euphemism).
Finally; Me and you are talking about financing. Based on these facts, it's likely that the angel deal will fall through because it does not meet standard criteria for what makes a good private equity deal. If it does fall through, I invite you to ask something like "What are my financing options based on these facts", or, to lower the chances of the deal falling through, it's a good question to ask, "What are some things I can say to better meet investor expectations?" Hopefully, this will lead to the deal not falling through and I will cease to be of use to you.
In other words; I haven't fully answered your question. The complete answer to "what do private investors expect", is a four paragraph overview of things commonly called
due diligence, complete with qualifications and exceptions.
How else may I (or may not) be of service?
