WHAT DOES AN INVESTOR LOOK FOR WHILE INVESTING IN A START-UP?
If you are a first-time entrepreneur, it is going to be a tough task to raise capital from outside. Investors have the expertise to review investment proposals. They get a lot of founders’ approaches. To select any start-up, they have fixed several criteria, the founders, who fulfil their criteria; investors take interest in them and invest their time and money.
These selecting factors include the qualities of the founder and team. The other factors are the competence of the founder, the ability to hold the team together and the history of success. They also see if the founders are operating ethically or not.
Qualities of the founders are one of the major parts of the assessment process before making an investment. The other vital part is evaluating the market.
Once, they are fine with the founder, they look at the market size, whether the country is ready for the product or the service. The consumer experience for the product or service is the driving force to tap potential investments.
How big is the market your company is looking to serve?
Asking about the market opportunity is very common and almost investors ask about it. This question is mainly about the current scope and future expansion.
If you’re targeting an existing market, your answer should be how your offerings are different from the other players and how your start-up will disrupt the current market. In case, it is an emerging market, shed light on how big the market is expected to flourish in the coming day.
A seasoned investor will be curious to know how well your team is positioned to build and execute the business idea and lead the market. That is why; they mainly ask questions like what is the domain expertise of your team?
Does the team have important skill sets? How is the bonding between the members of the team? Answer each question smartly and confidently; here you need to present your team as strong, dedicated and skilled because the team plays a major role for the success or failure of the start-up.
Investors ask for traction history, to ensure that the market has already started engaging with your service or product; it differs as per the company and the industry like revenue, channel partners, and clients onboard to name few.
Keep in mind that when you present commercial traction, it provides you an upper hand over your competitors. Try to have the real data to support your claims and you can adjust the assumptions you started with.
When there is mutual connection between the investor and the founder, the investor probably invests.
In order to find a relevant investor, consider the stage of your company, the industry you’re targeting, and the investor’s experience in the relevant field.
Do your research before approaching them and remove the ones from your list who’re not a good fit.
The Click Moment
There is always a click moment between the investor and founder that influences the investment decision.
Sometimes it’s as simple as connection, based on the shared workplace, common background, college or a mutual connection. Examine the investors’ background to present any common connections out of the meeting.
While fundraising is a hurdle, these points will support you to engage with the angel investor. Often it is not possible to receive the funding immediately but then, even a second meeting is equal to having done a great job.