Derisking To make Your business Much More Attractive To Venture Capital Investors

Derisking would be the method of removing threat components from your enterprise in an effort to make it additional eye-catching to an outdoors investor or to an outside buyer. It’s among the most significant variables in the grooming approach as a way to be an desirable corporation to invest in i.e. “Investor Ready”.

There are dozens of areas and hundreds of ways in which a business may be exposed without knowing it. In the normal course of business an owner may not worry about these factors, as they are within the “comfort zone” of operation. For an external party to get involved however, they need a much more transparent organisation so they are not confronted at a later date with skeletons in the closet.

Derisking To make Your business Much More Attractive To Venture Capital Investors

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It is important because businesses already face uncertainty. And while a venture capital investor may have a reasonable tolerance for risk, they will not welcome unnecessary risk. The goal is to control as many areas of risk as possible, so at least the risks are known. Most companies who have had an internal focus (i.e. have focused on sales, marketing and operations in order to grow) have not thought about all the areas in which they are vulnerable.

The process of derisking limits the areas of exposure, and therefore decreases exposure to uncertainty. It also increases the chance of success through improvements in clarity in almost all areas of the business.

Derisking falls into two areas – one is simply clarification (i.e. creating a contract where an informal arrangement was in place) and the other a change of substance i.e. changing a supplier because it lowers risks.

Some examples include:

Formalising employee agreements. This may mean creating contracts for employees that have previously operated without one, or strengthening existing contracts. Particular issues would be with protection of IP, ownership of IP, confidentiality and restraint of trade after employees leave.

  • Creating / clarifying written agreements with suppliers
  • Creating/ clarifying agreements with customers
  • Moving “ad hoc” sales to contracted revenue where possible
  • Formalising and documenting internal processes
  • Protection of IP – patents, designs, copyright and so on.
  • Protection of data by limiting and monitoring access to key systems (CRM, accounts etc)
  • Key employee insurance (including of the owners) in the event of death.

 Creating or clarifying credit terms and policies. Getting credit offered back within trading terms, and ensuring that all credit offered is documented with the correct application forms and personal guarantees.

 Removing reliance on key personnel, in particular vulnerability to information or relationships which may be lost on their departure. This may mean adding additional points of contact to key client accounts so individual relationships are less critical.

  • Documenting key processes – getting the knowledge out of people’s heads
  • Ensuring insurances of assets are up to date, and sufficient.
  • Lowering legal exposure (liability). Ensuring insurances are held that cover product liabilities and so on.
  • Ensuring compliance with all ATO and ASIC regulations. Creating systems for their ongoing compliance.

As you can see, this is …

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Reaching The Risk Capital Investment

A lot of people these days are trying to start their own business. However, there is one constantly persistent problem, which haunts the dreams of everybody – where do I get money?

There are a lot of opportunities, and most head for the so-called Venture capital or Risk capital investors, who are ready to feed you with a hefty amount of money, provided that you appeal to them. This is no easy task, and you will probably have to wage bloody competition with around a 1000 other enthusiasts. However, once you are in for the interview, you have a real fighting chance.

Reaching The Risk Capital Investment

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The first step along the way is application. This is the biggest fight, as you will most commonly not have any social interactions with the investors at this level, and you will need to prove that you are good only in text and video form.

You should prepare your business plan well, lay it out in as little words as possible, and make sure that you are not selling monkey diapers, because we all know this idea failed a long time ago. A good YouTube clip is always a great idea, because they would like to see your face and hear your voice.

And that is it – you are called for an interview, you are set, you are the greatest!

Well, it does not work like that. Even if you manage to fight off the first 900, you will be called to an interview with about 100 more participants, and you will need to face your greatest fear – the investor, who has no idea what you are doing, but he read money somewhere along the lines of your application form.

This time around, you will need to be concise and short about what exactly your company is going to do and make sure you have projected your financial operation for at least the next year. With a lot of luck, you are in the final twenty, who will get to make their pitch.

The last part might be against the fewest teams, but it is the hardest, because you will need to explain your idea, your business plan and possibly even your family life in as much as 3 minutes. Afterwards, in the next 15 minutes the investors will make sure they crucify you with questions, most of which you have already answered, but they aim to confuse you.

You do not have to be prepared, you just need to be as calm and confident as possible. Even if you fail, many do on the first try, at least you will know firsthand what you are up against.

Obtaining the risk capital investment is definitely no easy task and you will see that you are not up for the job on your first try, unless you have already worked in the field as an employee, and you have studied a lot.

However, with experience comes power, and if you really believe that your idea …

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