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De-Risk for Investments

I was talking to a Producer and Director recently who is starting out his business. He’s got his business set up, and is seeking investors for a film. He’s got the script. He’s ready to go. Except, the investors want him to slow down. The investors wanted to “de-risk” the investment. New to being an entrepreneur, the Producer shared the nuances he wasn’t quite prepared for.
  • Expected ReturnsSaaStr states that a 10% return on the total venture capital (VC) fund is good while aiming to earn its total VC fund in profits is the goal. Understand what the goals of the investor(s) are, and have the model to illustrate goals can be met with even conservative achievement.
  • Legal Collateral – The Producer was shocked to learn how much he had to spend to validate the authenticity and originality of the script. Investors are looking at legal terms and insurance to not only cover risks of copyright infringement, but also the leveragability for greater valuation.
  • Long-Term Strategy – Are you a one-hit wonder? Do you have the creativity to be adaptable? Are you thinking big? Focusing on the now is good, but investors are looking for big returns. Long-term value creation enables bigger returns.
  • Traction – One of the “shticks” about Atlanta investment is how stingy investors can be. In the Valley, ideas can be funded pre-revenue. In Atlanta, the companies that garner investment are largely post-revenue. For the Producer, he had to collect and display written interest from film festivals. On “Shark Tank”, entrepreneurs can show letters of intent or purchase orders (POs).
  • Business Plan – The Producer lamented the pain of creating a business plan. Having never done one before and without a business degree, he sought help from others. However, many could not show him “good” plans. Business plans can be rare outside of startups seeking investment. However, they can be immensely helpful in thinking about the business holistically, not just about this “great app idea”. The business plan forces the entrepreneur to think of the risks and the opportunities – sometimes, it can show the opportunity isn’t as big as he might think.
I share these, too, because I’ve heard a lot of ideas from wantrepreneurs. Then, there are others who start out, and then fold up shop only months later. They weren’t prepared. Most investors are savvy as they should be with their money. So, it’s no surprise what some common de-risk factors included, and how important wantrepreneurs and new entrepreneurs should consider when starting out.

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