This is a wonderful concept to understand in raising money for your business. There are two predominant daemons that investors answer to internally to justify any investment that they make. Getting a handle of these concepts helped me organize my businesses, justify my investments, and optimize my time with investors who appear random in their decision making.
Investment Daemon #1: The Banker
The Banker invests in assets that make money at this time. The amount of money available for investment is what the business can service with the cash flow the business generates. The minimum return they would expect is in the order of what is offered by corporate debt bonds. The Banker keeps the investment secured by the amount of money that can recovered by liquidation of the business or of assets of the owner of the business.
Investment Daemon #2: The Hedge Fund Manager
The Hedge Fund Manager invests in assets that have the potential to make money in the near future. The amount of money available is the amount the business can pay back eventually. The minimum return they expect is a payback of their investment in the shortest amount of time and after that a steady stream of income from the business. The Hedge Fund Manager keeps the investment secured by interfering in the business and being a part of everyday decision making.
The job of entrepreneur is now simpler. He or She needs to present his business so that it can answer to the two daemons. A purely speculative, early stage company would typically not be able to satisfy The Banker and hence would need to compensate for that to the The Hedge Fund Manager. In a future blog I want to address why investors would invest their hard earned money when they can live off of it for their lifetime.
Samir Shaikh
SlabTile Networks
Your home improvement, simplified!
Samir Shaikh 