Five Tips to Become an Investor Magnet

Investors and entrepreneurs don't always agree, but there are five fundamental elements that can position a good company as an attractive investment.

1. Great products: In general, investors want to put their money in strong companies with great products. To find out if your products or services are unique and competitive, be prepared to compare your offering to all sorts of competitors and possible substitutes. One financial sign that you are on the right track is strong margins.

For a product company, gross margin is a good barometer of the value you are adding to products. For service businesses, net operating profits may be more relevant. In either case, companies squeezed by excess competition are unlikely to show long-term profits.

2. A large and growing market: There is little room for growth if you have a niche product in a niche market. Investors want to know that you have, or can grab, a commanding share of a growing market. Show an investor how you can double and redouble your business by capturing (or acquiring) a commanding position in the market. Having the wind at your back will greatly impact not only an investor's overall interest in financing your dream, but also the valuation it will assign to your company.

Investors are interested in knowing that your company is in a rapidly growing market, says Evans. They want to know how large the market is, your company's share of the market, and whether there are adjacencies that represent additional expansion opportunities.

Bold agrees that market fundamentals are what motivated his investors. Most of the customers of The Mutual Fund Store have come from the baby-boom generation, and that demographic continues to fuel the company's growth. Says Bold, "Baby boomers are in their peak earning years and their peak savings years. That creates real opportunity for our investment services."

3. Clear financial records and projections: Investors may differ in their willingness to fund growth without immediate profits, but most can agree on one thing: The entrepreneur must understand the economics of the underlying business model and have excellent records of the company's historical financial performance.

Bold says he not only implemented strong financial record keeping and controls, but he also paid for professional audits. "It cost more," he says, "but it gave [the investors] a lot of confidence in the financials."