A Worthy Startup Wanted
Entrepreneurs are often full of ideas but lack money. This is what restrains them from fulfilling their dreams. I am going to give you a brief excursion through the world of investing, so you know how to meet the requirements of your potential partners.
Let me jump in the investor's shoes and show you how I would look for the startup to fund.
First of all, let's face the fact that the business idea covers only 10% of your chance to pique the interest; the execution is what we need to assess.
I want to be sure that my money enters a sensibly developed business model. Thus, I am to get acquainted with the people behind the project.
In the business world, credibility values the most. For this reason, before setting up the first meeting with the representatives of the startup in my briefcase, I research what kind of people I am going to work with. What exactly am I looking at? Well, not the schoolmates, for sure. Unless they studied with Alon Mask.
To be precise, I check on the startup owner's track record, work experience, expertise level, and, of course, their network. In case all these factors meet my requirements, I move to the next step.
Another factor that influences my decision as an investor is the state of the company. At this point, I would check if the company has already been launched, and if they have any cash flow or at least clients. Having a working prototype would be a privilege for business owners who want to find investors.
Depending on what product or service the company provides, the factors to consider will differ. For example, if you are a SaaS startup, and you already have your portfolio, your chance to be added to an investor's briefcase will increase.
However, if you are a product company, you will have to put some more efforts to find an investor. You need to understand that saying "I can make a robot that will do housework for you" is not enough. Show me this robot cleaning my apartment, and I'm in!
Where Are You Going?
"Hi, I'm John, a startup owner. We develop a blockchain wallet that will unite all coins", — if this is what you have for the meeting with a potential investor, don't go.
People who want to use their extra money investing in a tech startup wish to know precisely what is so unique about your company that you are so positive the company will scale and bring profit. Business is business.
At this stage, the thing I would look for is your roadmap, a plan of the business development. In simple words, where you want to be in 2–5 years and how you are going to achieve it.
From the investor's perspective, the width of the audience and the industry are factors that predefine the possible profit. This is why I would take these factors very seriously.
Therefore, carefully consider the characteristics of your niche, industry, and market. Only after profound research, present it to your potential investor.
Knowing your potential customers is key to sensible planning. But the market is packed with new ideas and solutions that somewhat take a part of your market share away.
As an investor, I would like to know if you know who are the people/companies providing the same services or developing a similar product — the kind of competitors you have directly impacts investors decision.
Let's say you are a growing SaaS company. Can you imagine how many thousands of businesses turn to be your competitors? Here I need to understand what your chances are to compete with those thousands. To be specific, provide your future investor with a SWOT analysis to define weaknesses and strengths, opportunities, and threads of you and your competitors.
Also, for a full picture, investors often ask for a chart the company's market positioning.
How Much Are You Worth?
Knowing how much the startup costs and how much of investment it needs is crucial at this point. Let's stop here and get acquainted with such term as pre-money and post-money.
A pre-money valuation is how much your company costs before getting the first funds injection. Post-money is a term that defines the cost of the same company after it receives the investment.
How does it influence my decision? Company evaluation directly affects the number of shares that I own after getting in the business. Let's speak more specifically! If both sides agree that a startup costs $1 million and it needs $250 000 of extra funds, it means that after I invest in, 20% of the company shares will become my commercial property. Research this question profoundly before getting in the negotiations.
Prove Your Concept
When you think about investors and clients, both of them give you money and get certain things in return, but what is the difference between them? The last buy your idea: the clients usually fall for innovation and creativity, unlike investors, whose interest stops at the financial profit.
To have a lucky investment break, you will have to prove that your product/service will generate income and HOW it will do it. Here is where the notion of Proof-of-Concept comes. The best POC in the product companies is a working prototype. However, in the service business, I would call it "show me how it works, and prove that I will benefit."
Tech Stack and Infrastructure
You would ask us: "Why would an investor be interested in the technologies that the team uses?" Well, the stack is not the deciding point. However, professional and experienced investors will most definitely check the example of the code you produce or analyze the stack of technologies for product development. This is because the wrong technology mix can cause huge time and money loss.
The Final Thought
As we said before, credibility is what we are looking for in the projects. It consists of little bricks that form a strong base for the business. In the circumstances of the modern market and stiff competition, startups will have to prove the strength of each brick to catch the interest of an investor.