Los Angeles, CA (PRWEB) September 08, 2012
Investors are always interested in gaining ownership stakes in high potential companies but are also always weary of the considerable risk-taking necessary to actually do so. "The best investors and entrepreneurs are ones that take a dispassionate and detached approach," says Jay Turo, CEO of Growthink, Inc.
Turo, who since 1999 has helped thousands of entrepreneurs start and grow their own successful businesses says "they don’t get caught up in the “drama” that the word risk has unfortunately garnered in our "it bleeds it leads" media and in our litigious culture." He explains how they view risk for what it actually is, a measurement of the likelihood of a set of future outcomes.
To educate readers on the context of startup investing Turo has listed the three main drivers for calculating total risk:
1.Technology Risk. Can the entrepreneur actually bring-to-market the product or service and on what timeframe?
2. Market Risk. Once the product is in the market, will anyone care?
3. Execution Risk. Can the entrepreneur lead and manage a growing enterprise?
According to Turo, "Poor grades on any one factor has an exponential impact on the business' overall risk profile, and thus its investment attractiveness." Investors do their risk calculation not by adding, but rather by multiplying, these factors together.
Companies that raise capital simply have better answers when the have higher scores from the above calculations. "Their technology plans are better thought out, they understand their market and customers more deeply, and their employees have better resumes and track records," Turo adds.
But Turo thinks it goes deeper than that. He feels deals judged as higher risk are disproportionately prejudiced against, even when their expected return more than compensates for their higher risk. As a result, Turo insist that higher risk deals are normally underpriced while the lower risks ones are usually over-priced.
That is good knowledge for investors, but what about the entrepreneur?
Turo states, "Entrepreneurs must always remember that the real dialogue going through the mind of the investor when considering a deal is not really about technology, or market, or management, even when that is what they want to talk about. No, it is almost always about the risk, both its reality and its perception."
According to Turo entrepreneurs have to address this concern above all others, head-on, thoughtfully, confidently, and candidly. "Then risk will be put back where it belongs, as a factor to consider, not something that just automatically stops a deal," Turo concludes.
Growthink provides consulting services and training products to help entrepreneurs start, grow, and successfully exit their businesses. To learn more about Growthink's business plan services, visit http://www.growthink.com/businessplan. Growthink also offers "The Ultimate Business Plan Template", available at http://www.growthink.com/products/business-plan-template.