Want more business tips? Check out the book Wise Words by Sean Wise, the official blogger of Dragons' Den

This week we heard the usual assortment of reasons for not investing. not enough profit not enough revenue not enough sales In previous posts, I've spent time discussing why sales are so important as proof of concept. I've also discussed what it takes to get a deal. Today, I'd like to chat about the 10 x Rule of investing. While it is true that angel investors (like our dragons) typically seek 10 times their money back over 3-5 years that isn't the source of the "10x rule". The 10x rule means that in order to gain market traction a product must be exponentially better. ie 10 x faster, 10x smaller, 10x cheaper, 10x more profitable.

The reason for this? --Market adoption. Historically, being a little better isn't enough to gain huge market share fast:

• Beta is a little better than vhs
• Blu ray a litter better than hd dvd
• Plasma a little better than lcd screens

Now compare that to:

• email is WAY faster than snail mail
• airline travel WAY faster than train
• mp3 players can hold way more than cd players

It doesn't take an MBA to see which of the above gained significant market traction and which still struggle for mass adoption.

That....is the 10x rule and if you are going to be seeking high returns on investment you only want to back high risk, high growth companies that meet and beat the 10x rule.

Posted on Nov 28, 2007 10:00:00 AM