January 18, 2019 @ 12:24p PST, Irvine, California, USA
Family, Friends, and Possibly a Job
You shouldn’t assume that investors will bet their hard-earned money in your project if you don’t have Skin in the Game. But, what exactly does it mean to have Skin in the Game? It‘s when you place your own, your family or friend’s money into a project. A lot of investors won’t even bother having a third meeting with you if they find out that you don’t have any sort of Skin in the Game.
Well, lucky for some they were born into money, so they don’t have to worry about such things.
The concept is simple: if your family and friends or even your in-laws won’t invest in your project, do you really think investors who don’t know you from scratch will deploy their funds to an idea that is only backed by a stellar business plan? The answer to that is a big fat NO! Some of you might say, “Well, lucky for some they were born into money, so they don’t have to worry about such things.”
Ammm, actually… I’m not going to stand for that excuse! I joined the military at the ripe age of 18 and served my country for 5 years just so I can save enough funds to start my own business. If I could do it as a youngster, then others surely can follow suit. So, you should really think about getting a job and work hard to establish that Skin in the Game money, if you really believe in your idea.
The bottom line is that no investor will want to bet their money on a project unless you have got something to lose as well.
Salaries are for the Weak
Entrepreneurs who have submitted their business plans and financials to investors along with a salary in their budget should have thought twice about that proposal. Most investors will not take you seriously because if you’re an entrepreneur and want to earn income, you should do so by generating profits from the invested funds.
85% of investors will think of such proposal as a joke. Believe me!
The only thing that will grab the investors’ attention is marketing and inventory when they review the budget. So, any entrepreneur(s) that assumes they should receive salaries from the investment funds is sitting on a pipe dream. 85% of investors will think of such proposal as a joke. Believe me!
RELATED STORY: When Branding is Caring – Capital Raising Series 4 of 5
Mis-Use of Investor Funds
The first thing that comes to investors’ minds when they see salary in the financials and itemized budget is that you will be using their money for entertainment expenses. This could be anything; bar tabs, traveling, fancy dinners, buying things to boast or show off to friends and colleagues that you’re thriving as an entrepreneur.
They don’t want their funds to be mis-used for purchasing materialistic liabilities that add no value to the project.
Most investors have dealt with this type of behavior while working with such entrepreneurs already. They don’t want their funds to be mis-used for purchasing materialistic liabilities that add no value to the project. Therefore, you shouldn’t even think about using the investor’s funds in a careless manner and on things that aren’t part of the business plan.
Return On Investment
Investors expect entrepreneurs to work hard for their invested dollars. They want to see the project generate revenue quickly so they can get their ROI. The more they see you working hard for their money, the more likely they will invest more capital into the project.
The bigger the profit margin, the bigger your salary will be.
The profit that is generated from the investment fund will determine the salary portion, and if you don’t bring any profit, you don’t take home any salary. The bigger the profit margin, the bigger your salary will be. That’s the simple formula!
Ꙉ Thank you for reading. Keep in mind, Greenfield means New Markets!
ABOUT THE AUTHOR: Carlo Desierto is a serial entrepreneur with years of experience in business startups. He has founded, built intrinsic value, and sold several companies in which he sits as an adviser for the Board of Directors. Carlo has interviewed over 200+ entrepreneurs and published mini-biographies for new digital media channels relating to entrepreneurship, health, self-help, futurology, and the green industry. Most of all, Carlo loves to create teams. Facebook | @Instagram | LinkedIn
