Sometimes having a good idea isn’t enough to get your business off the ground or, if it already exists, to get your business off the ground. In many cases, it is necessary to have investors who believe in the potential of your project and to secure the funds necessary to develop your product properly until it reaches the market. Jose Duarte, a successful entrepreneur and entrepreneur from Costa Rica, explains how new entrepreneurs can find investors to get their ideas off the ground.
A recent study by the Kauffman Foundation found that 90% of startups shut down after failing to meet their initial goals. According to the study, the main reason was not competition with other companies, but self-destruction. This can be attributed to a lack of knowledge to make the business work best when the product is launched on the streets, or to a lack of knowledge of the market or the competition.
Among the countries of Latin America and the Caribbean, according to a Global Entrepreneurship Monitor (GEM) survey, which provides an annual global assessment of the level of business activity in nearly 100 countries, the rate of business closures in Peru, for example, was one of the highest. in the efficiency-based savings group, from 5.1% in 2011 to 6.7% in 2012. A lack of business profitability and personal reasons were the main causes of closure of the businesses assessed.
However, according to the GEM survey, in the case of Brazil, 84.6% of entrepreneurs do not seek support organizations to set up their business, a fact considered extremely relevant to guide the formulation of policies to promote entrepreneurship. According to the GEM report, in addition to the already traditional forms of financing – how to raise funds from banks or promotional organizations – another source known as informal investors has gradually spread around the world. Adds Duarte, These investors are friends, family, acquaintances or even people who like the initiative or the idea of the entrepreneur. This type of financing can be a loan – which will be repaid by the entrepreneur – as an investment in exchange for future profits.
However, there remains an under-explored market in Latin America. The entity survey indicates that only 2.4% of the Brazilian population aged 18 to 64 have invested in a business started by third parties. For example, in Peru the figure was 6.2%, while in Chile, the leader of the economies based on the group’s efficiency in this regard, it reached 15.6%.
There are investment options for those who are just starting out. Angel investors can act individually or in groups and typically take anywhere from two weeks to six months to assess a project. They typically invest between $ 100,000 and $ 1 million. Seed capital funds with private resources are another option. They typically make an initial contribution of between $ 200,000 and $ 1 million after an evaluation period of up to six months. Seed capital funds to public capital are similar in composition, but the valuation period is usually between three and six months. These typically invest between $ 1 million and $ 5 million in approved companies.
If your choice is to find business angels, know that there are some prerequisites for the business to materialize. Explains Duarte, You have to present an innovative idea with a competitive advantage over your competition (not just with the lowest price or the best customer service). You also have to be in a niche market with the potential to earn tens or hundreds of millions of dollars, which ends up alienating local ideas, focusing them on certain regions. Traditional businesses are not wrong, but they are not in the crosshairs of angel investors. They are also not interested in products that can be easily copied.
Finally, it is mandatory to have a very structured business plan and it is strongly recommended to have at least a prototype or proof of concept of your product and if you have validated the purchase interest of potential customers. In addition to increasing investor interest, you will add value to your business.
About José Daniel Duarte
José Duarte is originally from Heredia, Costa Rica. He has been an entrepreneur and business owner for over 20 years and divides his time between his existing activities and the search for new investment opportunities. When not devoting time to his businesses, he spends time with his wife and two children.
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