Investors for business are a breath of fresh air when their finances sing romances, and development ideas are so realistic. But an additional cash injection is needed not only for existing companies, but also for start-ups and even entrepreneurs who are on fire with starting their own business from scratch. And these are normal situations, that is, it is not considered some kind of begging for money.
But in order to find an investor and agree with him on cooperation on favorable terms for both, you will have to work hard. At a minimum, you will need to draw up a business plan and describe what a person will receive from your partnership with him. Great emphasis should be placed on future profits, which are recommended to be confirmed by thoroughly calculated figures, because the investor is not a charitable foundation, he will not give money to a deliberately unprofitable business.
The concept of "Investment" is very popular, but despite this, there is still no specific definition for it. Its most common interpretation, which is used today, is money investing in a business in order to receive passive income in the future.
Despite the fact that it may seem risky to some to invest in a business, in fact, everything is not so scary if you approach this issue correctly. In addition, we are not
necessarily talking about large sums. Because of the fear of investing their money in an unprofitable enterprise, people who have a fairly high chance of success, instead of increasing their savings, squander them.
Today there are several classifications of investing in business.
- projects that already exist;
- just starting up, that is, startups.
- direct, in this case we are talking about cooperation with one organization;
portfolio, when business relations are conducted with several firms.
up to 12 months - short-term (for example, a deposit);
1-3 years - medium-term;
more than 3 years - long-term;
periodic - annuity (guarantee long-term cooperation), etc.
- with a complete absence of risks (profit 100%);
- low level of possible loss;
- medium risk;
- investments with a high percentage of probable failure;
Important! The most profitable, but at the same time highly risky, are speculative investments.
Investing in a business is possible at the following stages:
- There is an idea and intention to start a business, but there is no business plan, no understanding of its application and the end result.
- If there is an economically sound idea, when there is already an understanding of the functionality of the final product, its scope and demand for it. There is a clear plan of action. The project is already ready for launch, although the calculations that have been made are not always correct. At this stage, the only thing needed is funding.
- The business is already making money. Investments will not bring such profit, as in the case of a startup, however, the risk of losing funds becomes lower.
Business investors - who are they? These are people who invest their funds (financial, intangible) at a zero or initial stage in promising, in their opinion, projects. In order to realize your idea, you need to have either connections or a mentor who will always help and prompt. Often, an investor not only shares his experience, but also takes a direct part in a startup, which its founders do not always like.
In order for an investor to evaluate the possibilities of an idea, he must understand business issues and have an idea about the product. It is not uncommon for sponsors who invest in the initial stage to receive either a part of the company (share) or the whole of it (if opportunities permit).
At the same time, investing in a baby firm is quite risky, since out of a thousand ideas, one, two, and possibly none can “shoot”. In this case, no one can guarantee success. But investments can increase profitability, which will allow you to make a profit measured in hundreds of percent.
If we talk about startups, then these are ready-made projects that have a business plan, business case, prototype, and demand for the final product. In this case, in order to implement it, only financial support and teamwork are missing.
Some of the well-known companies had to go through a difficult path in order to achieve today's prosperity, and all because at the zero stage of development they were not taken seriously by investors. So, for example, Apple started its activity in a garage, but nowadays it is already the largest corporation in America, which is one of the leaders in the whole world.
The most common areas in which the best startups are implemented are:
- Internet technologies. Given that the entire business is slowly moving online, all developments related to this area will now be in demand. It is especially worth noting the creation of mobile applications, since every self-respecting company today has its own program.
- The direction associated with healthy lifestyle and health is in fashion today. All novelties related to devices, gadgets, healthy nutrition kits, remote consultations and training are perceived by people very well, which means that this is an area in which the business can grow and develop.
- Online learning is popular with all age groups. It can be a program, courses, tutoring, webinars, consulting, teaching in any areas and areas of life.
If we talk about a business that is already operating, it often requires additional investments for expansion, that is, an increase in working capital, the acquisition of additional capacities, etc.
