WORLDWIDE more than $100 billion worth of counterfeit products, from Louis Vuitton handbags to Rolex watches, are sold every year. I have developed a great idea, which will allow shoppers to check the authenticity of the product by using their smartphone before they buy the product. It will add only a fraction of the cost of the product for the manufacturer, who will be more than happy to pay this little extra cost to protect their brand and increase their sales. However, I do not yet have a working prototype, which requires significant investment. I do not know how and who to approach for venture capital funding. I am so confident about the success of this idea that I feel like selling my house and investing in this technology. Your advice will be very much appreciated.
IN LIFE there is no shortage of money, but there is a shortage of opportunities. So, if the product works as well as you say, there will be no issue in getting the money you need.
Let's be clear here. Everyone thinks they have the answer to something, and most people think their big idea is going to make them rich. Many people overrate what they have and turn their lives upside down to make it happen. Now I'm not saying that's the case with you, but venture capitalists cannot deal with every dreamer.
If your idea is truly the best thing since sliced bread, you need to be able to prove it. An idea doesn't have to be life changing in order to get funded it has to have a business plan that shows it has the ability to be profitable. If I was a venture capitalist and you were putting forth this proposal, I'd want to know why I should believe you. Where is the proof and how will it make money?
Your idea is reliant on the fact that global luxury brands will find your proposition irresistible and they will have to have it. But what happens if they don't? Then what will you do?
What about their customers? If someone is shopping at a credible retailer, they are probably confident that their purchase is the real deal. If they are shopping off the sidewalk or out of a briefcase, it's likely they are very aware that they're about to buy a knock-off. So, what is your product proposition then?
I know this may sound harsh, but it's a good lesson for you because the questions I'm putting forward are exactly the ones that you'll be asked by anyone looking at funding you. So, before concerning yourself with the prototype, you need to have a long, hard look at your proposal and all the potential pitfalls and obstacles you may face along the way.
If your evidence shows that what you say is possible and profitable, then the money will be easy. But no one will waste his or her time otherwise. Passion is an admirable trait, but proof of profit is what investors will want to see.
My best advice to you is this don't go selling your house or quitting your job until you have an airtight business proposal that can get you over the line.
Mark Bouris is executive chairman of Yellow Brick Road, a wealth-management company and small business adviser that sells products and services for home loans, financial planning, insurance, superannuation, investments, accounting and tax. His advice here is intended as guidance only.
Mark Bouris will be hosting his "Secrets to Business Success" seminar on May 30. For details, go to www.ybr.com.au.
If you have a question for Mark Bouris, email it to Max Mason at max.mason@fairfaxmedia.com.au.
Frequently Asked Questions about this Article…
How big is the global counterfeit products problem and why does it matter to investors?
Worldwide more than $100 billion of counterfeit products are sold every year — from Louis Vuitton handbags to Rolex watches. For investors, that scale signals both a large market opportunity for authentication technology and significant risk for brands and consumers, which is why some entrepreneurs are developing smartphone tools to verify product authenticity.
If I have an idea for a smartphone product that verifies authenticity, how do I attract venture capital funding?
Venture capitalists want proof, not just passion. Before approaching VCs you need evidence that the product works (a prototype or equivalent proof of concept) and a clear business plan that shows how the idea will be profitable. If your evidence demonstrates the concept is possible and lucrative, raising money becomes far easier.
What specific questions will investors ask about an authenticity verification product?
Investors will ask why they should believe your claims, where is the proof that the product works, how will it make money, what if luxury brands don’t adopt the technology, and what obstacles or pitfalls you’ve considered in your proposal. Be prepared to answer each clearly.
Should I sell my house or quit my job to fund my product idea?
No — the advice in the article is clear: don’t sell your house or quit your job until you have an airtight business proposal that can get you over the line. Protect your personal finances until you have compelling proof and a solid plan that attracts investors.
What are the market adoption risks for a product that authenticates luxury goods?
Key risks include whether global luxury brands find your proposition irresistible enough to adopt it and whether customers actually need the service — for example, buyers at credible retailers may already feel confident their purchase is genuine. You must plan for scenarios where brands or customers don’t adopt the technology.
What do investors mean by 'proof of profit' for a startup idea?
‘Proof of profit’ means credible evidence that your idea can generate revenue and be profitable. According to the article, that includes demonstrating the concept is possible and presenting a business plan that shows how the product will make money and scale.
Is it easy to get venture capital for a new product idea?
Not necessarily. The article notes there’s no shortage of money but a shortage of opportunities. Venture capitalists are selective and won’t fund every dreamer — they invest when there’s convincing proof and a viable, profitable business case.
Where can I get more guidance from Mark Bouris or attend a seminar about business success?
Mark Bouris is executive chairman of Yellow Brick Road and offers advice to small-business owners. He will be hosting a 'Secrets to Business Success' seminar on May 30 — details are on www.ybr.com.au. If you have a question for Mark, the article says to email it to Max Mason at max.mason@fairfaxmedia.com.au.
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