What I look for when I invest in a company

Hey, Podcast. In today's episode, I talk about what I look for when I invest in a company and also the types of companies that I prioritize when I'm approaching it as an investor. I made this because a lot of entrepreneurs approach me too early in the.

Process or without having a few key.

Pieces in their model before going and raising money. And so I addressed them in this video and I kind of did it selfishly because I hope that when people see this video, I'll get more good pitches rather than ones that I have to say no to. By the way, if you do have a business that you're looking to scale and you're pacing about $1 million or so, and you want to take that to 10 over the next few years, go ahead and let me know@capitalism.com fund. That's how you can get on my radar for me to join you as an advisor and an investor. And in the meantime, here's what I look for when I invest in a company.

Raising money for a new business is really easy. Entrepreneurs write me all the time and say that they are held back by a lack of capital in order to start a new business. No, they aren't. They are held back by a lack of a strategy for getting money from investors. Now, if you do what we talk about in this video, raising money will be the last of your problems. Because what most entrepreneurs do not know is if you have a good idea, then you're the hot girl at the dance. There's so much money out there. There are way more investors who want to back good deals than there are good deals. That's why good deals get funded. In fact, most entrepreneurs have a logical progression of their career, of once they've made their money in business, they pivot over to being investors and they're actively looking for new deals to back. So if you've got a good plan for where you want to go, money shows up in droves. So if you've been struggling with this, it's because of one of two things. One, your idea kind of suck, or two, your strategy kind of suck. I work with hundreds of entrepreneurs, some of whom have great ideas and some of whom need help with their ideas. I invest into our students businesses and I invest in larger businesses as well. And the strategies for both types of businesses, both large and small, and also the ideas for vetting good ideas for even what stocks to buy on the stock market all come back to the same core fundamentals. And it starts with the mindset of the leader. A lot of Entrepreneurs put their idea on a pedestal rather than focusing on if they're the right person to make that idea happen. Because a good idea is really only a good idea when it matches the person who is going to be leading that. So if you're an entrepreneur and you're not the right person to bring this idea to life, then you may want to consider simply being one of the owners of the business and going into the mode of recruiting the CEO and then raising the money. You'll get a lot further ahead if you don't try to run a business that you're not ready for just because it's a good idea. So the first thing that I look for when I'm investing in a company is the mindset and the vision of the person who is at the helm. That's the CEO or that's the founder. Now, in most cases for entrepreneurs who are starting from scratch, that means that they're raising $25,000 or less of seed capital to get their idea off the ground. And what I'm looking for, if I'm one of the people or the primary person putting up that seed capital, is I'm looking at if that person has a specific plan for bringing their product to life. More specifically, a lot of entrepreneurs will wait or hold back to make any progress on their idea before they have any money. But that's not how things work. In order for you to have the provability of being able to raise money, you at least need to have some momentum on a prototype, an audience, or at least a well written out plan of how you're going to go from nothing to in business. A story that I tell in my book, which is called 12 months to 1 million, is I was approached by someone at one of the events that we host here@capitalism.com, and he came up to me and he had an idea for a product that was in the feminine hygiene space. It was actually a really good idea. And I was like, great, well, what's stopping you? And he's like, well, I don't have the money to start the business. And I was like, okay, well I mean, do you have a prototype? Do you have a plan? Do you have a deck? Do you like, do you have something you can pitch me? He's like, no, let's just do it. Like, that's not how this works, man. If you're not willing to at least spend the 500 bucks to go get a prototype made or the 200 bucks to have a design deck made, then you're not the person to run this business. So I'm looking at somebody who has already made at least some indication of progress. They've got a product, they've got a deck, they've got an audience, they have a team. I'm looking for something that I can put my money behind, rather than just an idea. So if you have an idea, that's a great first step. But the next step is for you to go develop the prototype or recruit the team, or at least have a plan in place for what you're going to do once the money shows up. Investors don't want to have their money tested. They want their money invested. The difference between that is if you're just waiting for money to show up and you don't have a real plan, then your money is being tested. But if you have a clear way that the money is going to be deployed, then it's an investment into a clear plan. The second thing that you want to show to potential investors, the things that I look for when I'm investing in a company is some sort of momentum. I want my money to get behind something to increase the momentum. Now, if you're just starting out and you don't have sales to show, that's fine. Momentum can just be the form of action, specifically in the form of relationships that you're bringing to the table. Some of my favorite deals are when an entrepreneur simply says, here, here's my prototype, and I have an agreement in place with this influencer and this blogger, and I have interest from this other investor and he brings value in this way. I've also been speaking to this retail person or this person who adds a lot of value to my listing on Amazon, or this person over here who runs Facebook ads. I want to see that the entrepreneur has momentum on the plan regardless of my investment or not. If they are waiting on the sidelines for me to be a part of this, then they're way too dependent on me. So if you're starting a new project, your job is to put as many pieces in place as possible before going out and raising money. It's an amazing difference what happens when you show up asking for money versus when you show someone the progress that you've made without them knowing that the only thing that's missing is money. The purpose of money in an investment is to make things happen faster. So when things aren't happening, money can't fix anything. But when there's already progress or momentum, then money can make that progress and momentum happen even faster. That's what you want to see. That's what I want to see when I'm investing in something. So I will never invest in something that is just an idea in someone's head. I want to invest an idea that has momentum, specifically in the form of relationships or team or other partnerships that are being brought to the table. I'll give you