Too often entrepreneurs looking for an investment will fail on this basic concept, thereby undermining their own credibility and in the process, often losing an investment which could have been won.
A sale, of any sort, is often promoted based on its future value – that is, the satisfaction or value it will bring to the buyer over the course of its lifetime. At a restaurant, you discuss the presentation of the food, the ambiance, the taste. In a car, you look to comfort of the drive, efficiency, maintainence costs. In an investment, you look at risk and potential for returns.
An investor must be sold on the concept of returns – they will put their money into a business, and get paid returns as the company uses that money to turn a profit. The investor needs to know what kind of risk they might be exposed to, the odds that they will lose their money.
At the end of the day, though, the price paid will be based on the real value today. A business turning a certain amount in profit annually has a value. While each appraiser will come to their own conclusion as to the value, it is some form of all the assets available, plus a multiple of the profits. This number is the basis for any pricing.
Failing to recognize this, and to sell a product based on its future value, with the price being that of the future value, is foolish. For one thing – it’s not an investment. Even should the predictions prove to be correct, the investor must wait until the future is realized only to get back the exact amount they put into the deal. As soon as they invested, their ownership depreciated to the current value of the company.
For comparison, that like selling someone a stock which you say will be worth $100 per share, is currently worth $50 per share, and you’ll sell it for $75 per share. That’s a lousy investment, with 50% of the investment being lost immediately.
If you want to be taken seriously, market your deal on the promise of tomorrow. But when it comes to pricing, deal with the realities of today.