Unlocking funding opportunities for Indian startups: The key criteria investors seek

In business, startups have become the engines of innovation and growth. They have the potential to disrupt entire industries and create new markets. However, funding is crucial for new companies to bring their ideas to life and scale their businesses. With the recent slowdown in startup funding in India, entrepreneurs need to understand what investors look for in startups to raise capital.

According to Venture Intelligence, startups in India raised about $5.5 billion in the first quarter of 2023—down 66% from $16 billion in the same period a year ago. This significant drop in funding is a result of the pandemic's economic impact and investors' overall cautiousness, among others.

So, what are the criteria investors look for when investing in startups? Let’s take a closer look.

Market opportunity

The first thing investors look for in a startup is the market opportunity. Is there a large and growing market for the product or service the startup is offering? Is the startup addressing an unmet need in the market? Investors want to invest in startups with a large and growing addressable market.

Traction

They want to see the startup has gained some traction in the market. It could be in customer acquisition, revenue growth, or user engagement. Traction is a strong indicator that the startup is on the right path and has the potential to scale.

Team

The startup team is critical to the success of the business. Investors want to invest in companies with a solid and experienced team. The team should have the right mix of skills and expertise to execute the startup’s vision.

Business model

Investors want to understand the startup’s business model and how it plans to monetise its product or service. The business model should be transparent and sustainable, with a path to profitability.

Competitive advantage

They also want to invest in startups that have a competitive advantage. It could be by a unique technology, a strong brand, or a patent. In addition, the startup should have a clear and sustainable advantage over its competitors.

Industry trends

The startup ecosystem constantly evolves, and investors need to stay on top of the latest trends to make informed investment decisions. Here are some of the current trends in the startup industry:

• Artificial intelligence: Artificial intelligence is transforming various industries, and startups are at the forefront of this revolution. As a result, investors are looking for companies leveraging AI to solve complex problems and create new business opportunities.
• Sustainability: They are increasingly focused on sustainability and environmental impact. Startups that positively impact the environment and society are becoming more attractive to investors.
• Healthtech: The pandemic highlighted the importance of healthcare, and healthtech startups were on the rise. Some investors look for startups using technology to improve healthcare outcomes and create new opportunities in the industry.
• Remote work: Remote work has become the norm, and startups enabling remote work are in high demand. Investors want to invest in startups creating new tools and technologies to support remote work and collaboration.

Conclusion

While the recent slowdown in startup funding in India may seem daunting, a suitable business model supported by the latest technology, like AI and ML, can provide a path to success.

With a clear and sustainable business model, startups can create attractive revenue streams that will appeal to investors. The key is to focus on the criteria that investors look for, including a large and growing market opportunity, gaining traction in the market, having a strong and experienced team, and having a competitive advantage.

With these factors in mind, they have a great potential to raise capital and achieve success in the ever-evolving startup ecosystem. The need of the hour is to stay updated with the latest industry trends and focus on revenue streams to make them look attractive to investors.

Prashant Gupta, Founder and CEO, Caerus3 Advisors, and Think Tank.