The general understanding of entrepreneurs is that we are constantly searching for funds.
It’s true. Finance is as important a factor as any other for a successful business, and convincing investors to invest in your initiative is one of the most difficult tasks of launching a startup. As per rule, investors are hesitant to part with their money unless you persuade them that you and your ideas are not going to be shuttered in the first 5 years.
So here are 11 factors investors look for in a startup before they reach a decision.
The startup’s problem solution fit
One of the first things that investors look for in a startup is whether it has a real and significant problem to solve. The product/service must be able to provide an answer to this need. This is why it’s so important for you to have a deep understanding of their target market and the problems they are trying to solve. Only then will you be able to create a product or service that people actually want and need.
A startup’s most significant asset is its founding team. Founders should be passionate about the startup and credible in their startup field; otherwise, investors will not even listen to the startup pitch.
You must have a clear understanding of what you are going to do with the business, why it matters for society, how it’s going to affect customers’ lives, and more. The more convincing you can make this sound like an attractive investment opportunity, the better chance there is of attracting funding.
The startup’s growth potential
A scalable product or service
A scalable product or service can be easily replicated and doesn’t require much time or money to do so. This is what makes it attractive to investors because it means that the startup has the potential to grow rapidly and become profitable in a short amount of time.
A well-defined market
Not only do investors want to see that a startup has a great product/service, but they also want to be sure that there is a market for it. This means that you must be able to prove that yours is not a pet project and demonstrate an understanding of this target market, the competition, and its importance.
Investors also like to see businesses with a clear plan for how they’re going to reach their target market. This includes having a well-defined marketing strategy and showing that you know who your competitors are and what makes them different.
The business idea should have a sustainable competitive advantage that will allow it to stand out from the others in a crowded sector. This could be better technology or processes, lower costs of production and supply chain management, or even an exceptional brand image.
A clear startup vision
Investors want to invest in businesses that have a clear vision and know where they are going. You must be able to articulate its vision convincingly and show how you plan to achieve it.
Having a clear vision also allows you to focus on what’s important and stay on track despite the challenges and obstacles you will face along the way. It also gives employees and team members something to rally behind and work towards.
A business model that works
A solid business model that is both feasible and profitable is an immediate attraction for investors. This includes having a realistic idea of the startup’s expenses and revenue, as well as a plan to scale up.
Proof of concept
You should be able to provide evidence that the product or service you are putting forth actually works. This can be in the form of prototypes, customer testimonials, market research data, etc.
A detailed financial plan
Investors need to see a realistic and detailed financial plan that shows how the startup will make money and become profitable. This should include information on startup costs, revenue projections, and break-even analysis.
A strong exit strategy
All investors expect a fair ROI from any investment they make. An impressive exit strategy is something that will make investors happy with their decision to invest in your initiative. This could be in the form of a company being acquired by a larger corporation, going public, or generating a lot of revenue. Investors like to see a startup that has a plan for how it’s going to achieve a successful exit and make them money in the process.
Ultimately, having a business funded is about having a fund-worthy project. While it may take some time to find the right investor for your startup, your faith in your initiative will help you find someone who will say finally yes.
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