When it comes to successful startups, funding is the first thing that comes to mind. In fact, a huge part of a startup’s success is attributed to the investor of the startup. As a startup owner, it is important that you understand the startup investment criteria of your potential investors.
Investors enjoy exponential capital gains when the investment is made in the right startup at the right time. This means that there are as many investors looking for potential startups as there are startups looking for investors.
Therefore, your startup should always plan for the perfect market timing to generate funds effectively.
Capital is the basic fuel that is needed for the creation and sustenance of a company. There are several angel investors, venture capital funds, as well as the general public, who are ready to provide capital to startup companies based on the potential of the business and how much they like the business ideas.
Angel Investors are always looking for good investment opportunities in the market. Having said that, angel investors are also careful of their capital and try to minimize the risk of their investments with a proper screening process.
This is why having knowledge of the startup investment criteria of these investors can make all the difference to your business.
What are the different kinds of investors?
Before you delve deeper into the startup investment criteria, let’s get you acquainted with the kind of investors that are there in the market and how they function.
An angel investor is a high net worth individual who is ready to provide funding for startup companies. There are more than 11,000 registered angel investors in the US.
You can pitch your startup idea to several angel investors on online platforms dedicated for this purpose.
Venture capital fund
Venture capital funds are pooled investment vehicles created by a group of high net worth individuals. Highly experienced and efficient teams manage the funds.
The funds look for the best early-stage investment opportunities in the market and channelize their capital accordingly. The high expertise management team will also share its inputs with you for the better growth of your company.
As per the National Venture Capital Association, there are nearly 1000 active Venture Capital firms in the US.
There are good crowdfunding platforms that connect the general public with startups. You can present projections of fund requirements and business ideas on the platform, and if anyone likes the idea, then they can invest in your startup directly.
What do investors look for in a startup?
Now that you are familiar with the different types of investors, it is time to understand their startup investment criteria and how you can make your startup investor-friendly.
Depth and feasibility of the idea
If you are a new startup, your company will not have the track record to prove its credibility. Everything then depends on the idea and vision of your startup.
Investors look for the concreteness and feasibility of the idea. Your idea for the startup shouldn’t be vague. There should be proper short term as well as long term planning to monetize the idea.
Investors want the return of their investment, so your idea should be able to provide them with that return within a predetermined span.
Expertise of the management team
A company’s success depends on its management team. Investors always check the track record and qualification of the team before investing.
You should always place the best screening process while choosing the members of your management team. An efficient and well-qualified management team will help convert your idea into reality.
Presentation of the business plan
The presentation that you are planning to show the investors while pitching should be attractive and informative. There should be proper graphical representations, charts, projections, and several informative inputs that support your idea.
You need to draw the right picture of your idea to your investors. Your pitch presentation is the only way by which your idea and the investors can connect.
The consumption and spending pattern of the general population is dynamic. As days go by, humans try to adapt to change.
The first time when the idea of humans reaching Mars or the Moon for leisure was shared, it seemed to be abstract, but Elon Musk stood by his firm belief, and now slowly people are starting to connect with his beliefs. The same goes for electric cars.
So you will have to look at the market opportunity before planning a business proposal. Investors want the return of their investment within a stipulated time.
If your idea is too ahead of time and doesn’t materialize at the decided span, then your startup may fail. So it is crucial to analyze the market first before pitching an idea to the investors.
It is always advisable to carry out a proper survey in the market before approaching the investors. The survey report helps the investors understand the demand for the product or service that you are planning to start.
If you are planning to start door to door pollution testing for vehicles, then conduct a survey and see whether people are ready to opt for the service if launched. This survey will also help narrow down the areas where the demand will be maximum.
Survey reports also portray the seriousness of the management towards the startup.
Return on investment
Investment in startups is always risky. So the return on investment for the investors must be high.
When you are preparing your pitch, make sure that you showcase a good return of investment and also mention concrete ways of achieving it.
Market reports and surveys should back your projections. Vague projections will not attract investors and funding may be declined.
Unique selling point
Imagine this. You have inherited a special land from your grandfather, which is situated next to a semi-active volcano. To capitalize on that, you plan to start an exotic wine company.
Now, the ashes from the volcano add a distinguished flavor to the grapes and make the wine produced from it very exotic. This will give you a competitive advantage in the market, and you can sell your product at a higher price.
This is your unique selling point or USP. Investors will get attracted to this advantage and be ready to fund your startup.
Percentage of ownership offered
Many investors don’t invest in a startup if a sufficient percentage of ownership is not offered. You will have to decide the percentage of ownership that you are ready to sacrifice in your startup to get the capital.
Good venture capital funds will help in the formation and running of your startup and they may demand higher ownership in return. If you feel that you need the connections and assistance of the expert team of the investor for the growth of your business, then you can offer a higher percentage of ownership.
Strong Leadership and a good management team will always attract more investors in the market. As a startup owner, you should understand and evaluate the startup investment criteria before accepting funding from any investor.
If the management feels that the investor wants to participate actively in decision making which may prevent the management to run the business smoothly, then they should decline the capital and look for better investors.
The bond between investor and management is essential for the success of the company.