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What Attracts Long-term Investors To A Startup?

Thursday September 29, 2016,

4 min Read

Many businesses out there are failing not because their ideas are not good enough but mainly because they lack financing. They were unable to raise capital in order to grow. Most investors rarely invest large sums of money into businesses that reach out to them for financial help. They like to locate the startups themselves. It is very necessary for CEOs and entrepreneurs to know what investors want, and what attracts investors. One major difference between investing and charity donations is that, with investments, you expect returns.

Profits are a foremost and inevitable attraction for investors. If a startup is doing so well, it does not have to do so much talking, their results will do the talking. Investors buy into opportunities. After acquiring Precision Castparts, Warren Buffett, CEO and Chairman of Berkshire Hathaway, said that if he thought a business needed him to succeed, he would not even invest in it in the first place. Investors feel a sense of ownership when they buy into a business. CEOs work for shareholders first before customers.

Every great investor has invested in a business which did not turn out like they expected, so they are more vigilant and unwilling to be taken advantage of, again! When an investor first stumbles upon your business, you may not be there to explain your business model or strategies. Investors like to invest in something they can identify with. They often battle with inner conflicts before and after buying into businesses they don’t understand. No matter how an investor may try to fight it, if your brand is all up in his or her face, he may be tempted to research about what you do. Usually, businesses which spark interests among the younger generation or businesses with many chains or locations get investors curious.

When investors scroll through the hundreds and thousands of startups listed on Crunchbase and AngelList, what makes them pause and click a particular company’s name? Somewhere in their subconscious mind, that name or business model seems familiar. Brands which remind investors of something familiar to them tend to get their attention. If the investor’s role model or investor friend has made an initial investment in the startup before his or her research, it makes them more confident and comfortable about the startup’s future. There are so many startups out there advertising their business and generating media buzz but very few of them create an imaging in the minds of the public. Visual stimuli are very powerful. The approach of growth investors is different from long-term investors. Long-term investors including venture capitalists and value investors are very committed to their portfolio companies, so they take into serious consideration the leaders behind the business. Most investors prefer CEOs they like and can actually work with. Some investors are attracted to businesses with fierce CEOs like; Steve Jobs co-founder of Apple, who can get the job done but, all investors want to be involved with a management with a good reputation and CEOs with integrity.

In an investor pitch to investors, passion speaks louder than ideas. I’ve witnessed an investor pitch where an entrepreneur displayed an incredibly elegant fashion collections but, he did not wear his own designs to the pitch and at the same event, an entrepreneur pitched an online business which was so common and unlikely to thrive in that locality but, he spoke with so much passion that you could tell he knew exactly what he was talking about. No need to guess who won the seed money, it’s obvious! Not all markets are sexy enough to attract extensive funding; most investors have specific industries they invest in.

Finally, if your product speaks to the public, investors will want to meet you.

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