Putting yourself in your investors’ shoes

18th Oct 2016
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It’s very difficult to be an angel investor.

I can relate to it because of the amount of time we as founders spend on our product and in hiring the right people for our team. If it doesn’t turn out well after all that work, I know just how disappointing it is! You had been worrying day in and day out that this last thing would turn the tables but it didn’t.

The same is true for angel investing. When an investor invests so much time interacting with founders and chalking out their growth strategy, it is extremely disappointing if it falls apart. Add to this the fact that 95 percent of startups are bound to fail, not because of the quality of the products or entrepreneurs but because of sheer market forces.

Image: Shutterstock
Image: Shutterstock

What investors look out for

As an investor you give your hard earned money to bunch of guys you might have known for a maximum of a year, or in some cases, just a few weeks.

Finding the right startup is very hard because all the below items have to be right:

  • A market that is large enough and yet unexplored
  • A team with the following qualities: integrity, hard work, passion, and sticking together for a long time
  • The idea or problem the team is solving
  • The team’s approach to solving a problem

Public companies vs startups

Investing in public companies is much easier because you can check the share price hour by hour.

In a startup, you get to know about how your investment is doing in a monthly or quarterly report. That is why the best investors say it’s all about finding the right team. You need to trust them to spend your money wisely.

It takes time to make a good investment decision

With public companies, track records and reports of the previous years are at your disposal, but the same is not the case with startups, because they might not have been in existence for more than six months.

The best investors know the team for a long period of time before they finally make the commitment to invest. Consistency of a founder in updating potential investors regularly goes a long way. It at least shows how much you will keep your investors updated post investment.

That is why getting the first investor to commit to your startup can be the hardest part of your startup journey. Also, making sure that you share great bonding with your participating (follow-up or non-lead) investors is much needed. This is a result of investing your time in building relationships and nurturing them.

Due to the limited time at hand it becomes very difficult to filter out great teams and interact with them one on one. Also, it takes time to find the right product/market fit in the case of tech products. There are 90 percent chances the product you built might never reach product market fit and you would have to pivot. In such volatile scenarios it becomes very difficult for investors to commit to ideas or products. Their best bet is the team, which is not easy to figure out. It takes many months or years to know first-time entrepreneurs and their ability to execute. Traction and user feedback are not the best parameters to make a decision as they vary with time.

In a tech startup, having a strong tech team gives investors the confidence that you can experiment fast even you currently don’t have product/market fit.

Another way investors identify good teams is when startups are able to provide them with solutions to problems they themselves have been facing.

Given the above facts, founders have to realise that they are racing against time and the depletion of their personal funds.

Who said being an entrepreneur is easy?

It’s good we celebrate successful entrepreneurs, investors, and startups which existed. It’s beneficial that angel investing is considered sexy.

Else the ecosystem would have been too harsh for a founder to build without early monetary support.

If the above didn’t happen, we would see Uber-like companies taking 20 years to build instead of five.

 

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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