As for investors for a ready-made business, they already, as a rule, know everything about the activities of the company, about the final product, profit and turnover.
- issue of bills and bonds;
- sale of shares, IPO.
As a rule, medium and large companies, such as Sberbank or Alrosa, offer their bonds and bills to investors. By buying them, they lend their funds, after which they receive interest for their use. The amount of income in this case depends on what risk the investor is willing to take on, and is about 6-15%.
By buying securities from large firms, investors are less likely to lose their invested funds, but the income they receive is also not so large. In the case of small companies, bonds will be more profitable, however, the likelihood of saying goodbye to investments when such organizations go bankrupt increases significantly.
In order to enter the IPO, the company must have considerable funds and stand firmly on its feet. This allows her to enter the stock market with her shares. It must be said that individuals cannot do this, since it is closed to them. They have the opportunity to buy securities only if they open a brokerage account.
We can say that shares are part of the company, therefore, when an investor acquires them, some share of the property begins to belong to him, even if it is a couple of chairs in one of the offices. As a result, he receives the right to attend meetings of shareholders and participate in voting on various issues. However, in order for his opinion to be taken into account, the package of securities must be impressive.
People who are commercial professionals know that money is everywhere, so finding a source of funding is not that difficult. How to find an investor for a business? – Consider 10 proven methods.
If you don’t know where to get money to start a business, relatives or friends can become investors, because they know you best and trust you, so it will be much easier to convince them of the correct financing.
This is a good option if a small amount of money is not enough to implement your project. Or there are millionaires in your environment, which is even better. At the same time, it is necessary not to forget about the risks, since it is not so scary to lose money as it is to lose loved ones.
- easier to tell and explain;
- you can get funds on a personal trust.
- there is a chance of quarreling with loved ones in case of difficult circumstances;
- not everyone in the environment has people who can help with investing. ## Public investment
In this case, it will not work to get a large amount of money, and the process is quite lengthy. Although it is enough to buy equipment, pay for advertising on the Internet or apply for a soft loan.
It is difficult to obtain subsidies or grants in Russia, most often in areas such as agriculture. If there are certain difficulties with the distribution of large amounts, then small ones are so insignificant that it is hardly enough to develop your business. So, for example, the Moscow government offers start-up entrepreneurs only 300 thousand rubles.
- Money is given either at a low interest rate (below bank rates), or on irrevocable terms.
- Too many formalities and bureaucracy (sometimes you need to provide a huge list of documents, reports, and also have an already running business).
Today, many people can find a source of financing without even leaving their homes. To do this, there are a large number of online platforms where you can find information on how to run a business, as well as get to know the sponsor.
It is worth noting that today an investor for business development can be found not only on special sites, but also in social networks, where special groups and thematic chats are created. It cannot be denied that besides them there are many who just came to see or are also looking for a financial source. However, in any case, this is another chance that is worth taking advantage of.
you can find investments at a small percentage.
there are no big investments.
When offering assistance, investors will first assess the market value and potential of your company. At the same time, in exchange, they will demand a share in the company, which, most likely, they will subsequently sell when you start to show good results financially.
You can look at business accelerators, which are often real start-up factories for large companies. However, if you decide to resort to their help, then you need to understand that in addition to providing financial and instrumental support, they are not averse to sometimes taking part in the development and management of the project, and sometimes they even integrate the company into their business.
Most likely, in return you will receive a small financial assistance and funds for work, for example, an office, consultations, a community of professionals.
- You can get money even for a developing business without turnover and assets.
- If the project has not yet been finalized, they will help bring it to mind.
- Investments can only be obtained if your project is of interest to professional analysts and after passing the test for commercial suitability.
- You will have to give either a percentage or a share in the business.
Another option is to find an investor who gives money for business development. However, before you place an application, you should look at the cards of successful projects and make it even better. If people are interested in the product you offer, it is quite possible that they will help financially in exchange for you giving them access to the product before anyone else.
But at the beginning of the campaign to find an investor, you must remember that, according to the rules of such platforms, if you do not collect the required amount, then the money is returned to the users.
