20
Mar

Rate of Return Investors Want on New Products

Rate of Return Investors Want on New Products.

The earlier an investor gets into a product launch, the more risky the venture. We’ve all heard the stats that make raising money a tough game to win.

Only 1% of US Patents issued to independent inventors ever make it to a retail store shelf.
80% of businesses fail in the first 3 years.
Investors bet on the jockey, as much as the horse. (It’s not just your product that matters, it’s the management team behind it)

So plan your business accordingly and make sure your product has the profit margins, strategic direction, cash flow plan and exit strategy to earn investors the returns they expect.

Funding Stage Rate of Return

Seed 50 – 70%

A 40 – 60%

B 35 – 50%

C 30 – 40%

D 25 – 35%

Recognize that launching a product successfully requires several rounds of funding as more inventory is needed to support growing sales, accounts receivable and operations. Keep in mind investors want an Exit Strategy. An exist strategy is an event that allows them to recoup their investment plus a rate of return. There are only 3 realistic ways an investor can exit.

Company buys back stock from investor. (Company Buy Back). Common for products or services that ramp up revenue fast with lower cost of goods.
IPO (Initial Public Offering) occurs when the company goes public and private shares are converted and sold in the public arena. Common for technology companies.
Acquisition. The company assets are sold, an increased share price is determined and dispersed to investors. Common exit for most product and service companies.