Sole Trader - Are you investment ready?

Three tests to see whether your start-up is investment ready

By Marc Peskett
Wednesday, 06 February 2013

Start-ups looking for cash might consider equity as an option to fund their early stage and ongoing funding requirements.

When talking equity, the most commonly known option is venture capital. However, venture capital funding in Australia is tightening with fewer deals completed in the 2012 financial year compared to previous years.

Also given the general downturn in the economy and the lack of returns from the venture capital sector, venture capital funds are now finding it difficult to secure funds from their traditional investor base of funds, as indicated in the AVCAL Deal Metrics Report 2012.

As a result, start-ups should consider the other equity options available to them.

A significant investor segment to consider is high-net worth individuals. According to the Capgemini and RBC Wealth Management Annual World Wealth Report, Australia is ranked as the 9th largest high-net worth investor population by country, with 180,000 high-net worth investors in 2011.

Another alternative is angel investors, who typically invest as a group of individuals to provide cash and in-kind support to seed and early stage start-ups.

The Australian Association of Angel Investors estimated angel investors invested $1 billion in 5,000 early stage businesses just in 2010.

Given the volume and number of potential investments that these two segments provide in Australia, there’s compelling motivation to investigate whether your start-up presents a good investment opportunity and is investment ready.

Here are my top three tips to evaluate whether your start-up is investment ready:

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