Before You Invest Make Sure Their Prototype Works

It seems as if all the entrepreneurs are out trying to find angel investors to put up the capital so they can fund their next start-up business. Perhaps, they have a great invention that it will rock the world and be the greatest thing since sliced bread. Of course, they need lots of money to bring it to market. Still, it makes sense before you invest a dollar of your own money into someone’s great idea, that you make sure that there innovation is viable.

In other words, if it is a product make sure they have a prototype, and make sure that prototype actually works. You’d be amazed how much money an entrepreneurial endeavor will go through trying to produce a prototype, and it is not uncommon for many prototypes to crash and burn before they come up with one that actually works. This is all well and good unless you are the one funding it all.

Furthermore, if a young entrepreneur shows you a business plan of exactly how much this business project will cost, and if it involves a product that doesn’t have a prototype yet; multiply the amount they need by four, and multiply the time they believe they will get to their return on investment by two. Then figure out the new ROI period with relation to the multiple of four for the cost. This will give you a pretty good indication of the reality of what it will cost to make this venture successful.

If they already have a prototype that is working, make sure that they have a manufacturer to build the first number of units and a bid or quote in writing. You must be very careful before you invest in a company that will be launching a new product. Please take it from me, because I’ve been there.