WHAT AN INVESTOR LOOKS FOR TO FUND START-UPS
As is the case with any business, big or small, old or new, funding is essentially the fuel on which the business runs. And when it comes to start-ups, funding becomes a bigger priority to address as compared to any other challenge. Granted that not every entrepreneur considers funding the single most priority for their business, it sure does help if one can get access to so form of funding. However, most start-ups are not exactly revenue machines from the word go and therefore, founders of such businesses often have to look elsewhere to boost their financial capability to expand. And one of the most important sources for financial expansion is investors. With that being said, convincing an investor to invest in one’s project is easier said than done and keeping that in mind, this article peers into some of the things an investor is looking for in a start-up.
To begin with, a good working team gets into this list. According to www.inc.com, investors are more likely to invest in a project that is being led by a credible team that is focused and is led with a sense of direction. A strong, cohesive team can help establish trust between the investor and the start-up and establishing trust is crucial, especially since it is not just the entrepreneur, but the investor as well who is taking a risk by putting their money into the start-up. Investors working directly with the team would also like to see that everyone in the team is getting along and working at their maximum potential.
2) MARKET SIZE
Speaking of potential, another factor that investors look for in order to gauge the potential of the start-up is the market size of the product or service. So NEVER talk about early exits, quick flips, tuck-in acquisitions, previous interest shown by acquirers, etc., during your meeting
3) BUSINESS MODEL
Investors, at the end of the day, are also looking for a return on their investment and in order to attract investment to one’s start-up, an entrepreneur must be able to work out the metrics and demonstrate to the investor that their business can become big one day. Entrepreneurs must be able to convince an investor that people will buy their product/service and in order to be able to do just that, start-ups must be based on a solid business plan. A complete business plan essentially needs everything to be written down, including competitors’ comparison, issues faced and resolved, the market model, advantages over competitors, and every existing situation scenario and future scenarios too. Make sure that the business is also vetted through market research, surveys, or crowd funding
Traction could mean different to different people. To some it would be in terms of market size, revenue, deals or number of users probably. Traction could be a key element in getting the attention of the investor. Chances are that no signs of growth or momentum in the business could affect the investor’s decision. Approach the investor in your early stage and let them follow your progress, it could simply be increase in number of employees or development of your product. You need to put forward not just ideas, but a proof that you’re going to hit the ground running — or that you already have. The farther you can come on your own, the more likely investors are to think to themselves: “If they can do that much with so little, imagine how effective they could be with my money behind them!”
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