I met up with a few other investors last week, in a European Capital city.
We were looking to invest in a new business, one that needed a lot of capital to get started.
Now, I’m a great believer, always have been, always will be, that you certainly don’t need a lot of capital to get started and, indeed, if you do need lots of cash, you need to re-assess the opportunity.
However, there are always exceptions - and this was one of them.
The person behind the potential business has a good CV and knows this particular industry really well, having worked his way up in it for many years.
Despite showing his current employer how they could profitably diversify based on his (impressive) research, they barely listened to him.
So, in his spare time, over a 2 year period, he produced very detailed business plans, cashflow forecasts and sales plans.
The business was actually very straightforward and my small investment in some market research in the niche proved to me (and then to the other potential investors) that this could be a very worthwhile start-up to invest in.
Cashflow would be good (a killer of too many businesses) as the clients would happily pay up front and commit to 2 year minimum contracts.
Staffing wouldn’t be a problem, as everything could be outsourced.
Profits would roll in from month 3.
My investment would be paid back in about 15-18 months - and my profit share after that would be very nice, thank you.
All was looking good.
Then I delved into the projected accounts a little deeper.
And I noticed that the guy who would be running it would be drawing a salary equivalent to just over $100,000 a year.
Not a problem, really, as he was worth it and his profit share would be a multiple of that anyway.
The only thing we were worried about, frankly, was whether this guy was capable of being self-employed.
After all, he’s been a “company man” for many years.
Yes, we’d supply all the back up he needed, but was he mentally set for self-employment?
So, I asked him what his salary was at his employer.
The other investors looked at me, surprised - but intrigued.
At first, he wouldn’t say, but I stared at him, one eyebrow raised.
I do that sometimes …
After a while, he told us he was on the Euro equivalent of approx $50,000 a year.
Do you know what happened next?
All of us potential investors looked at each, nodded in agreement - and walked away from the deal.
Can you work out why?
If you can, you should be running a business, looking for investment in a business idea or investing in business yourself …