Maybe investors are not enemies, just someone does not know how to prepare them?

Angels are the same as demons, only much bigger assholes
free translation of Dean Winchester's replica from the TV series "Supernatural"

As it has become fashionable to write now - this topic is a partial answer (alternative point of view) to this topic.

So, let us have an aspiring entrepreneur, for example, let his name be Dima. In order not to become attached to industries and companies, suppose that at his leisure he makes multicolored conical sleeves to prevent STDs in Nile crocodiles (hereinafter referred to as CV). All his friends, who have Nile crocodiles at home, acquire KV from him, and it was noted that when using KV, crocodiles have greener skin. His friends told their friends about the colorful HF, and Dima began to constantly receive offers to purchase additional HF.
Distract from the lyrics - we have an entrepreneur who has an idea or a small production of a product. An entrepreneur wants to develop his idea before production (to turn a small production into a large one). In other words, we have a startup.

Where to get money for development?
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1) For years to save money, working for someone else's uncle, and in the evenings to sit and do a bit of your startup.
2) Share shares and raise money for them.
3) Take a bank loan

This is the beginning, and where is the end - advertising "MMM". Let's start from the end.

3) Take a bank loan. More recently, the loan rate for consumer lending has gone up to 100% effective. These are loans for the purchase of equipment, machines, i.e. small amounts of money.
However, we have a startup. It all depends on the stage of development of the project.
- if the project is already functioning, then it should be considered. We count: Revenue - Cost - Depreciation - Estimated interest on the loan - Taxes = Net profit. We only paid interest, is there enough net profit for paying the loan body or not? If not, forget about the loan or go look for another bank. If yes, consider the other 2 options.
- if the project is at the stage of an idea, a ready business plan, etc. Everything is more complicated. As noted in previous posts, at best, they will ask for a pledge, at worst, they will simply say goodbye. Dima went to the bank and pledged his apartment, car, cottage and boobs of his girlfriend as security

1) There is nothing to save money and sell your startup on them. Except one . You may be missing time. Time is money - From the essay "The Council to the Young Merchant" (1748) of the famous American scientist and politician Benjamin Franklin (1706-1790).
Dima stopped drinking beer and set aside 5 rubles every day. On the lathe left to save 5-6 years. In the meantime, he independently grinds the HF file and manually paints them with watercolor

2) Well, I specifically left this point at the end, because it is the essence of this article
So for our startup, it is possible to attract some specialists who will work conditionally free of charge for a share in the project, or some freeloader who has a dad working in the administration of an adviser who will somehow help. Dima shared a share: with his mother for cooking, with Vasya for delivering beer from the kitchen to the room, with Tolya for the figure coloring of KV, with Tanya and Ira for other services
But in this context we are not interested.
So, we are going to go with the idea of conquering the world of our startup to an investor. Having visited his site, having read an ad in a newspaper, etc., we saw that it was necessary to prepare a whole package of documents - a project description, development strategy, analysis of the current environment, potential competitors, calculations of payback periods, etc.
Your Bunny Wrote - we thought and ... weren't willing to go to the investor
Most of the projects are discarded by the investor at the stage of analyzing these documents, even without starting to consider the financial component of the project. , . Why?

