You are looking for an investor, but do you know what your potential investor might be looking for?
According to a recent GrowthEnabler survey (2015), raising capital is one of the biggest challenges for 41 percent of entrepreneurs in India. Attracting investors might be an easy task when you are passionate about what you’re building. You will need to look at your product and the brand value from an investor’s perspective.
According to Forbes, around 99 percent of companies fail while trying to raise early-stage funding. It’s critical to convince your potential investors about what you are building. Firstly, show them your passion and conviction in your idea, product and the problem you are trying to solve. Secondly, let them know why your target market needs your product and the ‘unmet’ need you are trying to address. Finally, give them the facts and number on how your business model can grow and scale, with the right resources and funds. Keep it simple and straightforward, especially if you are seeking funding from friends and family or a seed round from Angel investors.
Do your own investor due diligence
Treat your investor like a client. Profile and understand their investing patterns before you approach or send them any documentation. This will allow you gauge their expectations and will help you give them what they want. Find answers to these questions:
- Is your potential investor new to the startup investing world?
- Do they understand and appreciate the risks and time-frames for ROI when investing in a startup?
- Are they experienced and relevant, and hence, smart investors, or just people with money looking to diversify their portfolio?
- What is their track record?
- Does their personality, investment expectations, and attitude fit with you and your culture?
An investor mostly cares about five things:
- You - You are the brand they will invest in. Your team, your passion, your achievements, your credibility, and your charisma is what they are betting their money on. Hence, let them know that you and your brand will be worth it, because they want to know that you as an individual will be able to build the company, sustain pivots, and persistently continue to find the right ingredients for the company.
- A disruptive and predictable idea - Being disruptive is all about doing something radically different or finding a new and smarter way to do an old thing. For example, AirBnB and Uber. Prove to them that your idea will sustain growth and your value proposition will find market validation for the long term and is solving a relevant problem.
- A scalable business model - Is your model repeatable? Can it spread across multiple segments and markets? Does it have industrialisation potential, while still remaining niche in its user experience and brand message? Answering these questions in crucial to understanding your business from a long-term perspective. This is what will give your investors the confidence to invest in you.
- Big market opportunity - Billions is the new millions. Is your model for the masses or a niche group? How big can it be? What is the potential for growth? Is your idea solving a big problem in a unique or innovative way? It is necessary to know that your product has the scope to become bigger and better and eventually address a burgeoning crowd. Be thorough with the projected numbers of your company and know the facts and figures which will prove that there is an opportunity for your business to grow.
- Consistent traction and progress - What are the big milestones you have achieved that show clear signs that your business has growth potential? New clients? Partnerships? Media Coverage? Committed investors? A working prototype? A successful BETA test? Don’t eyeball these questions. Know the answers, do your homework, and understand where you are headed.
Finally, ask yourself how confident you feel in each of the five areas. How ready do you feel with your business idea or model?
This is an important assessment and sanity check for you. If there are areas where you feel you can improve or refine, then take action. Only pitch to an investor when you are truly ready.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)