We are often asked what the key elements of a successful funding campaign are. In truth, there is no secret formula and every campaign is different. Financially speaking, below are some of the key things that investors look at when considering investment into a business.
- Safety: The safety of an investment is the investment’s ability to maintain its principal value (initial investment amount) before it provides either income or appreciation. Investments that exhibit small price fluctuations are perceived as safer, however, the trade-off is that the returns from the investment (income, capital appreciation or both) are generally lower.
- Income: The ability of an invested amount (principal) to generate a stream of cash flow typically in the form of periodic interest or dividend payments. The higher the percentage income generated on the principal amount, the riskier the investment tends to be.
- Capital Appreciation: The ability of an investment to grow in value over time. Investments that tend to deliver higher rates of capital appreciation tend to be riskier and rank lower on the measure of investment safety.
- Tax Efficiency: is an essential part of investment success. Taxes can significantly lower the actual amount of the return an investor keeps. Generally, investments that rely on income generation as a means of providing returns are less tax efficient than those investments that provide capital appreciation. Note: investments held for one year or less will incur tax treatment at the taxpayer’s marginal income tax rate.
- Liquidity: often also referred to as marketability, liquidity is the ability to turn an investment (asset) into cash quickly. Investments in most company stocks that trade on the national exchanges have a high degree of liquidity. Real Estate on the other hand is not readily liquid and takes a longer period of time to convert to cash.