Startup investors aren’t kind creatures. They’re searching for specific signs that can help to convince them to invest their cash. This guide, written from the perspective of an investor, is designed to assist startups in understanding the areas that they should focus on and focus on when seeking funds.
Passionate founders with skin in the Game
A passion for a business idea is common among entrepreneurs. They are confident in the product or service they wish to offer. They believe that the product or service will be a step up from previous products or is a fresh approach to solve an old issue or in terms of the most effective mousetrap. But how intense is their enthusiasm? Do they want to hear “No” over and over and over again and continue going?
Take a look at Ken Davenport, the Broadway producer of “Once on this Island,” who stated in his speech at the Tony Award acceptance speech,
to Paul Liben, who said yes to us when we brought 1,000 tonnes of sand, two goats, and a chicken into the theater. To all those who have a dream of doing what I do and the way everyone is doing in this room. Never give up on your plan; you will find a way to say yes.
Ken was always looking for someone to help him finance his show because he was passionate about it and a belief in the idea. He kept searching for his “yes.”
But, despite the fact that the passion of entrepreneurs would enthuse many potential funders, what investors are looking for in companies is a founder who is willing to put their own money into the venture. While I was working in the field of real loans for equipment and property, I received an offer from an individual who wanted to establish a kiwi farming operation in Georgia. He told me that while the New Zealand growers were having winter, Georgia was having summer, and it would have the market all to itself. He’d located the land for sale and had a list of the equipment he needed to purchase, and he’d identified wholesalers of fruit who might purchase his produce (although he was not obligated to buy it). He hoped to sell kiwis for just 50 cents each. All required was a 100 percent financing of the initial cost. I explained to him, “What you have is an idea, not a business.” By the way, this was a long time ago, and I’ve never seen kiwis sold at over 33 cents never.
As founders, you’ll be required to find the capital you need to start your business. It can be done with your savings, loans from family members, friends, and family, as well as other sources. However, you have to be able to show that you believe in your products or services enough to invest your funds. It will be your responsibility to start your business from the start by yourself.
The majority of the time, an entrepreneur’s new venture must prove that it is a product or service that is marketable when it has been operating for a while and demonstrated its ability to market its product. In a way, the venture should be able to provide the “proof of concept” to present investors with proof of concept.
I worked with a company that was looking to charge viewers to view targeted ads basically. They tried to test the market by aggregating hyperlinks to advertisements on YouTube in various categories and then paying individuals a few dollars to watch ads that they believed were pertinent to them. It was discovered that people would pay for ads if you offered them. Therefore, they thought that people would pay for advertisements if they were rewarded with real worth. The company was able to obtain seed funding and gain the interest of a VC firm that was seriously considering investing in the platform. It turned out that while people pay attention to ads, they would not always view them to see if they were worth it in any way. However, the fact that a certain amount of momentum and proof-of-concept was attained was the reason why the platform was chosen for financing.
Significant Market Size
The majority of investors are seeking opportunities for business potential for growth. Therefore, if your target market is limited to the 25 miles surrounding the headquarters, your growth potential is limited. You must be able to offer substantial coverage, at a minimum regionally, based on the type that your item is. If you’re selling surfing boards, there is an area-based market along the coasts, but considering the overall demand for surfboards, it could suffice. There aren’t many products that are likely to be able to reach a worldwide market, such as the iPhone. But, a big enough market in which economies of scale could be integrated into your business to improve margins and profit will be required to attract investors.
If the product isn’t an original product but rather a new entry into an existing market, the same rules apply. It is, however, assumed the market share that you gain is from another competitor, so your competitive advantage has to be demonstrated.
Product Differentiation/Competitive Advantage
This will be a crucial problem for the investors. What is it that makes your product or service unique? There should be something in your product or service that distinguishes it from the rest. If you’ve created a previously unreleased product, and you’re the very first to market, this could be the case. But, the majority of startups are competing in existing markets. What is it that makes you stand out? Think about the MVMT watches. The company was aware of the fact that there are high-quality timepieces on the market. Their strategy was to provide quality clocks that weren’t expensive. Their competitive advantage is their low cost for the same quality. In contrast, Rolex positions itself as the best in design and quality, which justifies its expensive price. Their unique selling point is that they believe they are the best product on the market.
Team Members and Delegation
In order to cut costs, many startup companies have very small staffing, typically just two or three founders of the business. If a company has one or ten employees, it’s not much of a problem; it’s how well the business has enough key employees who cover the most crucial areas. If, for instance, your company is in the process of developing the next application of blockchain technology, Do you have employees who are knowledgeable about blockchain technology? It is essential to have an expert in the market or technology you’re going into.
Another is the area of operating control. Investors want to know you (or your employees) have established operating guidelines and procedures to manage the company and ensure that the investment they make is not wasted. Your business must be past what is known as the “fake it before you make it” phase or investors won’t be able to trust that the company you run can be described as “a real business.”
As the founder, did you delegate authority to experts? Nobody has all the necessary skills for running a successful business. But the business owners tend to be more than parents in their company (i.e., it’s like their child). The founder(s) frequently attempt to wear many tasks and control them. Investors feel more secure when they see a company with the support of a team and where the team members have the expertise they require and are granted enough authority to manage their areas of operations.