an example. I invested in a company called Outstanding Foods. Outstanding Foods is a plant based snack company and they have a great roadmap to success. I really liked the roadmap and the product line that they were releasing. But what was even more exciting for me as an investor is the other partnerships that they had created that they were bringing to the table. So they had a partnership with Snoop Dogg, they had a partnership with other celebrity influencers that we're going to add momentum to the project regardless of if I invested or not. So I can see that this team is already heading somewhere and it's really not that important if they get my money or not, because they're moving forward with or without me. That's what you want to create. You want to create a sense of money coming to you rather than the opposite. I'll tell you in a minute about how you can position this in front of somebody so to be able to stack the deck in your favor so that when you're having conversations with people, money is chasing you rather than doing the opposite. The third thing that I look for when I am backing an investment, an entrepreneur, and the thing that you'll want to present to a potential investor is the end game. And specifically you want to show what the end result is of the business being successful. Now the way that I evaluate this is if the person making the presentation, if the new business idea is simply painting a picture of what the financial return is going to be, I'm not interested. But I am interested if the entrepreneur is telling me how the world is different, how the customer is different, or what success looks like as a result of the company existing. Now the reason I emphasize that is because I see money as a byproduct. So money is a natural byproduct of doing good work. So when someone makes a presentation and they say what the potential ROI could be, and that's the center point of their pitch, I'm out. Because I know that money only shows up when the business is successful. What makes a business successful? If customers are having a transformation or an improvement of their lives as a result of the company existing. So I want the entrepreneur to tell me how the customers benefit. I want them to tell Me, what is different about life or the world as a result of this business existing? Now, I don't just say this from a let's all do good in the world mindset, although I think that's a helpful mindset. I'm saying this from the perspective of I know that I'm going to have a better return on my investment if the company is really good, and that's determined by whether or not customers are happy. So if the entrepreneur is clearly in this because they just want to make money, I'm probably not interested if they're in this because it's an exciting project with an exciting vision. Now my money wants to flow into this company. Now, we're all building a business together and the purpose of a business is to serve customers and thus produce a profit, not the other way around. So if the entrepreneur is just projecting profit, I know that they're not thinking big enough and I'm probably not interested in the project. There's a great saying when it comes to raising money that is this if you ask for money, you'll get advice, but if you ask for advice, you'll get money. So here's how to position your pitch in a way that feels cool, upfront, honest, and is effective at getting the result that you want. First, come to the table with as many assets as possible. Assets are a prototype. Assets are customer testimonials or case studies of people who use and like the first iteration of the product. Assets are a list of the relationships that you bring to the table or the influencers or advertising strategies that you're gonna use. It's a list of assets of all the things that make your business likely to succeed. If you put that together in a basic pitch deck, which is really a glorified way of saying a well done PowerPoint presentation and you show that to a potential investor that is further ahead than most people are even willing to go. However, you don't want to do this in a way that is an ask. Instead of asking for money, what your ask is, is for advice. So here's how that conversation might go. You're sitting down with somebody that you respect that might be interested in investing in your business. And this is what you say. You say, hey, so and so I was wondering if I could ask your advice on something. I've got a business that I'm really excited about and what I've done so far is X, Y and Z. And what I really want out of this is A, B and C. And I'm thinking that it's going to take about $25,000 for me to get this off the ground. And I was wondering if you had any advice for me of how I might go about raising money for an idea like this. I'm excited for this because of this reason and this reason and this reason. And the only thing that I think is holding me back is the startup capital that I would need to get this off the ground. So if you were in my position, what would you suggest I do? Ask for that type of advice. And if you can back up your story with all the momentum or the prototypes that you've done on up to this point, then money will flow faster to you than if you were to simply ask for money. One more point to bring up is how much money should you raise and how much equity should you be willing to give up? I'm sure you've seen Shark Tank and you're aware that some investors take between 20 and 49% of the company, and that's not unlikely and that's not unfair. If a business is going to stay an idea in your brain without startup capital, then it's better to split the pot and get into business as fast as possible. However, very few business ideas at the beginning need more than $25,000 in order to get off the ground, and that's three investors at most. I think most entrepreneurs can get by with about $10,000. In my book, 12 months to 1 million. I argue that you need $10,000 to give this an honest go at the very beginning. And the whole reason you need about 10 grand is so that you can order proper inventory amounts to get into the game. However, you can get started with a prototype and even your first sale with a few hundred bucks. So you need far less money than most people think they do at the very beginning. Your goal when you are raising money is not to fund five years of growth. It's to get in the game and prove the business as fast as possible or fail as fast as possible. You don't want to waste five years on an idea that the world isn't ready for. So your job is to get in the game as fast as possible. Bring on an investor who believes in the vision, show the potential upside, compensate them well with equity in the company and being okay with the fact that they're going to make an absurd amount of money if you prove that your idea works, they backed you, you needed them, and you're both going to be really successful as a result of this. That's the type of relationship that you want don't be chintzy on the amount of equity that you give up. Recognize that you're a new entrepreneur with a new idea and this person is taking a really big risk and putting their money into your idea. So in my experience, I like to carve out about 20% of the business for money. And the purpose of money in my context is to de risk the loss for me so that I can just go as aggressive as possible in building the new business. If you're looking for investors and you.

