I come across entrepreneurs with ideas often. The enthusiasm and passion they have for their new idea product or service is inspiring and uplifting to see. These situations aren’t start-up companies yet because the ideas are still just that, nothing has been put into motion yet. When things start being put into motion, that’s when a start up company begins.
I notice one problem is that very often an entrepreneur will think they can sell just their idea to an investor. For instance, an idea for a new widget that will solve a specific problem in the medical industry, even if its supported by a poll of doctors who all say it will work, is still just an idea, it’s not tangible. Without even a prototype of the widget any investor would question if the widget could even be produced. If they give the entrepreneur the benefit of the doubt that the widget can be made, the investor will then question the cost the widget can be produced at—no one has any way of knowing for sure because not even a prototype has been produced. An idea can’t get a contract manufacturer to identify anyone who may be able to produce the widget either. There’s plenty more that an idea alone will not get you, but I think I’ve made the point I wanted to make, which is that an entrepreneur must create as much real, tangible evidence as possible that their idea will be successful before presenting it to an investor.
The entrepreneur’s objective is to get the maximum investment from their investor for the minimum equity when they do present their idea (which we’ve covered needs significant tangible evidence to back it up). Naturally, if your idea has a lot of holes in it, you’re going to get a really low investment (or no investment at all). Investors will not invest in half-formed ideas. Investors will invest in a solid business plan, investors will invest in a good business model that shows strong management, investors will invest in fully formed ideas supported by tangible evidence of their success, investors will invest if they believe they’re going to make back 5 to 10 times what they invested in your idea in five years.
This is where a part time CFO comes in and is really helpful to the entrepreneur for getting their idea to a place where they can sell it. All the things investors want to see to make your idea look like a good or great investment—the business plan, cash flow forecasts, accurate finances, strategic plans, a strong management team—a CFO is qualified to help you with all of them. A CFO can even help you to find investors and come up with your pitch for when you present your deal to them.