A business model is at the heart of any business venture. No matter how attractive an investment opportunity appears, it must have a solid way of making money to be worthy of investment – a clear and easy to follow A to Z. There are many different types of business models out there, but here are four which can offer high yield returns for venture investors.
1. Demand Orchestration
Demand orchestration will have a business acting as a third party. This business model creates a location for buyers and sellers to make transactions with each other directly — the business earns a percentage of the monetary exchanges. The most influential example of demand orchestration is eBay. eBay was able to create a platform which provides a vast number of options for buyers and sellers, and by doing this, they were able to attract a huge user-base. This user-base eventually became very attractive to first party services and products.
2. Low Prices
Offering low prices allows a business the opportunity to attract a large share of the marketplace simply because its products are a little easier on the wallet than their competitors. As the business grows, it can develop product upgrades, new ideas and even better service. The idea here is to grab substantial attention from a noisy marketplace. Once that’s been done, and the trust of the market is earned, the business might then increase its prices without losing too much from its share.
3. Reverse Auction
This business model involves buyers offering a price for a service or product. If the seller accepts then the buyer must comply to the seller’s terms and conditions. This model gives buyers a feeling like they are getting a real bargain. The sellers meanwhile can have access to a marketplace which is similar to those offered by demand orchestration, minus prices being set by producers.
A unique specialty product or service results in a limited production to high profit yield. In this model, the marketplace is dictated solely by the producer as their product or service is completely unique and in demand by (usually) a small demographic. If a larger number of people desire the same product or service, it’s likely that other companies will enter the market to compete. This business model does not necessarily need a large customer-base to turn a profit, a small number willing to pay higher prices can be extremely lucrative.
It’s easy to increase your chance for success, all it takes is a little thought behind your fundraising strategy. Your aim heading in should be to prove your concept / company in the market without parting ways with more equity and control than necessary. Before you pave your path to investor dollars, here are three do’s and don’ts for first-round fundraising.
DO: Prove Your Concept With as Little Capital as Possible
The key word here is prove. To an investor, it’s far more useful to hear that you have tested your concept and learned ABC as result. You do not want to simply say “we believe our concept and we believe there is a place for it in the market.”
It’s also worth noting that funding decisions often hinge on the entrepreneur, not just the idea itself. Exude hunger to test your concept in the real world rather than just waiting for someone to validate your business for you.
One inexpensive way to do this is dedicating a few hundred dollars towards a pay-per-click campaign that targets keyword searches relating to the problem you are trying to solve in the marketplace. Collect this data and show interest based on how many visitors mature into mailing list subscribers.
DO: Build Traction
It’s nature, a first-timer in anything will be held to a higher standard than those with a proven track record. The same goes for first-time entrepreneurs — you need to build traction.
Prepare your product and demo it, and once you do, ask for feedback. Not only does this provide invaluable insight from the marketplace, it allows for an opportunity to offer your product and sign people up as beta users. Having beta users will speak volumes about the legitimacy of your concept.
DON’T: Sell More Than 20 Percent
It happens a lot. People lose control of their business and it happens quickly. It’s very tempting to take a big investment, but alas that usually comes with a price — equity.
Before you meet with investors, make a decision on how much money you want to fundraise and at what valuation. And even before you negotiate, ask the potential investor what their minimum investment is. You want to make sure you are not wasting anyone’s time — especially your own. Of course it’s okay to make adjustments as you negotiate, but it’s important to know what you are working with and how far you can go. It sounds like a no-brainer, however many business owners have crumbled because they tried fitting a square peg into a round hole.
The last couple years in particular really changed the venture capital game. Higher deal volumes, easier accessibility to venture capital and shorter roads to finding an early-stage company gem to invest in. With 2014 and 2015 being such game changers, we thought it appropriate to roll out a short list of venture capital predictions for the latter of 2016.
1. Rising Deal Volume
In 2014 and 2015, the startup realm saw a very high volume of deals. Expect this trend to continue into 2016, with an increase in deal volume. However, despite a probable increase, the total dollars invested is expected to remain the same. This is by virtue a fewer companies needing late-stage (larger) investments and more early-stage companies needing smaller investments.
2. Crowdfunding Boom
Big investor interest and government legislation have rolled out the red carpet for crowdfunding, which is likely to facilitate a big jump in crowdfunded financings in Canada this year. As point number one alluded to, there is an expected rise in early-stage company growth and a big reason for that is the new found legitimacy and accessibility to crowdfunding.
3. More Attention From the U.S.
It’s already happening. The weak Canadian dollar is bringing big attention and activity from U.S. venture investors. With the Canadian dollar expecting to struggle, this trend is likely to rise pretty exponentially, especially in the Series B stage of investment. Will the exchange rate affect the startup community in other ways? There are benefits to a lower Canadian dollar for companies that have U.S. dollar revenues and Canadian employees.
4. Bigger Deals
Expect to see more companies successfully raising north of $150 Million in venture capital funds in 2016 than we did last year. This expectation goes hand-in-hand with the massive rise in augmented reality and touchscreen technology companies.
Negotiation is a fundamental part of the early-stage growth experience. Unfortunately, many executives and/or business owners fall victim to mistakes that make their negotiations incredibility ineffective. Here are three tips to avoid getting the short end of the deal or losing it all together.
1. Don’t be Greedy
Greed is the biggest and most fierce of the negotiation killers. If one party pushes for too much or is too aggressive, the relationships between those involved goes south very quickly. Yes, it’s natural for people to pump the value of their product or position in a negotiation. But know this — it takes a special skill to recognize your own greedy behavior and stop it before it derails the task at hand.
2. Understand the Type of Negotiation You’re Participating In
There are two types of negotiations that can happen in the business’ life cycle. The first can be identified as asset negotiation, which is usually the wheeling and dealing of a one-time transaction. Take the sale of an asset like a piece of equipment for example. The seller wants to get the best deal possible usually with or without a positive personal relationship with the buyer. After all, once the deal is done, the relationship (whatever that may be) will also cease to exist.
The second type of negotiation is a lot different. When both parties involved have to maintain a working relationship long after the negotiation ends, the strategy automatically becomes more complex. In these situations, it’s important to remember that things such as trust, respect and admiration have tremendous value in the negotiation process, and it should be defended at all costs.
3. Don’t Gamble with Things you Can’t Afford to Lose
When you are ready to dial into negotiations, you must always recognize that they can simply walk away. This can be difficult when it comes to strategic relationships, because there’s often significant cost associated with a potential fallout. However, there is often a happy medium. If a relationship is truly central to your success as an organization, you must temper your desire to play hardball or risk losing everything.