How to Make Investors Sit Up and Take Notice
I’ve spent so much time discussing trust and relationship issues that you may imagine I’ve lost sight of the deal structure.
Should you even consider the deal structure before you meet the dealer (the investor)? As a deal structure, will offering a royalty-based deal help make an investor sit up and notice?
Here’s the answer: likely yes, but you have to present it from his or her point of view. Here’s how.
The fact is, the golden rule rules, so if your investor prospect is stuck on owning your stock (equity) and nothing else, offering something different won’t make a difference. But angel investors (wealthy individuals) are rarely stuck on one formula. What they want is something that will wow them, stand out from the crowd.
I’m assuming you have established some rapport and trust, and your investor candidate is interested in your area of business.
Given that, all investors crave the holy grail of investing: principal-protection AND stellar returns.
Most investors think that owning stock (equity) is the way to get stellar returns. They accept the likelihood that most of their investment in equity will never pay anything, and a few will deliver stellar returns. It’s a numbers game. They try to mitigate the risk of loss by being clever about the companies, sectors or teams they select. They try to “handicap” the deal. Nothing wrong with that. But royalties are the better way, for both parties.
Wouldn’t your investor sit up and notice if you gave them a different and better way to mitigate the risk?
That’s what royalties do. If you structure the royalty contract properly, the burden on your company is bearable, while protecting your privacy. Yet you can give your investor the holy grail or something close to it.
The simple question to ask your investor candidate is, “If I could provide a deal structure that both protects your principal AND provides stellar returns, would you be open to it?” This will probably get you the answer you want, “yes.”
For more information on royalties and the many constructive options made possible by a royalty agreement, see Arthur Lipper’s recent writings at www.RoyaltiesWritings.com. (Arthur is the Chairman of the Intelliversity Board of Advisors, a wall street guru, previously publisher and editor of Venture, the magazine for entrepreneurs, and owner of a patent on royalty deal structure. He’s earned our respect.)
It’s worth a click to www.RoyaltiesWritings.com to read the latest posts. You’ll find two interesting dialogues between imaginary business owners Larry and Barry: Larry and Barry Wonder about the Acceptance of Royalties and Larry and Barry Discuss A Bad Idea For The Terms Of A Royalty. Be sure to check out the other writings as well.
Then feel free to connect with me at Connect with me here to discuss the various options as they apply to your business.