9 Important Things Investors Look for in a Startup
If your startup has reached a point where it is ready to expand, congratulations! Now what?
Wanting to expand is easy. However, the challenge is in convincing investors to fund your startup. That said, we have listed nine things that these venture capitalists are likely to look for when investing in a startup:
Clear business plan
Before looking for investors, the most fundamental thing you need to have is a business model and plan. If you lack a concrete plan for your business, that’s a red flag for investors. It can indicate that you won’t be able to sustain your startup in the long run.
Besides, you know more about your startup than your investors, so it makes sense that you think you deserve or are worth investing in. However, your investors don’t know much about your business right now. A solid business model is the first introduction you serve to potential investors.
A common mistake that startup founders make is pitching to investors before identifying whether there is a demand for their product or service.
Here’s the thing: Investors would want to know whether it’ll be worthwhile for them to fund your startup. And an excellent indication of that would be market demand. That’s because demand is equivalent to potential sales and revenue.
Hence, you should include the kind of problem your startup wants to solve in your pitch.
Target market and size
Aside from product-market fit, you should also indicate how many people are experiencing the pain points your startup wants to solve. That’s because this is an indication of your target market and size.
In the eyes of your investors, the market size means potential clients. Clients lead to sales, which means that your startup can deliver ROI.
Your potential ROI can make or break your fundraising campaign.
Go-to marketing strategy
You know that there is a market for your startup. The next thing you want to talk about is attracting your target clients.
Keep in mind that your startup has no chance of success unless people know it exists. Hence, you should include your go-to marketing strategy in your pitch.
When pitching your go-to marketing strategy, though, consider your promotional process. Sure, you can say that you will use social media marketing as one of your strategies. However, you should include what social media channels you will use, why, and marketing tactics.
That way, your investors can also suggest what other promotional campaigns you can use.
Minimum viable product (MVP)
Depending on the seeding round that your startup is in, your potential investors might ask for a minimum viable product. It is an early version of your product with enough features to make it usable for your customers.
If you own a health and wellness startup, perhaps your MVP is a mobile app that helps users calculate their calorie intake.
Why would an investor look for a product MVP?
For one, it shows that you care for your idea. You want your startup to come to fruition so much that you build an early version of your product or service to see if it works.
Second, your MVP is proof that you have something concrete and not just an idea. It also allows investors to picture how your startup works and what can be done to enhance it.
Speaking of enhancing your MVP, your investors want to see your product roadmap. Doing so gives them an insight into where your startup might lead.
Using our previous example, perhaps your mobile health app can lead to partnerships with health insurance providers. Other potential partnerships include pharmaceutical companies, hospitals, and diagnostic laboratories.
You do not have to pick one product roadmap, and this is where you can be as grand as you can. However, it should not be far-fetched. Your roadmap should still be realistic, as your investors will make you accountable for it.
A good product roadmap shouldn’t only highlight what you want to happen to the product you have as time goes on. It should also indicate how you plan on making sure that the product roadmap goes as according to the plan as possible.
Many investors aren’t necessarily risk-averse when looking for startups to invest in.
An example is Michelle Dipp, a female leader in venture capital investments. Her company, Biospring Partners, funded life science startups in the middle of the pandemic. That’s because such tech-driven companies are expected to gain traction because of the situation.
Investors will have no qualms in investing in your startup if they know where you will put their money. That’s because they want to know why you need funding and how you will intend to use it.
Having strong leadership in your company can help investors feel at ease leaving their investment in your hands. Sometimes, investors aren’t willing to invest in a startup because of weak leadership.
However, “weak leadership” does not mean you lack charisma. Your potential investors want to see whether you can handle running a startup. That’s because it can be challenging and complex.
It’s good that you do not have to run a startup alone. It would help to add your leadership team to your pitch, indicating what their job entails.
Momentum and traction
There are unique cases wherein you do not struggle with scheduling a pitch. It can be because your startup idea is innovative, interesting, and shows potential.
Nonetheless, you have to make sure that you’re not jumping on a trend. Instead, you must showcase how you plan to keep the momentum going if the trend dies down.
After all, your investors would want to ensure that you’re in it for the long haul to achieve ROI.
Over to You
The experience of raising funds to expand your startup can differ from other founders. Nonetheless, you should be prepared whenever you are pitching with potential investors.
One way to do that is to know the factors that investors consider before betting their money on a startup. That way, you would also know what to include in your pitch to convince them to fund your startup.