Documents for application

• The main misconception of carriers of ideas (I wrote about this in my first post on Habré) is that it is human nature to extol their ideas. Does your product need humanity? Ask a couple of your friends about this, who do not understand what you offer. Are you able to interest them with your product? The explanations will give us the first document “description of our project”. Dima hovered the brain of a blue-eyed blonde for a long time about the benefits of multi-colored HF, and in the end she agreed
• Next we have to write an analysis of the competitive environment. What makes your product better on the market. Who else is going to bring such a product to the market. Maybe the companies Macrohard or PopaTetradk have already announced the release of such a product in the future. To compete with them is pointless. Vasya from the next entrance in the manufacture of KV uses the labor of Chinese workers, he is not going to decorate them, and in general he doesn’t understand anything in crocodiles
• Analysis of demand and price forecast on the market. The most difficult question in the whole package. Here we will be helped by a review of the industry press, comments from analysts and foreign experience ... or it will not help. And it is necessary to consider several scenarios. Right - good, optimistic and awesome
  Justification costs. (It must really be a justification, so many machines are needed, so many cleaners, etc.) - salary, rent, materials, electricity, etc.
• Financial calculations - the devil is not so bad as one of the easiest parts paints it. Collect all that is above multiply the demand for price, deduct costs, depreciation, taxes, calculate it for each year. Calculate different types of payback, and at the same time the cost of your project.
• And a small, but important, document describing what money is needed from this goat potential investor in a startup. In addition to the required things, Dima made a purchase of an automatic nosokovyralki, a toy car and ... Santa Claus costume on the list of necessary investments in his startup . There is a small reservation here. Compare the cost of the project and the amount of investment required.

All - the package is ready.
This amount of useless documents is necessary not only for the investor, but also for you yourself to know if your project has any prospects.
Documents are sent for examination to some department of analysis of pornographic pictures of promising projects, which rechecks all the data, builds its models for the development of your startup and evaluates taking into account the profitability standard adopted by the company. As they say the project is accepted or rejected. What is the probability that you will meet a dinosaur on the street? Well, either a meeting or not .

And now let's discuss the topic raised in the post to which the answer is written. Where does the space interest required by the investor come from?

• You sell a product, he buys. He seeks to understate the cost, you overestimate. Normal position.
• Since a startup is high-risk (if it were low-risk and highly profitable, you would not go to the investor, but investors would be crowded at your door), most often his assessment will follow the pessimistic scenario
• Since not many projects are fired, those who are firing must pay back those who fail. It's like in lending, bona fide borrowers always pay for those who do not return debts. Therefore, the required yield for such projects is quite high.
  An example from life. One of my friends is engaged in the development of games for FB, he received funding from, well, let's call them business angels, the required rate of return when evaluating his company was 50%. Let's calculate what 50% is and see how such an investor will evaluate such a company (a small digression into the theory of discounted cash flows)
  Let the startup manager predict the following cash flows for his startup, and let's say the investor’s analysts agreed with him, for 1 year - 150 tugriks, and then an increase of 15%.
  150.00
172.50
198.38
228.13
262.35
301.70
346.96
399.00
458.85
527.68
  The cost of such a business (startup) with the required yield of 50% will be 400 MNT (cool yes?). Well, if a startup manager wants 200 investment moguls, then a sane business angel (venture investor) will want at least 50% of the company.
• And you know what accounting or tax accounting is and what is patent protection, and how to sell the product of your startup. As I wrote earlier (my first post on Habré) no matter how brilliant your product is, if you cannot sell it, then the price is 0 to it . But the investor can provide all this

And it turns out that it does not look like a nightmare, the position of the investor is justified. It is hard to realize, because it seems like coming up with an idea is much more important.
However, to raise a child (to bring the company to the stage of free swimming) is much more difficult than to conceive (to come up with an idea)

Ugh ... I wrote to here, and you read it. And our Dima, meanwhile, received $ 1 billion in cash for 0.00000000001% of the company, Adidos sneakers and Jennifer Lopez, Zhanna Friske, Dima Bilan, Dolly the little sheep (underline) for sexual perversions
Strategy exit angel from your business.
Well ... he will not be with you in grief and joy until death do you part. His interests are not the company's operating activities, and he is not an institutional (I can’t pronounce this word) investor to hold your shares. Estimate it so it will be with everyone to the end. In the end, he will not have money for further investment. Here we answer the question why there are such things as leaving the company after a certain period.
- Expertly sets the time of business formation for each industry
- The investor believes that if in X years, he did nothing, the business is recognized not interesting
Well, of course we wanted the first item in our case.
And of course, the investor is not a fool, the price at which the share in your startup will be sold at the end (stop ... by that time will not be a start-up, but a mature business) all potential earnings from your business in the future will be mortgaged.

Good luck! I will gladly answer your questions in the comments.