- These sites gather an audience that is interested in all the new products.
- You can find people who are ready to become investors to start a business from scratch.
- The sites take a commission.
- You need to present the idea as attractively as possible.
If you need an investor for a business, then this option is the best, since banks give money at a much lower percentage than private individuals. In addition, they do not require a share in the company, and there are also fewer formalities than in programs offered by the state.
- You can take money not only for business, but also for yourself.
- You need fewer documents and reports than to receive funds from the state.
- Banks do not like risk, so they rarely give money to start a business without collateral.
- To receive financial support, you will have to demonstrate liquid assets and turnover.
In the first paragraph, the option was offered to use the help of relatives and friends. But there are also people who can become investors just because they just want to support your idea, because they liked it. They may not want to delve into all the nuances of investing, but they are ready to trust a stranger and provide financial support. You can find such people on classifieds sites, social networks, or other similar sites.
- Easy to convince and free.
- There is a possibility that no one will respond at all, or financial assistance will be small.
This should include banners, contextual and modular advertising, mass media, etc. However, in this case, you will have to create a landing page or a more catchy and concise form of the project. Compared to free advertising, paid advertising allows you to reach a wider audience.
- Thanks to the targeting tools that exist in the modern world, you will be able to hit exactly your target audience.
- To get wide coverage, at the initial stage, no face-to-face communication is required.
- You will need to invest a lot of money.
- Serious investors may not believe your advertisement, as scammers use similar methods.
You can take the help of a specialist who is looking for investors. However, such a case should be trusted only to someone who does not require an advance payment and will hide without completing the work, but will take payment only after the transaction takes place.
Brokerage companies are engaged in holding conferences for investors and give good advertising, but at the same time they value the trust of counterparties, so they do not work with everyone in a row. You should consider whether your project can pass their tough selection.
A proven option is to take the help of an influencer, that is, a professional and well-known investor who knows colleagues, is in the subject and can recommend your project. However, you need to be prepared for the fact that he will also have to pay a percentage, although less than a broker.
- The likelihood that you will be able to find investors is very high.
- The broker will help make the project more attractive.
- Brokers will require a percentage of around 10%.
- Not every startup can take advantage.
Let's consider the simplest example. You have an idea to open your own super-technological washing complex, but you have no premises, no staff, no finances. You begin to put in order the machines, taking an ordinary bucket and a rag. Among the clients, there may be such a person who will see how well you do your work and want to financially participate in the development of your business.
Of course, you need to understand that this example does not take into account many nuances, but the essence should be clear. It’s the same with applications for mobile devices: for example, you wrote the code, started promoting it, and during this process there were people among the audience who were ready to support you.
It is possible to see the advantages and disadvantages of the product that you offer.
At the initial stage, you will have to do everything yourself, in addition to providing an idea.
The following are the top Internet resources where you can find both an investor by posting your project, and proven offers for the sale of a franchise, a ready-made business or a partner:
- Towave.ru _ Internet portal about startups, where you need to register. The downside is that you have to return to the site again, since the account is confirmed only after moderation, which takes some time.
- Napartner.ru - the services of the site can be used by both entrepreneurs and investors. The napartner.ru team will help you conclude an investment deal and accompany you at every stage. The choice of a startup for an investor on the site is facilitated by the fact that its owner provides a detailed description of his project, its development and existence. Here you can also find stories of successful business ideas, from their inception to full development and market entry.
- Townmoney.ru - on this site, a novice businessman can get a loan for the development of his business, guarantees and an electronic signature, as well as place his projects. Investors have the opportunity to study portfolio products, receive guarantees for the return of invested funds and take part in mutual lending.
- Start2up.ru. This platform is for people who are looking for investors, for those who want to invest money profitably, as well as those who want to create a joint business.
- business-platform.ru . Here investors can find promising and profitable projects for investing their funds, start-up businessmen - people who are ready to help financially in the development of a business, entrepreneurs - to sell a business. There are also bloggers who understand all the nuances of these actions.
