What Does an Investor Look for Before Investing in Startups?

What Does an Investor Look for Before Investing in Startups?

You know that you have an innovative idea and you also know how to make it work. But ideas don’t fetch money. Many ideas and concepts die an early death due to lack of funding. New budding entrepreneurs need money to grow. One of the biggest hindrances that most startups face is — investment. Pitching your idea to the investor or venture capitalist and asking for the money can be nerve-wracking. Fundraising or seed investment is the problem most entrepreneurs struggle with when starting out.

With adequate experience in investments and after mentoring a number of successful startups I have summed up a few vital points that the angel investors or venture capitalists look for in a startup before investing in them.

1. Idea

In recent times with so many startups all over the place, I have seen founders come to me with ideas far-fetched and confusing. The ideas are sometimes very unique but so bizarre that it becomes a bit hard to believe that those products or services will ever work. Before you see an investor it is very essential to do your market research, have data and prepare a well laid out plan on how exactly do you think your service or product will work. You must know your customer, the problem, the issues and offer a solution for the same. If your idea proves to be the game changer there is no stopping. Be confident about your concept and be ready to show how it works.

2. Team

Investors back people, they back minds not just products or ideas. An investor always evaluates you to know that you are trustworthy, efficient and an expert in your field. A group of founders (2 or more) is always preferred as they form a balanced team. The investor wants a team that is capable of following through on commitments and delivering positive outcomes. Other than the core founding team the investor also gets swayed by an executive and advisory team that is equally committed, capable and professional and are able to handle challenges and pressure as a group.

3. Execution of the Idea

Over the years I have seen many ideas fail due to shoddy execution. For a founder it’s very vital that his idea is executed in the correct manner- it is the key to your success. Just a idea or a great product will not make you an entrepreneur, you need to know how to put the idea/product into a process and run a business. Even if you have a mind-blowing product, funds and stimulating market space, how you and your team execute on it makes the difference. Correct timing and perfect execution can make the difference between a successful and struggling company.

4. Commercial Value or Traction

In the end, everyone wants returns. The best way to get hold of the investor’s interest is by showing commercial traction on your service or product. Proving that the market and the people whom you have already served or approached are happy with your product or are engaging with your product or service will surely set your startup apart from others and improve your chances of investment by leaps and bounds. This also proves the commitment level of you and your team. The investor will know that he is dealing with a team serious enough to prove the success of their concept.

5. How Good Are you and Your Track Record

Many people might have products or ideas and yet only a few get to the top. Do you think that they are plain lucky? Not really, it’s not always about the product or the concept. We all have seen that many a time investors invest in ideas and products that are already in the market. Why? In both these scenarios, they are investing not in the company or the idea, but on an entrepreneur. There are many examples and I too personally believe that prodigious entrepreneur with the accurate capabilities has the power of making an ordinary idea extraordinary. Of course, unique ideas work but an investor needs to believe that YOU can make it work. Angel investors want to have someone who can scale fast, knows that market, is thoughtful and efficient, and can sustain the project.

6. Strategy and Communication

Before you go to meet the founder have your business plan/strategy ready. Be updated in the due diligence front. Without a detailed, written strategic plan in place, it’s very unlikely that an angel investor will even consider investing in your company. Make sure to include your business plan, financials, sales and marketing plans and achievements in your strategy. Having a power point presentation ready always helps. Along with this plan you need communication skills to get the idea across the table and convince the investor. So know your vocabulary. Learn practice and be to the point.

Lastly, before you go to an investor do your investor research properly. You need to know what kind of industries the investor is interested in and then only choose. Find out as much as you can- what type of industries has he/she earlier invested in? Was the investment successful? Did he mentor the founders? It is always easier when you are talking to people who are interested and even invested in your domain/industry.

As a mentor, I always want great ideas and new minds to succeed, especially when I see founders putting everything they have got into what they believe in. Startups need to be given a chance and investors must devote some quality time listening to the idea. As a founder, you must not worry if your idea is good. If you can prove that the idea can gather traction you will soon find someone ready to give wings to your dreams.


You can get connected to me on Noddapp & Linkedin.

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