Things Investors Look For Before Putting Money On Table
Investors are in the business of putting money into growing businesses so they can make money. If you can demonstrate that your business will make them money, then you’re 90% there. So, our 4th part of Funding Series highlights key things that investors look upon before investing in your dream startup.
While every investor will have their own requirements and be looking for something that aligns with their personal interests and pursuits, there are a number of things you should consider if you want to stand a chance at getting funded.
- Hard Data: Showing the Numbers
Let’s start with hard data. If your company has been up and running for a while, then you need to show that you’ve had excellent financial performance so far. If your company hasn’t yet started up, then you need to show what you can expect to bring in, when you’ll hit your goal numbers, and when your investor can expect to start earning their money back. In other words, you need a really strong business plan.
“No way of thinking or doing, however ancient, can be trusted without proof.” — Henry David Thoreau
- Market Share
Market size is one of those things. However, a large market is not enough. Make no mistake, you will need to have a business model or a business plan that shows just where you sit in relation to your competitors. Understanding them is a good starting point.
Among other things, your business plan should include:
- Your intended market, with data to show why that market is your target
- Sales channels, with data to show why those channels will be effective
- Marketing plans and goals, with data to show why those plans will be effective
- Projected timeline for when you’ll start making money
- Potential obstacles and your plans for dealing with them
“We don’t have a monopoly. We have market share. There’s a difference.” — Steve Ballmer, Apple
- A Unique Idea and a Competitive Advantage
The bottom line is that if the market is saturated with hundreds of identical products, then your company isn’t likely to be a huge hit.
Convey to investors what it is about your product or services that make it unique. Is there a market potential for your unique product? Is it a brand-new innovation or invention?You may also show that your business is going to fulfill an unmet need. In business terms, this is your “competitive advantage.” It’s what will make you successful over your competitors.
“Agriculture sector is ripe for disruption.” — Alekh Sanghera, farMart
- A Strong Narrative
Your investors are people, not robots, and they can be swayed by a great narrative about why this business matters to you, where the idea came from, and where you’re planning to take it. What makes it special? In fact, opening your pitch with your story is a great way to set the tone and draw your potential investors in.
“Whenever I invest, I look at the eyes of the entrepreneur.” — Mayoshi Son, SoftBank
- Business Readiness and Traction
Is your company ready to take off and hit the ground running? If you can show that you’ve got all the key components in place, you’ll peak investors’ interest because they’ll know that they’ll get a return on their investment sooner rather than later.
Another great way to lure an investor’s interest is to have a bit of traction.For investors, traction minimizes risk. It’s a chance to see how you perform and what you’re capable of.
- Cash Flow- Where It Will Go, And When They’ll Get It Back
Investors expect to see a return on their investment. Therefore, they want to see realistic financial projections that show how long it will take for the business to show a profit and for them to recoup their funding dollars. They also want to see a clear exit strategy: a way to make a profit and move on to the next deal.
The most important part of the business plan is arguably the Cash Flow plan — how much money is coming into your business and how much money is going out. You will need to show that you can cover your own expenses without having to turn to the investor for a check.
Seeing a good return on their investment is key and your financial projections on the business plan are there to give them an idea of how long it will take for you to make a profit and for them to recoup their investment. This is where the ‘exit strategy’ also comes in.
Expect your investors to seriously evaluate this one piece of area.
- A Clear Investment Structure
Buying ownership in a company has legal ramifications and investors will want to know that you’ve already considered those issues. You will need to have a clear plan for how the investment will work. Part of this involves having a clear valuation for your business and putting together a stockholder’s agreement that clearly sets out the rights of all owners.
Investors are in it to make money. Show your potential investors that you’re thinking about the future, because that’s their number one concern.