- Angel.co is an international platform (angelist) that helps bring together people who are ready to invest money and startups from all over the world. This is a place where you can easily find foreign investors for business.
- Avito.ru - on this site you can also find sponsors for your business, as well as sell your business by placing an appropriate ad.
- Rusinvestproject.ru is a database of contacts, among which you can find a project or investors for business in Russia or abroad.
- Simex.global.ru is an international crowdfunding platform for professional and novice investors, which helps to invest in the real sector of the economy.
- Innovationportal.ru is a portal where innovations and unique inventions in this area are collected, here both an inventor and an investor can find mutually beneficial cooperation.
- Investclub.ru - there are many start-up businessmen on this site who are looking for sponsors who are ready to invest in their project.
- Beboss.ru - on this portal you can find investors in any industry, and there are no restrictions on the amount, wholesale offers, business plans (ideas) are considered, there is a catalog of franchises.
- Fbip.ru is the database of investment platforms at the federal level.
It must be remembered that investment is not a goal, it is a means to achieve it. The person who founded the company must clearly understand why he needs money. Often financial support is needed to grow a business. When a company's growth is too slow, investments allow it to grow faster and stay ahead of the competition. In some cases, they are required to strengthen the sales force and improve the product.
It is very important to know the specific goal, as this allows you to navigate the required amount of investment, as well as understand where they can be found, for example, in funds or from private traders. The search for a source of financial assistance will directly depend on the stage at which the project is located, as well as on the objectives of investment and its size.
After you have decided for yourself the reasons why you need money, and what expenses they will go to cover in order for the business to develop, you need to answer the question why you need an investor, and you cannot use the services of banks, help from relatives or friends.
If you need not only material assistance, but also connections with experience, then you should look for a strategic investor.
If you yourself have the necessary competence, then first of all you need money, and who will give it is not important. Such a person can be found at courses for novice investors, for example, in Skolkovo, IIDF, RVC, or among familiar entrepreneurs.
Many people who are just starting to develop their business and are looking for financial support are mistaken in thinking that there are few investors. In fact, this is not so, the main thing is to find your person. To do this, you need to analyze the area and study what funds are in your city.
Such organizations most often have certain criteria by which they are ready to invest in a business. That is, what markets, niches and areas are they interested in, at what stage of development should the project be in order to start negotiations, and how much they are willing to invest. At this stage, you can decide with whom you could work, and who should not be considered.
Find out what thematic channels are in messengers and subscribe to them (TheEdinorog, Startupoftheday, etc.). Periodically look through the media related to business, make a list of accelerators that operate in your city, as well as business schools that often hold presentations of projects of their graduates and residents on certain days. Perhaps there are ideas similar to yours, then pay attention to who became their investor.
However, you should not be limited only to your city. See who is ready to invest in your industry, what investment funds are available in the country. In addition, you can also look for investors for business abroad, there are enough examples of this.
Don't discount social media either. Tell them that you are looking for an investor, and also inform your acquaintances, friends and relatives about this. You can search for the contact details of the right person on Linkedin.
But what you definitely shouldn’t do is participate in various conferences, startup shows, as well as spam your project and attack all possible instances with mailings. So you will only earn yourself a not the best reputation in the venture capital market and waste your time.
It is better to direct your efforts to finding the right people and those who can introduce them. Next, you need to prove that everyone will benefit from getting to know you. If this succeeds, then the investor will at least listen to you.
If there is no opportunity to meet a person in person, then you can write him a letter. In this case, it is necessary to use not cold mailing, since there will be no effect from it, but a warm appeal, at the same time concise, but informative, which will contain all the necessary information. It should be memorable and evoke emotions, that is, after reading a couple of sentences, the investor should already be interested in your project.
Along with the search for investors, you should prepare the necessary documents. If you plan to use government programs or funds, then you can go to their website and see what papers they require. There you will also find information on the timing of programs and applications.
