Inside the mind of an investor
ZIMBABWE is open for business and investors are keen to come in. But, first, how do you win over any given investor for your business? This is what I will answer. Money goes to people who know how to multiplyit. This is a common truth in the business world. Financial capital is drawn or attracted to ventures, businesses or endeavours where it can be multiplied.
In my line of work, which involves matching entrepreneurs and businesspeople mostly in the natural resources sector to investors, I come across many individuals who seek investors but do not fully understand this concept.
Every entrepreneur needs to understand that this is how investors think. Investors are not looking for a place to park their money and keep it safe until such a time when they need it back. No! It goes beyond you fending for your family or being passionate about what you do.
In fact, the reason why most affluent individuals decide to become investors is because they want their money to work for them. They want it to multiply. Investing in financial instruments such as bonds is because they want their money to multiply through compound interest.
Investing in stocks is because they want their money to multiply as share prices increase and also earn good dividends.
It’s all about multiplying their money and making their money work for them.
It is no different when it comes to them financing or funding your business. They want their money to multiply.
Once you understand this as someone who is in business, you make it easier to position yourself for investors. I will give an example. Inaperfectworldwithoutthepossibilityoflosing money on any investment you make, if you had $100 000 floating around and were looking for an opportunity to grow your personal money, would you put it in something that would double your money in two years or in something that would triple it in two years?
Of course, you would go for the option where your money could triple in two years.
You would choose the option with the highest returns because you would get back $300 000 instead of $200 000 after two years.
Youwouldhavereceivedareturnoninvestment of 200 percent in two years.
Therefore, when you pitch to an investor or approach an investor, you need to answer that question that is in their mind: “Will my money multiply?”
You need to clarify at what rate their money will multiply and in what time period, something referred to as return on investment (ROI).
It is, therefore, important for you as a businesspersonorentrepreneurtothinkintermsofROI.
At what rate can I make an investor’s money multiply and over what period of time?
Secondly,ifyouweretobegivenachoicebetween two alternatives — to swim in water infested with sharks and get $200 000 or to run 10 kilometres and get $50 000 for your efforts, which would you choose?
Most people would choose running the 10km despite it being a lower sum of money received for your efforts.
Why? You could go for the big kill of $200 000, but if the sharks pounced on you, you would not live to see the $200 000.
Instead, you would reward the sharks with a nice, easy meal because of your greed.
WhatamIgettingat?Thereisrisktoeverything and investors know this.
Your proposition or business may seemingly offer high returns to an investor, but they will be asking themselves, “Am I not throwing myself to the sharks?”
So, despite the lure of high returns and multiplying their money, investors are also looking at the risks associated with receiving that high return on their money. If the risk is too high, they may decide to move on and look for something with more sensible risk.
In evaluating this risk, they may ask themselves questionssuchas,“Isthispersoncompetentenough to deliver on what they are saying? Is their team strong enough? Does the market really need what they are offering and will it buy it? Will this boat not sink?”
This is the flurry of questions an investor will be askingthemselvesintheirmindasyouaremaking your pitch, approach or proposition as an entrepreneur.
Therefore, it is important to fully understand the risks associated with your venture and endeavour. Make the investor see that you are aware of it. Highlight the risks, indicate your risk mitigation strategiesandmeasuresandshowtheinvestorthat you are equally committed to ensuring that they get their multiplied money back.
It is important to always think in terms of risk as an entrepreneur.
Soquestionis,“Areyoutryingtothrowaninvestor to the sharks with your venture?”
These are the basics of how you need to begin to think as an entrepreneur to start winning with investors. Think in terms or risk and return.
Therearemanyotherfactorsthatwillalsocome into play such as value investing, trust, likeability, impact investing and investors more concerned about causes, but the two factors of risk and return bear the foundation of winning over investors.
Therefore, start training yourself to think more like an investor and you will find yourself winning over more investors.