What investors look for in your business?
Raising funds for a startup could be tougher than starting out on the business endeavor itself. While investors are always on the lookout for companies with unique ideas and products, the road to successful funding could be a long one. They look at various aspects of business before coming onboard using their experience in calling the good from the bad.
Scalability of the seed idea
For startups with a seed idea, investors look at scalability numbers which effectively means understanding how bigger a market size the idea could reach out to. The product life cycle also plays an important part in overall scalability. A futuristic product is likely to get a higher chance of funding than a product with a shorter shelf life. The saturation point for the idea or product and overall business capability are determining factors for investors to look further.
Startup team's execution capability
Without a good team even a good plan can become ordinary. If the plan is likeable by investors the next obvious checklist is the team's execution capability. Founders with complementary skills work to a great advantage making investors more likely to show interest. Having expertise in the associated domain or service by the core team can also be a deal clincher.
The founding team and its trust building capacity
Majority of Indian startups that received investor funding have one clear common denominator. All the founding teams of startups had great trust building capacity in their respective fields. Building trust with investors, customers and employees is a trait that one needs to imbibe to create and run a successful company. For example, startups with the founders in late 20's or early 30's have a higher chance to create a level of trust and capability to deal with consumers in the 20s. If the startup is looking at a product or service aimed at the youth, such trust building capabilities are worth their weight in gold.
The commercial risk and return trade off
Business is eventually all about profitability and commercials rank high on the mind of investors. Everything- from burning capital initially to monthly finance overheads to customer acquisition costs to conversion rates are all decoded in great detail by the investors. The ratio of risk involved to likely returns on offer ranks as a big yardstick for the investors as they shortlist the best startup to invest for the future.
A startup may not rank high on any of the above parameters compared to its rivals but sometimes the X-factor could make a difference. Call it luck or synergy between startup founder and investors, a never dying belief in the ability, a strong presentation impressing the possible investors all make up for that x-factor. Mutually trusted contacts in either team can also play a definite role in such an eventuality.
Getting funding may be difficult with multiple startups pitching for funds. Armed with good plan, a well performing team and favorable commercial tractions do however mean the road to funding may reach the destination sooner rather than later.
What are other strategies with which an enterprising startups could woo investors? Please put in your comments.