In the case of investors or individuals, you will have to prepare a financial plan and presentation of the project, preferably in three versions, namely optimistic, pessimistic and realistic. The first should show the development of the business if all your hypotheses turn out to be correct. At the same time, you need to be prepared for the fact that, most likely, investors will first of all consider the other two options. The main rule is a minimum of bulky tables; It is important that information is easily perceived.
- Do you understand the market and really understand who your customers are?
- Why are you sure that this business will not close tomorrow or six months later?
- Why is the money invested in the project not lost?
- What will be the profit and after what time?
The answers to all these questions must be indicated in the investment proposal, for example, “I need 20 million rubles for …, in return the investor will receive a share in the company. Income in the amount of ... you will be able to receive after two years, because ... ". Thus, it is necessary to mention two amounts: the amount of investment you need and the earnings of your potential partner.
Be sure to provide options for the investor to exit the company. If you're asking for money to grow your business, be prepared to write down expenses, defend your valuation of the company, and explain what the current value is. You must offer the investor a profit that will be more than the interest received on deposits.
You can interest a potential contributor only if you speak the same language with him. Therefore, you should prepare a story about the business (pitch) that can interest a potential partner.
You don’t need to prepare a pitch for several hours, it should be short, to the point and inspiring. A sample plan for your presentation might be as follows:
- talk about problems and how to solve them;
- identify project milestones, achievements and metrics;
- describe the business model;
- list the stages of development: what is at the moment and what is planned to be done;
- talk about the market and competitors;
- introduce the team;
- submit an investment proposal.
The presentation should be presented by someone who is better able to communicate with people and understands the project. In this case, you should definitely rehearse the performance. Eliminate incomprehensible words and ambiguous interpretations from the story. It is better if the first audience is your family members. At the same time, it is worth preparing for the active objections of the listeners.
When you are looking for an investor, you need to remember that in addition to money, it is very important to find the right partner. You will not share your business with a person you do not know, so you need to be careful in choosing an associate.
Collect more information about him, find people who can tell more about the investor, down to his character and work style. What are his goals: only financial investments or he is ready to share contacts of people who can help in business development and his knowledge. How well he understands the market and whether he likes to interfere in the work, whether he introduces his people into the team. And in general, how adequate is the investor.
Only the person who has already worked with him will be able to tell you about this, so it is very important to find the company that he has invested in and ask all the questions of interest.
Do not worry if a potential contributor finds out that you are collecting information about him, because there will be no harm from this. So you show yourself as a responsible person who likes to play it safe.
In order not to face a conflict of interest in the future, you need to find out if the person you have chosen is investing in partners of your competitors (indirect or direct), and discuss this point.
If you believe in yourself, then everything will work out. Remember that a crisis is the perfect time to succeed in business. And investors understand this too.
- PR activity of business founders
If you not only directly approach investors for financial assistance, but also begin to show various kinds of PR activity, you will be able to interest people who are ready to help you, as well as potential consumers.
- participation in competitions and conferences (WebSummit, Startup Cafe, Slush);
- creating your own journal in social networks or on business websites (TJournal and Spark blog platforms, Vc.ru media platform, Habr community of IT specialists);
- placement in the media of expert comments on topics that are related to the scope of your project;
- visiting industry events and expanding the network of contacts.
When choosing an investor, it is necessary to give preference to the one that will correspond to the type of your project. For example, a risky venture requires a person who is not focused on cost management and immediate profit, but on growth and perspective. That is, he must understand that he is investing money primarily in a new project with a bright future in the future, and there will be income, but after a while, and he is ready to wait.
All potential contributors, besides the fact that they are ready to contribute money to your project, can have both pluses, that is, they can be classified as smartmoney, and minuses - they can be toxic.
Toxic investors not only give money for the business, but also try to take a direct part in the operational management, control the process and climb with instructions. Unlike them, smartmoney not only invests, but also shares their connections and expertise with you, and provides support with their reputation. They do not seek to control your every step, but trust founders to manage.
Only after you are ready to negotiate should you start looking for an investor for a small (and any other) business. First of all, you should make a presentation (10 slides is enough), in which you can present the essence of your business and its prospects. At the same time, the pitch should be so interesting as to attract the attention of the investor, and he wanted to meet with you.
