If you’re a startup owner getting ready to secure investor funding for launch or expansion then “What are they looking for?” should be one of many questions you’re asking yourself and others constantly. The truth is, whether you’re facing a venture capitalist or an angel, they’re going to be looking for data they can really sink their checkbooks into. Tangibles which tell them you’re on the right track and that they’ll more-than-probably get their investment back with (plenty) extra to boot.
Here are 10 tangible business elements all startup investors need to see before they sign on the dotted line:
1. Your Team
Smart investors know that the team will mean everything, whether times are good or tough. They’ll look for a diverse team, not just a bunch of tech geeks who know how to code in every language possible, etc. If your team isn’t solid, you’re going to be scraping the bottom of the barrel when it comes to securing funding.
2. Large Growing Market Surrounding Your Product
Millions once represented everything. These days, it’s all about the billions. Just ask Jayz or Miley Cyrus (they want the “billie” not da “millie” ya’ll!) This is the same for most investors these days, especially those investing in tech. They want to invest in billion dollar markets that are growing in leaps and bounds (ie., double and triple digit growth rates).
3. A Niche-Focused Brand
If your target demographics are too wide spread, smart investors will turn tail and run before you get half way through your elevator pitch. Make sure you appeal to as niche a market segment as possible. And make sure your marketing is laser-focused on that segment. This doesn’t mean you won’t grow and expand in the future, but startup funders know if your demos are too big then branding will be disjointed, expensive and likely result in more losses than wins.
4. Your value proposition speaks to the customers of today
Not a problem that existed 10 years ago (remember when you needed a physical answering machine to take your messages?) Or something that won’t be useful until 50 years into the future (like a security system for flying cars.) There is leeway here, like if you build sustainable “bubble homes” to be used when Mars is finally inhabited or some such other industry that’s over most people’s heads but may strike a cord with a millionaire or billionaire with dreams of moving their family there one day. However, the value of your offer needs to be quantifiable to a large pool of customers right now and has to offer something above and beyond the competition (ie., better quality, lower price).
5. Long-Term Competitive Advantage
Does your product have a patent? How easy is it for a competitor to move into your space and copy your product or business model? Do you have a unique marketing approach that’s hard to duplicate? Perhaps you have a breadth of support from key industry partners that will be hard for the competition to duplicate? If your industry is easy to move into or your product is a cardboard cutout of others in the space, you’re screwed for funding from any investor worth their salt in this day and age.
6. Total Revenues – Total Costs = Total Profits
I’m not being cutesy here. If you don’t know, and have accounted for in your business plan, every dollar associated with running your business, you’ll most certainly get rejected and will more than likely get “ripped a new one” by whomever you’re pitching (ever seen a little show called Shark Tank, where Kevin O’leary and The Cubes regularly go to town on uninformed startup wannabees?) You have to know your direct and indirect costs including staffing, training, production, customer service, spillage and anything obvious that might end up fitting into the “rainy day” category.
7. Established Distribution Channels
Do you know how you’re going to get this product of yours to the marketplace: Transportation? Retailers? Going international: Country-specific laws and regulations? Language translations? There’s a lot to know here and unless you’re pitching the product/service of a lifetime, few investors are going to be looking to do business with startups who need their established channels to sell a product. This isn’t Shark Tank folks, it’s up to you to have this stuff in place before sitting down with VCs and angels.
8. Consumer validated pricing and revenue
Tip 6 focused on what you have put down on paper with regards to profit potential. Now you need to show them that your pricing is viable and you’re capable of actually showing a profit on the balance sheet. ROI is critical to getting funding and if you haven’t made any money (because your pricing and/or quality is off or you simply haven’t tried) then you’re a risk. Period. Few outside the tech space get funding for “ideas” alone.
Investors are looking for turn-key solutions when it comes to putting their money down on your business. They want to know everything about your social initiatives, your current following, various sales channels, incentives you offer customers, media connections, and so forth. Again, this isn’t Shark Tank. They don’t want to offer up their relationship with billion-dollar-retailers or use their name to endorse your product unless you’re already printing cash like the U.S. Mint!
Image Credit: cranky messiah/Flickr
10. Knowing when you need money and how much
You can hit it big at any stage of your business plan and still fall flat on your face, leaving investors holding the (empty) bag. Investors can read projected balance sheets just as well as any accountant you’ll find out there. They see expenses before profits always. Make sure all cash infusions are accounted for and that you have solid growth projections and know all the costs of such: manufacturing, marketing, inventory and potential outstanding receivables and payables that may require an influx of investor cash in order to keep afloat when times are lean. Having all this info makes it easy for them to develop ROI projections and to determine an exit strategy — one of the key components all investors need and no startup owner should ever consider if they’re truly passionate about their business!
Follow the 10 tips above and you may just have a chance at becoming the 1 out of 10 startups that succeed, instead of the 9 out of 10 who fail!