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Monday, October 6th, 2008
articles.php?which=returnoninvestmentstillmatters
Don't Have The Next Facebook? Attract Investors With ROI.

We've talked a lot recently about businesses that have gotten funded. While it's good news that there's entrepreneurs out there getting money in what's kind of a crappy economy, I know a lot of you are asking, but what about my small business? Sure Twitter and solar panel green energy businesses are getting millions thrown at them by Silicon Valley VCs. What does that mean in terms of getting funding for my start-up?

Well, a couple things. First of all, it's clear that tech and green businesses are blazing hot right now. It's no surprise that VCs want to be the first to "discover" the next big thing in those industries. So if your start-up is in one of those fields, all the better for you. But if it's not, there's a couple other metrics investors look at. Probably most important is their return on investment(ROI). That is, how much money they're going to get out of the deal. Typically these guys wants at least an eight times return on what they put in, or greater equity in the company. While ROI often takes a back seat to the flashier details of an investment deal in press coverage, it's still a critical measure.

Don't take our word for it though. The Vest Pocket Consultant, an Entrepreneur Mag blogger says:

"...while every VC would love to back the next MySpace or Facebook, traditional metrics such as ROI and cash flow have reappeared on VCs' checklists."

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