You should be able to tell all the most important things about your project in just 30 seconds, for example, while riding with an investor in an elevator. Ask relatives, acquaintances or friends to be in the role of listeners. Also, for this, you can use special Internet sites where they “pitch” (in the language of businessmen), that is, they show their projects.
You need to be prepared for the fact that even before you reach the stage of the offer, you will encounter refusals - and this is quite normal. Do not under any circumstances go out of your way. You just need to analyze the mistakes and look at the positive examples in the industry. If you want to make your pitch about the project better, then ask the audience for feedback.
As soon as you managed to find an investor for your business, you need to conclude an agreement with him. Ideally, if it is compiled by a lawyer specifically for you; do not take templates from the Internet. For this, he will ask either a fixed rate or a percentage of the transaction amount.
By law, all investment transactions must be carried out exclusively within the framework of the contract, regardless of whether it is a private investor for a business or a company. At the same time, such formalities as an agreement of intent and sending an offer are obligatory. And the next step is to sign the contract.
In addition to the basic provisions, the contract also includes a financing scheme and a clause that regulates the procedure for returning investments (the result of this activity).
Study the cash injection scheme and make sure it suits you. Either the funds are transferred all at once, or in parts - as you reach certain indicators. An important point is the period in which you will need to pay, and the amount of payment. Also pay attention to the paragraph with the criteria for measuring the financial performance of the future business.
- Accounting for several reporting periods (1-3).
- Investment proposal.
- Bank statements for company accounts.
- Cash flow.
- Business plan.
- Investment agreement (loan), guarantee, pledge on the acquired property in favor of the investor.
Not always the issue with documents is solved easily, sometimes you have to tinker.
- If you take money from relatives or friends, you can get off with a simple receipt. In some cases, it is not needed if they are not waiting for the return of finances back.
- In the case of concessional loans and government grants, you will have to prepare a business plan, strategy, statutory documents and transparent reporting, and everything should be in order.
- Funding through crowdfunding usually goes without much difficulty. In this case, the contract is concluded with the site, and not with investors. Here, too, you will have to provide documents about the organization, reporting and extracts to make sure that everything is in order with your company. In addition, they can check the report on where you spent the money and how.
- But with direct investment, everything is somewhat more complicated. It does not matter with whom you will conclude an agreement, with a business angel or an investment company - in each case, you will need to prepare a standard set: statutory documents, business plan, strategy, reporting, market analysis, results that you plan to achieve and in what time frame.
- Choice of option - loan or share
Equity financing will cost you more than debt financing, because in the first case you are selling part of the company, which means that you will always have to share the profit, and when you take out a loan or credit, you pay (except for the amount of debt) only interest after a certain time.
If you decide to take a loan, then the conditions are usually determined by the lender. Then it's up to you to decide whether to accept the offer. However, you need to realistically evaluate the capabilities and strength of your business, because you can take too much money and drive your project into debt.
You need to know how much profit your business brings per year (average value), how many assets are on the balance sheet (stocks of raw materials, equipment, cash, finished products and receivables, that is, debts of third parties to you).
In this case, the ROA indicator is used for calculations, which shows how profitable the business assets are. It can be used to judge the efficiency of the company and the amount of profit received from each ruble invested in the formation of assets.
ROA is calculated as follows: The company's profit for the year is divided by the average value of the company's balance sheet for 12 months, which is the sum of the value of assets at the beginning and end of the year, divided by 2. As a result, we get the following formula:
ROA = Annual Profit / (Average Balance for the Year / 2) * 100%.
Example. There is an online store with the following balance:
Quantity of goods in stock - 3,000,000
Money in the current account - 500 000
Advance paid to the supplier of goods - 1 500 000
Total assets - >5,000,000
Quantity of goods in stock - 3,000,000
Money in the current account - 2 500 000
Advance paid to the supplier of goods - 1,000,000
Total assets - 5 500 000
(5,000,000 + 5,500,00) / 2 = 5,250,000 rubles.
