Why Every Startup Must Must Be “Weighed” Before Attracting External Investors


When a small business startup manages to secure external investment magical things happen.

But before it can happen, entrepreneurs need to be aware that the benefits of investment involve assurances, sound business planning and scalability.

Recognizing the biggest benefit of external investment.

Amongst the benefits of attracting external investors to a startup is helping to preserve owner resources, allowing growth to continue, accelerating research and development and product rollout. But perhaps the biggest advantage comes in enabling scalability.

Everyone knows that investors love putting money into startups and businesses that are scalable. But really it is only the investment that actually allows them to scale up. Therefore, when a small business tries to attract shareholders, it’s paramount to have a business model that is scalable.

Addressing the three deal breaking situations.

Before scalability has a chance to be implemented, investment will only happen when a business is able to address the big concerns every investor has at the start of a new financial venture.

The first is making sure that there is a good understanding of the management structure and hierarchy in place. It must be a strong and stable one with enough flexibility to overcome all potential setbacks along the way. Secondly, it needs to explain and convince its revenue potential. Every investor wants to see a return on their investment, including a roadmap for how and when they should expect to make money on their financial input. Thirdly, and probably most importantly, an investor needs to be aware of how they will exit the business. The best exit from a business is through a trade sale for cash.

When trading options get in on the investment bandwagon.

Having secured external investment a business and ensured all potential roadblocks to investment are alleviated, startups are then subject to options trading looking to get in on the action. While capital finance investors often have a much longer term outlook for a business, option traders are the opposite, looking for short-term gains.

If an options trader can see the direction the business is taking through external investment and a sound corporate structure, they are likely to buy options on that stock. When others see this, it prompts them to buy options on that stock too and the stock price rises.

Clearly, there are many other factors that go into identifying a stock option to trade, including small mispricings in the market, foreign policy, trade agreements, technological advancements and changes in consumer demand.

However, investment aims usually fall into two complementary goals, long-term and short-term. A great example of the combined aims of both investors and options trading coming together can be seen in the tech industry. Small businesses like SolarWinds have seen returns on equity of over 67% in the last five years and Questcor Pharmaceuticals have sales worth over $143 million with stock value rising over 4,000% in four years.

For entrepreneurs, startups and small businesses, having their company put under the microscope is a given when being assessed for external investment. If it can negotiate the three pain points all investors want to know and show that their business is scalable, they will then be subjected to the next stage, options trading on the stock market.

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