Helping investors do their research benefits all parties
Although crowdfunding and angel investment platforms are becoming increasingly popular, there is still an element of risk that investors and lenders subject themselves to when participating in venture capital funding. Financial lenders have to do a good amount of research to determine the growth potential of the companies they’re interested in, as well as how much of a risk that company presents and the likelihood that it will be able to pay back the loan.
This process alone is fairly lengthy, and when multiplied across the numerous funding applications that are submitted to banks and lenders on a daily basis, it can take weeks before the lender is able to review an application and get back to the applicant with a decision. In order to increase efficiency and give lenders true insight into how sound of an investment a particular company is, the Entrepreneurial Finance Lab has created, and now delivers, an approximate 45 minute survey that it distributes to lenders in order surface top investment opportunities considered to be high potential, low risk.
Entrepreneurial Finance Lab determines risk
The survey asks applicants psychographic questions based on attitudes, ethics, business abilities, knowledge and intelligence. By focusing on these aspects, lenders can more easily gauge the personality of its applicants and their values. And although a nice business plan and supplemental materials can be impressive, the automated survey helps cut to the factors that matter most to investors –which is how likely it is that the company will grow and be able to pay back the loan.
The EFL currently has partnerships in 20 countries and offers the survey in 24 languages. So far, more than 51,000 applications have been submitted, and because of its low transaction costs, it’s an attractive offering for financial institutions.
The EFL system is designed to prevent applicants from tricking the system, and generates questions in a different order for each applicant so that businesses can’t develop false patterns or manipulate the questionnaire. It ultimately helps lenders determine the risk of potential investments in a way that requires less time and resources, and more quickly gives them the information they need to make a final decision.