If we assume that the store made a profit of 2,500,000 rubles per year, then the return on assets will be:
2,500,000 / 5,250,000 * 100% = 47%.
From the results obtained, we can conclude that each ruble invested in the assets of the enterprise brought a profit of 47 kopecks.
By calculating ROA, we can draw conclusions as to whether the company will be able to pull a new loan.
For example, companies are ready to lend at 25% per annum, which means that every year they will have to return to the bank 25 kopecks from each ruble. However, if the ROA is 47%, then the business can afford such a loan, because even after paying interest it will remain in the black, that is, 47 - 25 = 22 kopecks of profit.
If we imagine the situation that the company's profit per year is 1 million rubles instead of 2.5, then the profitability would already be much lower, namely 19% (1,000,000 / 5,250,000 * 100%). In this case, a business is unlikely to be able to get a loan at 25% per annum, since if interest is paid on each ruble, the company will no longer receive a profit of 19 - 25 = -6 kopecks.
When the business is active, the data for calculating ROA is taken from the income statement. In the case of a startup, the financial model is compiled with the most conservative forecasts.
Depending on what stage of development the project is at, different approaches to evaluation can be applied. The most common of them are presented in the table.
Ways to evaluate a startup depending on the stage of development:
Fixed cost method
sowing - +
Startup - +
Extension - —
Growth - —
mature growth - —
Venture capital method
sowing - —
Startup - +
Extension - +
Growth - —
mature growth - —
Discounted cash flow method (DCF)
sowing - —
Startup - +
Extension - +
Growth - +
mature growth - +
Method of multipliers
sowing - —
Startup - —
Extension - +
Growth - +
mature growth - +
- Fixed cost method
This assessment method is most often used by accelerators and investors who invest in only developing projects (startups). Here, a single assessment is applied for all the businesses that passed through them, since the level of uncertainty during this period is at its maximum.
For example, Y Combinator, a well-known accelerator from America, most often invests $125,000 (9,531,838 rubles) in startups, and in return takes a share in the business (7%). However, his selection is quite tough, so out of all the applicants, no more than 1% of those who applied pass it.
- Venture capital method
In this case, forecast estimates are taken into account: a start-up for several years ahead and the planned amount of return for the investor. This method is also called post-money.
Let's consider an example. According to the financial plan, the startup's market valuation after three years should be $100 million. The investor agrees to invest money in business development only if, taking into account all the risks, his investments increase by at least 20 times. In this case, taking into account the funds raised, the current startup valuation will be: $100,000,000 / 20 = $5,000,000.
If the amount of funds raised in a startup is $500,000, then its pre-money (assessment before attracting investments) will be as follows: $5,000,000 − $500,000 = $4,500,000. In accordance with this, the investor's share is 11% ($500,000 / $4,500,000).
- Discounted cash flow method.
Here, the assessment is based on a financial model, that is, a detailed forecast for 3-4 years, sometimes more, it all depends on what stage of development the industry and the company are at.
As for material modeling, one rule should be observed here: the planning period cannot be longer than the payback period of investments in the business. So, for example, for projects that require multimillion-dollar investments in the start-up of production or construction, the calculation is at least 5-7 years, for online schools or small shops - for three years.
This model is understood as a flexible financial plan for the project, which is compiled in Excel. You can also use ready-made programs, but it is more difficult to work in them, as well as to carry out verification; besides, they are bulky.
The financial model includes such project parameters as the sales plan, pricing policy, equipment procurement schemes, new worker hiring forecast, etc. Based on these data, the cost and income forecast, including tax payments, is made. In some cases, it is also required to calculate the need for working capital (if prepaid or deferred payment is used), which is the money needed to maintain inventory in the warehouse and in production until payments from customers are received.
It is necessary that the financial model be informative, which will ensure automatic recalculation of indicators when the initial parameters change and the formation of a forecast of the company's financial documentation at the output:
- Profit and loss statement, which will allow you to keep abreast of the level of profitability and sales.
