Five Key Business Elements Set Startup Investor Interest

For the sustained success of your startup, it is necessary that your operations don’t suffer due to a lack of funds. Aside from personal investment, you also need to woo investors. However, pitching to investors may not be easy.

Investors are experienced in identifying risks and assessing opportunities. And due to the risks, investors decline investment opportunities far more than they provide funding.

First of all, you need to do your homework on your startup investor. Every investor is comfortable with certain ranges and limits. Typical angel investment is $25,000 to $100,000 per company but can go higher. On the other hand, venture capitalists typically look for needs that exceed $2 million.

Here are five key business elements that would interest investors to invest in your startup:

Competitive Edge

The concept that you are pitching is of utmost importance. There has to be something about your product or service that sets it apart. Investors look for features that distinguish you from potential competitors and give you a competitive edge.

Your value proposition needs to solve a need or a want in a way that is not being solved at present.

Also, investors want to see how funds would help you scale-up your business instead of just providing initial development.

A Robust Business Plan

You need to lay down a robust business plan that would be deemed as beneficial by investors. It should reveal your organizational goals and financial strategies.

Investors want to see what you have achieved before coming to them. If you have a good idea but haven’t started yet, investors may not be interested.

Angel investors would be interested if you have a prototype or a few real customers. Venture capitalists would most likely choose to wait until you have increased your customer count manifold and raked in millions in revenue.

Also, while pitching to an investor be clear about how much you will need for the next 12 to 18 months. Asking for too much or too little may negatively impact investors. Ask for an amount that is a little bit more than what you actually need.

Also, you need to address the question of what will investors get in return. Professional investors would be interested in preferred stock, a board seat, anti-dilution protection, and so on.

Potential for Growth

An innovative idea may impress the startup investor but to get him or her to invest, you have to make them understand the potential for growth. How will you be able to generate more profits in the future? How will you be able to increase production?

Investors may want to reduce the risk by delivering the investment in stages against successful achievements of specific milestones. This will help them gauge the progress that you are making.

The key is to earn the trust of your investors. If you can make them believe that they will be part of something bigger in the years to come, they will be interested to invest.

Significant Market Size

To achieve a high growth potential, you need to have a market with significant reach depending upon the nature of your product and service. A large enough market is required to interest investors.

Angel investors usually invest in solutions that address problems for significantly large target markets. While investing, venture capitalists look at market characteristics such as significant growth and limited competition.

If the market you intend to enter is saturated or monopolized, then investors will be reluctant to invest unless you can convince them of the added value that your startup can offer that others cannot.

For new and emerging markets, you will need to provide supporting user data that reaffirms the market growth and sustainability.

Complete market competency is one of the most valuable assets that you can leverage to gain funding.

Exit Strategy

Equity investors typically look for ten times return projections since they expect many of their investments to fail totally. The best way to show return on investment is to declare an exit strategy like being acquired by a bigger company or going public in the next five years. This gives the investor an opportunity to cash out.

So do you have any questions about attracting a startup investor?

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