How do I raise money from investors who don’t understand my IP?

The short answer is that you don’t. If you listen to any good investor they will tell you that they don’t invest in businesses that they don’t fully understand.

However complex/technical your underlying product or service may be, if your prospective investor is expressing concern that they don’t understand your IP, this typically means one of two things:

1. They don’t want to understand your IP (it may be in a sector they don’t like or are fearful of… )
2. They don’t understand the business implications of your IP and so are focused on the IP itself.

The challenge for all of us is to present our businesses from the perspective of the lay person – not the expert in the field.

Investors always want to know the same basic things:

1. What problem does the business solve?
2. Who has the problem?
3. How much are they prepared to spend for the solution?
4. How many people have the problem?
5. How much does it cost to meet the market?
6. How well do you compete in your niche?
7. Do you (the entrepreneur) know how to address the market?
8. How much money will we make?

These questions have nothing to do with technology or complexity and everything to do with value proposition, definition and communication.

Your job as an entrepreneur is to convert your IP into compelling answers to these questions. If your prospective investor is concerned because she doesn’t understand your IP, then you have failed in this fundamental task.

Whilst this applies to all businesses, it is particularly challenging for high tech businesses where the entrepreneurs are often highly qualified engineers who have difficulty relating to the investor mindset.

The good news is that there are experienced business people that can help with this task…

My advice is that you try to find an advisor/mentor with direct entrepreneurial experience rather than consultants or former corporate executives, as the skills required to facilitate this sort of work are really only developed through first-hand experience.

Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.

For more Funding expert advice, click here.

Got a question for one of our Experts? Choose one that suits your area of inquiry and send it in to asktheexperts@smartcompany.com.au.