- Cash flow statement - it will give an understanding of the size of the cash gap, which is the figure of the excess of expenses over receipts for a certain period. Its size is the amount of investment necessary for the implementation of project plans.
Many startups make a serious mistake when they provide an investor only with a burnrate or an expense. In addition, most start-up entrepreneurs are looking for financial help to stay afloat for at least some more time, but you need to understand that investors are not a charitable foundation. People who are ready to invest in your project should know how much profit they can get from the deal.
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It is worth noting that the financial model is, of course, only a forecast, so in practice, most often everything goes wrong. However, this is not the main thing, what is important is that it gives an idea of the key factors that affect profits and sales, strategies, business priorities. Thus, you can take a clear negotiating position, provide comfort and make it clear to the investor what are the growth mechanisms of your project.
The method itself is as follows: the forecasted cash flow is discounted, that is, it is reduced by the cost of investments attracted to the project (discount rate). These calculations are made according to a certain formula, while it is more convenient and easier to do this in Excel NPV (Net Present Value).
The discount rate is understood as the minimum percentage of profit that an investor plans to receive from the funds invested in a startup, taking into account inflation and all possible risks. As a rule, it is at least 30%.
There is a financial model that was built by the Romashka company and the following forecast was made for it:
Cash flow, million rubles
1 year - −50
2 year - thirty
3 year - 100
There is an investor who is ready to invest in the project, provided that the yield is at least 35% per year.
Further, when calculating in Excel, this NPV discount rate is used (35%; -50; 30; 100) = 20,000,000 rubles. This amount, 20 million rubles, will be the amount of cash flow that the project will generate in three years in excess of the minimum return (35%) that the investor was counting on. This will be the first component of the assessment.
In the next step, an assumption is made as to what will be the increase in cash flow annually beyond the period noted in the model. You are not going to close your business after three years, it will continue to make a profit. Knowing the expected growth rate after the forecast period, the discount rate and the cash flow for the time specified in the model, it is possible to estimate the development of the project beyond the planning time (its terminal cost).
The final evaluation of the project is based on the amount received after discounting the cash flow over the three forecast years, taking into account the terminal value outside the planning period.
Thus, the growth rate of cash flow in Romashka outside the planning period, which is three years, will be 1% annually.
TV = Cash flow in the last forecast year (in this case the third) * (1 + Growth rate after forecast period) / (Discount rate - Growth rate after forecast period).
As a result, we get the following: 100,000,000 * (1 + 1%) / (35% - 1%) = 297,000,000 rubles .
We calculate the final cost estimate: 20,000,000 + 297,000,000 = 317,000,000 rubles .
This method cannot be called simple, therefore, in order to avoid errors in calculations, especially if you have never encountered this, it is better to contact a financier or a consulting company that provides financial modeling services, such as Finexpert or Alt- invest.
When choosing a contractor, you need to collect as much information as possible, study his cases of working with startups, read reviews of people who have already dealt with this person or company, and make sure that their activities are carried out in accordance with the requirements of the FAST international financial modeling standard.
According to him, the financial model should be appropriate for the user (appropriate), flexible (flexible), transparent (transparent) and structured (structured).
- Method of multipliers
This method has another name that reflects its essence - the comparative method.
The multiplier is the ratio of the company's financial metrics and its valuation. If we talk about the first parameter, then most often we are talking about profit for the year or EBITDA, that is, operating revenue before paying bank interest, taxes and without depreciation.
To use this method to value your company, you will need to collect information on investment transactions with similar organizations, that is, with competitors in the industry or firms whose business model is similar to yours.
Let's say a competitor with $50 million in annual revenue made a $10 million deal with an investor for a 10% stake in the business. Calculation: 10 million / 10% = $100 million; the multiplier to revenue will be 100 million / 50 million = 2. That is, the company is valued by the investor at two annual revenues.
Thus, starting from the existing value of the multiplier, you can get a real and fair assessment of your business.
The main thing is to find an investor with whom it will be comfortable to work, then everything will definitely work out.