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FirstbeabletoanswerfivefundamentalinvestorPRE-SCREENquestionsTheanswertothisquestionquicklyidentifieswhetheryourneedforcapitalfallswithintheinvestorsrangeofcapabilityandinterest.Iftheventureneeds10millionitistypicallybeyondtherangeandcapabilityofanangelinvestor.Thisansweralsoshouldgenerallycorrelatewiththestageofdevelopmentofthecompany.Angelinvestmentsaretypicallytargetedforpre-productandpre-revenueinvestmentswiththeintentofhelpingthecompanygettothepointofinitialsalesandrevenue.Thetypicalrangeforthisinvestmentstageis50000to2million.Stagesandfundinglevelsbeyondthisrangefallintheventurecapitalmarket.Theanswertothisquestionquicklyidentifieswhethertheuseoffundsfallswithintheangelinvestorsexpectation.Angelinvestorsarenotkeenonseeingtheirfundingusedforphysicalassetssuchaslandbuildingsandequipment.Allofthosethingscanberented.TheinvestorsrealizethatstartupsuccessdependsonachievingabalanceoftechnicalmarketingandbusinessmilestonesthatVALIDATEtheproductcanbeefficientlyandeffectivelydeliveredtoalargeandgrowingmarketatapriceacceptabletothemarket.Fundsshouldbebudgetedonanythingandeverythingnecessarytoachievethefirstsale.TheanswertothisquestiondeterminesiftheROImeetstheinvestorsminimumrequirement.Thesourceofthisanswerresideswithintheventuresfinancialforecastmodel.ROIisdeterminedbyconsideringtheamountoftheoriginalinvestmentthelengthoftimebeforetheinvestmentgeneratesapaybackandtheamountofpayback.Theanswertothisquestionresideswithinthecommercializationplanthatreflectsatimelinewhenbusinessventuremilestoneswillbeaccomplishedseechart.Therangeofapotentialpaybackwillusuallyoccurwhenthebusinessventurehasreachedprofitability.Investorsrealizetheirexpectedratesofreturndependonachievingareturnwithinanexpectedlengthoftime.Angelinvestorsexpectareturnof10to20timestheiroriginalinvestmenttypicallywithinsevenyears.Venturecapitalistsexpectareturnoffiveto10timestheirinvestmentwithinfiveyears.VenturesthatgobeyondthetimelineoftheprojectedreturnreducetheROI.Theanswertothisquestionresideswithinthebusinessventuresexitstrategy.Theexitstrategyisbaseduponaprojectionofcurrentmarketbehavior.ThefirstandmostprevalentexitstrategyistopositionthebusinessforamergeroracquisitionMA.AnanalysisofMAmarketbehavioridentifieswhichcompaniesinthesamemarketsectorareacquiringcompaniessimilartotheproposedbusinessventureatwhatstageofrevenueperformanceandatwhatacquisitionprices.AnotherexitstrategyisaninitialpublicofferingIPO.Thesuccessofthisapproachisabout50percentlesscommonthanamergeroracquisition.Afinalapproachandtheleastattractivetoinvestorsisascheduledbuy-outwhichistypicallyadefaultstrategyintheinvestmentagreementwhenoneoftheotherexitstrategiesfailstomaterialize.Iftheanswerstothesequestionssatisfytheinvestorsexpectationsitwillleadtoanothersetofmoredetailedquestionsrelatedtoventurerisk.Investorseventuallybasetheirfinaldecisiononanin-depthanalysisoftheriskassociatedwiththeventureopportunity.Iftheriskexceedstheinvestorsriskthresholdtheywillnotinvest.Theinvestorsassessmentofacceptableriskwilldeterminetheirexpectedrateofreturn.Thegreatertheriskthegreatertheexpectedreturn.Theoldsayingthegreatertheriskthegreaterthereturnapplies.Theanswerstothesequestionswillbefoundinthebusinessplan.Investorsconsiderfiveprimaryriskareas1.Execution2.Product3.Market4.Financial5.ManagementInthefinalanalysiseachoftheseriskfactorsmustbeacceptabletotheinvestor.Ifanyoneofthefivefailstomeettheinvestorssatisfactionitwillkillthedeal.Thechallengefortheentrepreneuristoknowtheriskappetiteofinvestorsforinvestmentindealsconsistentwiththeventuresstageofdevelopment.Itisalsoimportantforentrepreneurstoidentifysmartmoneyinvestorswhocanrealisticallyassesstherisklevelsbasedupontheinvestorsknowledgebackgroundandexperiencewiththeventuresindustrysectorspace.Presentinganinvestmentopportunitytoanangelwithnopreviousexperienceinthespaceisnotaspromisingaspresentingtoonewhodoes.PointeInnovation14magazine1.Howmuchmoneydoyouneed2.Whatdoyouintendtodowiththefunds3.HowmuchreturnwilltheinvestorrealizeontheinvestmentROI4.Whenwilltheinvestorrealizeareturn5.Howwilltheinvestorrealizeareturn