Richard Branson on Convincing Investors to Fund Your Tech Startup

Richard Branson on Convincing Investors to Fund Your Tech Startup
Image credit: AP Photo/Charles Rex Arbogast

Entrepreneur Richard Branson regularly shares his business experience and advice with readers. Ask him a question and your query might be the inspiration for a future column.

Q: How do you filter all the invitations to invest that you receive? Do you focus on just a few issues? -- Felipe Fleiderman V., Chile

In recent years, I've admired the speed at which some Web-based startups have launched their companies and found their customers. After all, we at Virgin love to shake up stodgy industries, giving customers a better experience in unexpected ways, like redesigning our Virgin Money banks so that customers can work, hang out and hold meetings in the comfortable lounges.

With the help of my terrific investment teams in London and New York, I've invested in a few non-Virgin startups in recent years. Choosing among them requires thought and care, because no matter how qualified the founders are or how much they have thought through their business plan, most will not succeed. But, over the years, I have learned to look for the same things in startups that I do in ideas for Virgin companies.

The list of our investments shows what I value in a company, and why these inspire me. And for entrepreneurs seeking investors for their tech startup, here are five questions you need be able to answer "yes!" to:

1. Does your company offer a smart, simple solution that improves customers' lives?
If I understand a startup's product or service on first glance, then customers will too -- and if it solves a problem that needs fixing, there's a good chance that some will buy it.

That's why I invested in Square two years ago. It's a company that was started by the Twitter co-founder Jack Dorsey when he was trying to help his friend, a glass-blower who wanted to sell his work but didn't have a credit card machine. Square's system allows entrepreneurs to accept credit card payments via smartphone. The company says it now handles about $12 billion in transactions annually, and in 2012, it announced a deal with Starbucks, so that customers can pay for their coffees and other items using the Square Wallet app.

Related: What Angel Investors Want Now  

2. Is your company's use of technology disruptive? 
There are many companies that dress up their products by putting lights and screens on them, but don't exactly make a difference to anyone's everyday life. Such products may attract attention, but unless the technology adds easy functionality, the customers won't be back a second time.

Hailo, the yellow taxi cab app, is a great example of a disruptive technology, since it's so more efficient and responsive than our current options: trying to wave down a passing cab or placing a call to the cab company. We chose to invest in this company because it lets passengers hail free taxis on nearby blocks with their smartphones. It helps cabbies too, since they spend about 40 percent of their time driving around looking for passengers.

3. Does your company offer customers greater choice and better access?
However small a company, its founders should try to expand people's opportunities and choices.

The online coding tool Codecademy is giving anyone with an Internet connection the chance to learn basic programming skills for free. With its easy-to-use interface and lessons drawn from real-world examples, Codecademy is outshining the competition.

I decided to invest in Codecademy because many people need and will benefit from access to such skills, especially women who hesitate to enter such a male-dominated field -- one in which most students tend to be men as well. Already, over 35 percent of Codecademy's users are women.

Related: 5 Secrets to Winning More Sales

4. Does your company's product or service encourage customers to share their work or experiences? 
The development of Web-based applications has enabled collaboration on a scale that was unimaginable 30 years ago. In almost every industry, more sharing is helpful and useful: between friends and family members; between colleagues, and sometimes between customers.

The best way to encourage sharing is make it fun, which is why businesses like Pinterest have found such success. This beautiful platform is all about inspiration and discovery, providing people with a quick, easy, entertaining way to share photos. It has rapidly become a household name -- and inspired us to invest in their company.

5. Does your company care enough about people and the planet to use business as a force for good?
Every company can make a difference. New businesses can tackle local problems, growing businesses can tackle national problems, big businesses can tackle global problems. One example that stands out is Twitter, which activists have used to evade authoritarian leaders' controls on communication -- it has helped to topple governments. I use Twitter to generate awareness for causes that are meaningful to me and others, like ending the war on drugs, and this is why I've invested in this company.

Similarly, we've funded Tumblr, which is one of the most popular Web destinations in the United States, and it also gives people a digital platform where they can express themselves.

These are just a few of the promising startups that have helped me to learn more about the challenges and opportunities faced by tech companies today. Those that provide services that help entire communities may have built long-lasting businesses that will be influential for years to come. Does yours?

Related: Richard Branson on Community Building to Grow Your Business

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