Most of us have budding ideas which we never actualize due to lack of money, well its basically due to not knowing how to raise the money due to fear of debt and not having enough financial knowledge to know how to go about it, one way of raising capital is using other people’s money (OPM).
We usually look into our pockets and bank accounts to try to finance our businesses and investments which is never enough given the case that most of it go to our daily life activities and the little that we save is not enough for startup capital.
So let us think on how to invest using financial leverage commonly known as other people’s money (OPM).
So what is Other People’s Money (OPM)?
It is basically a slang term referring to financial leverage; this is where one borrows capital that increases both the returns and the risk of the investment made. The use of other people’s money strategy can be used by both individuals and corporations as the try to get into new markets.
This strategy is often categorized as a double-edged sword where the profit and loss are equal according to the risk percentages. This means that if the venture undertaken turns out to be profitable, the profits are magnified by the mare fact of leverage and the vice versa is true and can lead to steeper losses.
How Does OPM Work?
When one is faced with an investment opportunity that gains a certain percentage at the end of the year, the return will be the initial investment plus or minus the gain percentage depending on whether the venture was profitable or not.
Let’s say if one is faced with the same investment opportunity and decides to invest but only has say $100 and decides to borrow $400 in order to invest $500 with a 20% annual return, the investor will either gain or loss $100 depending on the outcome of the investment which is a 100% gain or loss of his initial investment capital.
This dramatically increases both the upside and downside of the investment but can be controlled with a good business model.
How to Go About the Borrowing
Every investor wants to know how they will get their money back and a profit on top of that. For someone to lend or invest in your venture, you need to be realistic and discuss everything including the roadblocks. This shows preparedness and adequate research on the business.
This indicates the team behind the project and their track record, it shows how each one is experienced and the expertise each one of them is bringing on the table. Choosing an experienced team gives confidence to the investors.
For every venture to run smoothly and be profitable it has to be run well. Investors need to know the one running the operations and their background and how they react under pressure. This gives a vote of confidence on the one managing their money.
4. The Project
I have saved this for the last since I can’t insist more on its importance. Bringing out the idea being invested in is very critical; it’s unique value proposition and its competitive edge. Share everything about the project including its negatives and how you plan to overcome them. As described by Robert kiyosaki https://www.richdad.com/resources/rich-dad-financial-education-blog/november-2017/how-to-invest-using-other-peoples-money
Initially raising capital used to be a long process which should not be the case, addressing the four aforementioned key issues in your pitch while keeping it short and aphoristic will definitely increase your odds while looking for financing. Let us shun the fear and go for it.