The right investor for your startup won’t just provide capital. The right investor can add value as an industry expert, an insightful mentor, a well-connected network contact – pretty much as a driving force to accelerate your startup! To help you grab the attention of the right investors, here are the 5 key attributes they seek from startup businesses.
“How do I get investors for my startup?” It’s one of the most frequently asked questions from budding entrepreneurs. It’s a question we address during our Rocketfuel Workshop to help clients determine the best business model for their app startup.
In the future you might be looking towards increasing your investor base to gain startup funding. Whether it’s through Angel investor networks, AngelList or other entrepreneurs, it is important to know what investors look for in a startup. In this guide, we’ll be going through the five traits investors look for in startups to increase your chances of getting funding.
What are the 5 things investors look for in startups?
1. The Right Team
The first important criteria that investors focus on consist of the founders and management team of the startup. In fact, many investors see this as the most important aspect. Investors look at the technical areas in founders, such as their skills, education, and experience. For instance, their experience with overcoming obstacles and leadership.
Investors also look for certain personality and characteristics of founders that are congruent with theirs. While there are many traits, the main ones desirable to investors include teamwork, determination, willingness to learn and perseverance. In addition, investors look at the founders’ past investments to identify whether business operations match their expertise and own experience. For instance an investor with a focus on health and well-being would most likely help a startup offering healthy snack bars. Overall, they want to make sure that the people they will be working with in the long term are trustworthy, committed and have the ability to get the job done.
2. Big Idea
The second aspect that investors look at is your overall business idea. The main aim here is to show that your idea will work and benefit the investor in the long run. To do this, you could create a Proof of Concept (PoC), which basically shows that your idea is feasible and scalable. Your PoC should answer questions that look at your product or service’s potential or is adaptable to future trend.
As mentioned previously, another aspect relating to your idea that is desirable to investors is your product or service’s ability solve a problem, be unique or innovative. For instance, Uber got its first funding, back in its early days, through solving San Francisco’s problem on the lack of cabs and transportation. One other way to further enhance the validity of your idea is through social proof, which is essentially where others, whether it be through customer testimonials or media reports, provide a good form of evidence.
3. Business Market
Another aspect investors look for when funding startups is the market landscape where your startup is competing, as it is a potential indicator of growth. Investors are looking to fund businesses with potential to be the next big thing in the present and in the future and, as a result, also offer a large return on investment. They need to make sure the market has enough demand and the potential for a large customer base.
The bigger and more stable your customer base, the more likely you’ll win over investors. In fact, investors even look at funding startups in new and promising markets, as long as you prove there’s growth and potential. If you’re operating in a highly competitive market, you’ll need to show how your solution stands out among others, which is tied back to your overall business idea.
4. Business Plan
The next element investors want to see is your startup’s plans and strategies down on paper in in the form of a business plan. It is important to note here that investors may have different criteria on your plan. However, your overall aim should be using your business plan to prove to your investors that the startup can compete and investors will gain a return on investment.
It should be detailed and consists all of the basics of a standard business plan, such as background on your startup, financials and operational strategies. Going beyond the basics, investors are particularly interested in elements focusing on the business’s potential. For instance, competitive landscape, financials and how your product/service offerings solves a need or problem. Additionally, investors want to see that you’re building your startup, so you’ll also need to provide evidence that you’ll gain continual traction, which I’ll speak more about later, through research and data.
Finally, investors look at a startup’s business traction, which refers to the startup’s progress and momentum in a market. You can show investors that your business has traction through your current customer base or sales figures on your product or service offerings. Essentially, traction shows investors that your product or service offerings are in demand and are on its way towards success. Having traction gives you the opportunity to stand out among other startups.
For startups with limited or no traction, you can show investors that you will be creating traction through clear goals and metrics to measure its success. These aspects should be stated in your business plan. Other ways of getting traction include reaching out to customers and influencers, getting customer feedback and also gain publicity by showing your products and services at events. In fact, this is a method used by Twitter to gain success when they first started out.
While there could be many more different criteria investors are looking for, in general they will be looking at the startup’s human resource aspect (Founders and Management), business plans, your overall idea, the market you’re operating in and the traction in the market. Remember to show and not just tell investors with evidence and research, which I’ve already mentioned throughout this post.
If you would like any further advice or assistance, contact Launchpad App Development to find out how we can help you launch your startup.
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