What qualities do investors seek in startups and founders? When it comes to fundraising, the answer to this question might be a bit enigmatic. Unless you’ve previously successfully sought out investors, you won’t always know how to connect with them, prepare for meetings, and stress the facts they want the most. This post will individually cover what investors look for when meeting with startups and more specifically, their founders.
What Do Investors Look For in Startups?
A Clearly Defined Investment Structure
We’ll get the boring stuff out of the way first. How much funding are you looking for? Where and in what ways are you looking for it? Investors want to see whether or not your startup has these things thought out. Showing them that you have not only considered this, but have the financial framework in place is a major positive.
Prepare to bargain with your investors. They may desire a greater share or amendments to the shareholder agreement. Having a pre-planned investment structure can help you prepare for talks. Remember to consult a lawyer to ensure that you retain ownership of your business.
A Strong Team
What a founder brings to the table is incredibly important, but so is the rest of your startup’s team. The importance of not only leadership, but teamwork as well is immeasurably important. Investors however, are aware of this. They are not only investing in your business and idea, but you and your team as well. They will be more likely to invest in a passionate team led by a technical and enthusiastic leader.
Everyone in your startup has a huge impact on how an investor perceives your company, so make sure everyone is the right fit. A team should have talents that compliment one another. Are you covered in areas such as marketing, sales, product development, and operations? Are you able to work together and treat one another well? The chemistry of your staff may make or break your business, and investors will notice.
A Dynamic Market Opportunity
You may have a wonderful product and an excellent staff, but is the market appealing to your startup? This has a significant impact on the investor’s decision. If the conditions are not favourable for your project, raising financing will be significantly more challenging.
Do you know the size of the market you’re pursuing and whether it offers a big income potential for your startup? Investors are more interested in companies that have a wide market aim. Another factor they will examine is your ability to reach this market and persuade them to accept your goods.
Investors are justified to be cautious of companies that appear to be struggling to expand. A wide market should always cover your company’s current and future. Depending on your company’s industry, you will need to demonstrate how realistic your strategy is and how you can drive growth so that investors can understand how they can help you scale while also getting their money’s value.
A Shared Vision
A lack of a shared vision with your investor might make or destroy your fundraising offer. Something has to click for an investor to see the value of your business. A positive first impression and genuine connection are more crucial than you may imagine.
Investors have met company founders from all around the world, and their ability to judge personalities has improved. They seek honesty, zeal, and determination. They may also be seeking for mutual network ties or shared experiences. Establish your reputation, and you’ll be more likely to locate an investor who is a suitable fit for your business.
There is no set method for convincing investors to back your firm. Remember that they are humans as well, and you should treat them with consideration and understanding. If you offer them something to believe in, you may find a terrific investor and friend in one of them.
A Competitive Advantage
Contrary to popular belief, investors are less ready to accept large risks. They want to ensure that they are making a long-term and lucrative investment. Having a major edge over your competitors in the sector can assist investors in determining the feasibility of your firm.
This does not imply that you must have the finest product or service. They will already know who your competitors are if they have done their homework. What can you provide that your competitors cannot? What are you doing differently to distinguish your company? You must demonstrate that you can outlast your competitors in order for them to consider your firm.
Your company strategy will demonstrate your competitive edge. Use these ideas to persuade investors that whomever competes with you will fail. This manner, you can demonstrate that you have a long-term plan in place to assist them increase their money as well.
A Strong Business Plan
Investors value a firm with a robust and appealing business plan more than the concept itself. Your firm will be more appealing to investors if you demonstrate how far your company’s objectives have progressed.
Do you have a thorough understanding of your industry? Do you intend to launch any marketing campaigns? Did you create financial estimates for your company? Do you have long-term plans that demonstrate the scope of your vision? Before taking the risk, investors want to see things in place.
Investors are more inclined to invest firms that have achieved a particular amount of revenue or development than those that are still in their early stages. Gain some momentum before attempting to obtain finance so that you can provide a polished method and notion that will capture investors.
A Feasible Business Model
How certain are you that your business will be financially viable? Do you have the data to back up your claims? Investors want hard data, so make sure you have it first. Otherwise, your capital-raising strategy would fail immediately away.
A quantified and proven business model will assist you in turning a concept into a viable enterprise. It will not only help you predict how you will spend your cash in the following months or years, but it will also offer you a better idea of when you will need to raise capital.
In fundraising, the business model is a non-negotiable criterion. All of your fundraising ideas are based on financial data that supports your business concept. This will let investors know how you’re performing and what your goals are. Investors are interested in your predictions and what it means for them in the near and long term.
What Do Investors Look For in Founders?
Fast-Acting & Confident
Some entrepreneurs have a lot of passion but lack understanding of client demands, market trends, and financial restraints. Decision making should be a logical process, as decentralised as possible, based on facts, and considering rivals and others.
Someone Who Sets Goals, Builds Plans, and Sticks to Them
Investors are unimpressed when aims and strategies lack concentration or appear to shift with the wind. You will discover that your staff, partners, and vendors share your sentiments. People want you to hit more goals than miss, and to be prepared to pivot or take corrective action as needed.
Unless you sold your previous firm for $1 billion, the days of scratching your concept on the back of a napkin and having investors fling money at you are long gone. They now want a well defined strategy with precise data-driven goals and targets.
A Hard Worker
A person who works more hours will nearly always succeed or perform better than a person who works less hours. That’s just the way it is. Those who are committed to their goals and willing to work hard to accomplish them have a distinct advantage.
Someone Who Understands and Cares About Their Customers
Founders who are continuously in contact with their current and future consumers. So many entrepreneurs are inventing goods and services that address mental demands rather than actual ones. Most firms fail due to a lack of product market fit, not a lack of money. Understanding what your consumers require, want, and believe is therefore vital.
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Amit has 18 years of experience in the industry and an MBA. He supports entrepreneurs with every aspect of their business including concept and product development, investor presentations, and fundraising. Amit & 7startup assist startups in the pre due-diligence process and help connect them to our vast network of investors. Reach out to us today and see if we’re a fit!