Business Investing

#1 Problem with External Investments: Liquidity

1 Problem with External Investments: Liquidity

My top issue with angel investing platforms is that virtually every company raising capital doesn’t provide a specific way in which your investment will be paid in the event the company doesn’t sell itself. Many investors don’t like to talk about this but I think it’s important for prospective investors to acknowledge this significant risk.

The company can easily decide to never issue dividends and just keep floating around, even if they do millions in monthly sales.

If you invest in a private company and there are not clear terms regarding how liquidity is repaid in cash, you’re taking excessive risk. It’s important to create some sort of condition for repayment in a reasonable time period.

The goal is to create a mutually beneficial deal that both supports the entrepreneur’s goals while not exposing the investor to excessive risk.

Business Investing

What Do Investors Want to Know?

The following are some things that would be useful to outline in a presentation to a prospective investor:


  1. Explain the problem and how it will be solved
    1. Expert opinion, peer review, explaining the validity of your business
    2. Proof/demonstrations
  2. Explain the timing to have your minimum viable product/service available
  3. What are the company’s top paths to profitability, ranked in order?
  4. Top priorities must be outlined
  5. Growth plan

Use of Funds

  1. Outline the timing and the amounts (in ranges)
  2. It’s preferred that an equity holder’s compensation should be delayed until breakeven/profitable event takes place
  3. Incentives need to be tied to performance


  1. Existing income statement and balance sheet if applicable
  2. Budget forecast


  • Traction/progress to date?
  • Milestone based funding: Capital is released as milestones are met/proven
    • For example, third party verification of a a test/study

Management Team

  1. Explanation: why your team is the best fit for this project
    1. Strong references may help
  2. Full time focus
  3. History of both success and failures
  4. Incentives are aligned
  5. Skin in the game (Key managers have contributed their own capital and will delay compensation until the company is profitable)
  6. Compensation for founding members aren’t made until a “proof of concept” or “minimum viable product” is achieved
  7. Negligible conflicts of interests with disclosure
  8. Able to pivot/adjust/not stubborn
  9. Honest
  10. Healthy


Investment Vehicle

  1. Based in the US, UK, or CA ideally (ideally, the founder will be based out of one of these countries). These countries tend to have reasonable banking and legal systems
  2. Legal: JAMS arbitration in LA county, California with the prevailing party entitled to costs


  • At least quarterly reports (sufficient) by email


  1. Please explain your track record: Why/how have your past projects succeeded/not succeeded?
  2. Please analyze:
    1. Strengths
    2. Weaknesses (eg. Knowledge, Capital, Human resources)
    3. Opportunities (ie. What markets can be entered?)
    4. Threats (eg. Competitors/Substitutes)
  1. Regulatory/compliance issues?


  • $X Cash in exchange for Y equity
Business Investing

What do investors want?

What do investors want?

  1. Clarity regarding how funds are used: In some cases an entrepreneur has too many projects/ideas (which can be both good and bad) but the company needs to initially be a lot more laser focused. It’s good because it shows the entrepreneur may be willing to “pivot” or adapt to the best potential opportunity. However, it can be bad if it’s distracting and causes the company to lose money.
  2. The path to revenue/profitability needs to be more persuasive
  3. The growth/sales strategy needs to be more persuasive
  4. Milestone based funding to reduce the investor’s risk
  5. Committed entrepreneurs: For example, full time and some cases they have skin in the game.
  6. The upside is explained clearly. For example, creating: a) High growth company (eg. user acquisition b) Creating a cash flowing company c) Creating valuable intellectual property that can be licensed
  7. Regulatory/compliance risks
  8. Barriers to entry
  9. Risk controls (this is a big category). For example:
    1. Budget/cash flow decisions are controlled
    2. Manager/operator do business in a jurisdiction with a good legal system in case something goes wrong
  10. The team’s interests are aligned. You want to ensure that the company can focus on building great things instead of worrying about whether they believe they are fairly treated
  11. Strong management team that works well together
  12. Great product(s) and/or services
  13. Proof that they can get the job done and problem solve
  14. Proof that they can overcome pressure (eg. some investors prefer entrepreneurs that have had setbacks) so that they know that they are dealing with a resilient entrepreneur
  15. Selective and skilled at setting priorities
Business Investing

Risk Management as a Course

I think one of the most valuable courses that aspiring students should take, that is not widely available, is risk management.

Risk management should cover the following:

  • Managing insurance
  • Managing legal/compliance
  • Evaluating statistical probability/mathematical modelling
  • Understanding
  • Manage people and culture
  • International relationships/cross border relationships
  • Managing technological risk

A great example of a fantastic risk manager is Travis Kalanick from Uber. In 1998, Travis dropped out of UCLA with some of his classmates to found Scour, a search engine for downloading potentially unlawful (copyright protected) content. He learned to navigate the risks of this business and applied this knowledge to successfully navigate taxi red tape/monopolies/regulatory hurdles in multiple countries.

Another great example is Chris Sacca who has one of the most impressive track records as a venture capitalist. He has a great understanding of managing risk. He claims he had a negative net worth of $4 million and worked off his debt, eventually becoming a billionaire.