Have an idea that you're excited about.

One way that you can do that is getting plugged into communities that are.

Filled with entrepreneurs who have a track record.

And by making relationships with those entrepreneurs and talking about your idea, you can present it in a way that is cool and ethical and honest and upfront. If you already have a network, just make a list of 10 of those people, book one on ones with those individuals, tell them about your idea and where you want to go. But if you don't have that network, then it can be really helpful to get plugged into one through a Facebook group, through an online forum, or, or through other places where entrepreneurs hang out. If you're looking for a good one, we've got one here@capitalism.com it's a community called the 1%. And the 1% is a community of capitalists who build businesses and invest the profits. And if you'd like to join us, you can find it@capitalism.com the number one. Hey, I'm Ryan Daniel Moran, this is Capitalism TV. Thanks for watching this video. We believe in entrepreneurs because they, they create change and you're one of them. So thanks for being an entrepreneur, thanks for watching this video and I'll see you on the next one. Hey, before you go, if you are.

Building something from scratch or you are changing careers or you're an entrepreneur who is looking to build something to sell, then I am helping a group of entrepreneurs build businesses that I would like to invest in. And we're doing that inside something called the Capitalism Incubator. This September, I'm working with 25 people and helping them create the foundation of a business that can scale or be sold over the next few years. So you can get more information over@Capitalism.com Inc.Capitalism.com Inc. At the time of this recording there's already six spots taken and this is actually my first podcast drop about it. So go over to capitalism.com Inc. It's a six month hands on coaching program within then six months of relationships after that.

So if you want to go through.

Our process and be one of the pioneers in building the businesses that we would like to invest in, just go over to capitaldom. Com Inc.

I'll see you there.