Should an inventor be disgruntled if he can’t raise angel money?
“I sure hear there’s a lot of angel money around here,” an inventor said a couple of weeks ago. “But I sure don’t see where it is.”
Invention – as distinct from – entrepreneurial startups – is a difficult point of view for a business startup, in and of itself. I’ve recently had both experiences talking to inventors.
The ones who are most likely to attract investors are the ones who understand the scope of the issues they are facing. What does that mean?
Well, if it is a one product company, or can it grow more products? If not, perhaps the prototype and license scenario is more appropriate. (Build a working model, demonstrate it to major industry players, and if it is successful, license it to one of them for their use – with an annual minimum, hopefully.)
If it passes that step, the savvy inventor realizes that the invention is a smaller part of the new venture than most people think. Before the new venture spends hundreds of thousands on building inventory, it must know about the market and the “ "five forces" of competition.
It must have a set of assumptions about how things are going to work – how much revenue form each sale, who these customers are, and so forth.
Then, these assumptions must be scrutinized and the ones that can be tested, should be tested.
In one way or another, those most likely to attract investment understand these issues and address them in planning and conversations with investors.
Those least likely to attract investors are the ones who believe that the product is “something everyone will want,” and that building it as quickly as possible is the ultimate goal. They perceive everyone as a threat. In lieu of testing hypotheses and building financial models, they sell harder and harder, trying to get the potential investor to make a personal judgment about the efficacy of the product.