Getting Product Market-Ready Makes It Easier to Find Potential Buyers for Line
Question: I created a line of skin-care products, but for various reasons was unable to market them. After a very sizable investment, I’m wondering whether I might be able to sell the rights to these formulations to a beauty-supply house or school or an entrepreneur who would be interested in producing the line. Would a Web site work for us? How else might I find a buyer?
--Dean Hoff, Palm Springs
Answer: You should indeed be able to sell the rights to these formulations if you can find a company or person with interest in buying them. The more you have done to bring these products into the actual marketplace, the easier it will be to sell them.
For instance, it would be a plus for you if you have already patented the formulations. It would be another plus if you have actually sold some product and can demonstrate evidence of acceptance by the market. It would be still a further plus if you have tests or medical verification that your products actually do some good.
In any event, you need to identify the benefits of your product line over what’s already out in the marketplace and state what distinguishes your product from the others, for example, how rapidly, how well or in what specific areas they perform to the benefit of the user. If you have promotional literature, specially designed containers and packaging, text material for advertising, etc., so much the better. Once this material is assembled in a format and organization that is easy to review and digest, you will be ready to proceed with your direct sales efforts.
A Web business that offers beauty-care product lines for sale could be a potential buyer for your product formulations. An Internet search of sales and auction Web sites could be successively broken down into categories of commercial beauty-care businesses and commercial beauty-care product lines. Placing your product line on some of these sites would introduce it to many potential buyers.
Another way to advertise the line would be to take out a newspaper ad in the “Business Opportunities” section. A third source would be specific trade journals dealing with beauty-care products. Most of these have a page or two of classified and display ads offering products, hardware and formulations for sale.
You can get contact information for beauty-care journals through an Internet search or by checking with your local reference library.
If you don’t mind beating the pavement, you could ask some local beauty-care firms whether they might know someone interested in buying the line. Networking along these lines frequently produces results because it is targeted at the market of interest. However, taking the time and expense to create a personal Web site simply to offer the product line for sale does not sound effective, because the chances of a serious buyer finding it are very slim.
--Warren M. Haussler, president, Keck-Craig Inc., Pasadena
Q: I want to create an advertising company catering to e-commerce firms and need to raise between $500,000 and $1 million to get started, but I don’t know what the ballpark standards are when it comes to private investors. Do they expect to double their money in two years? Do they expect a controlling interest in the company? Please steer me to any resources you can.
--Todd Fanady, Long Beach
A: First, remember that every deal is unique and everything is negotiable when it comes to raising money for a start-up venture. Speaking very generally, however, venture capital firms do not invest less than $2 million--most do not do deals for less than $5 million. Venture capitalists will want to see a business plan that is based around your company going public within a certain time frame, and they will expect a 25-fold return on their money. For each funding round, no matter how much money is involved, you should expect to give up between 20% and 33% equity in your company. A ballpark figure of 25% for each investment round is pretty typical.
Angel investors--private individuals--will be more likely what you are seeking because they specialize in smaller investments. You can get information on locating angels at https://www.angelinvestors.org. To find a database on investments, along with entrepreneurial resources and research, go to a page on the PricewaterhouseCooper’s Web site, https://www.pwcmoneytree.com, where you can see the results of the firm’s quarterly investment survey.
--Elton B. Sherwin Jr., author of “The Silicon Valley Way,” Prima Publishing, and managing director, Ridgewood
Capital, Palo Alto
If you have a question about how to start or operate a small business, mail it to Karen E. Klein, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or e-mail it to kklein6349@aol.com. Include your name, address and telephone number. This column is designed to answer questions of general interest. It should not be construed as legal advice.