On a bright Saturday afternoon, I received a call from an old connection to meet me to talk about business. Raja (not his real name) asked me out for coffee to have a discussion about a venture he started with a few friends a couple years ago.
They have been funding the business from their own pockets and managed to grow it to a certain size, where it is now profitable at a 7-figure mark.
Raja wanted to raise some funds from investors within his consumer network and asked me how to go about it.
Over a coffee chat, I gave him a few pointers to take note of and mentioned a few key things that investors would want to see before they put their money with him.
He gathered his team to start creating a presentation deck for his potential investors. He was very, very excited to do something new, i.e. ‘fund raising’.
Note: This was over coffee and I did not do any due diligence check on his company, trusting that he would already know and have carried out his basic obligation as a director to the company.
(He has been in business for > 5 years, there were just certain things I assumed I did not have to say.)
He approached some really top-notch, high profile businessmen in the industry and presented his plans. Yet, no investors put money with him after their due diligence check on his company.
WHY?
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REASON #1: The Company is NOT What He Has Claimed To Be
In the midst of all the hype and excitement, upon doing a basic/first round of due diligence (i.e. company ‘investability check’), it was found that his Sdn Bhd was not what it has been claimed to be.
He claimed to be profitable at a certain amount, but the Audited Financial Statement did not reflect so. Upon confirming/ asking Raja, he mentioned that he was being advised to cover up the profits with losses in order to avoid being taxed. This totally did not make sense because without an actual record, potential investors would not be able to match the information he has been giving.
On top of that, Raja mentioned that he used his own sole proprietor enterprise for billing in order to avoid goods and services tax, which his customers preferred not to pay for.
The entire company was owned by Raja and his wife; having 99% shares for himself and 1% shares for the person who married him. Both husband-wife held directorship in the company. The rest of the other friends neither have their names as shareholders, nor listed as directors in the company. Raja claimed that he did not know how to register his ‘friends’ as his shareholders and directors, and best of all, the friends had never asked.
Investors will not invest into a company that is not what it has been said it is by the rightful owner.
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REASON #2: You’re Asking For a Ridiculous Amount & Making Ridiculous Promises
Different investors have different risk tolerance. You must know the investors’ risk tolerance before you mention an amount which would kill every interest which you have generated prior to that.
Yes, some of them have deeper pockets than you – but it does not mean their money will flow towards you if yours is not proven to be a better investment vehicle for them.
You must understand that when a person achieves a certain income-level, their network or mindset about money is different from ours. We probably would not know the kind of deals they have been making prior to us pitching.
The best way to gauge your investors risk tolerance is to slot in certain conversational points to get information from them about their existing investment or portfolio.
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REASON #3: The Investors Don’t Trust You With Their Money Yet
The last reason is a fact for us to live with, including myself. Not everyone will fund us no matter how sincere we are. That is just how life is. Some investors are in fact watching us on the side-lines, making sure we are their best-bet. We just need to keep going, keep improving ourselves so that we can then attract them to invest in us when we least expect it.
When a company is growing and fit for investments, many will be attracted to jump on board. As human beings, we want to follow the herd. We want to be sure that the business will stay for a long time. And, we want our money back with maximum returns!
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There are many, many reasons why Investors won’t fund us. Those will be the same reasons why we won’t fund another business. The best way to understand what investors want is to understand what you want *if* you are the investor. Are you able to craft an irresistible offer for an investor like yourself?
Wishing you the best of luck for your business and venture!
Selamat berniaga!
From the desk of,
CYNTHIA CHIAM
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