Every now and then, I meet people; some who have a vision to be an entrepreneur, and others who already are one, and a common question thrown at me in such conversations is how I went about finding my investors.
However, contrary to popular belief, the fact of the matter is that they found us.
Now, let’s talk about what brings investors to you.
There are quite a few aspects of a startup that matter to investors, specially the institutional investors or veteran angels. Money coming from friends or family is purely a function of trust, but with external investors funding your idea, we are talking about a formal or rather commercial association where there is joint ownership and responsibility of investments, and returns are expected. In such a case, there are simple yet impactful factors that will help you magnetize the eyeballs of investors and accelerate your funding drive.
Going by my startup’s funding experience, the following four factors can get you your worth’s money:
The Founder/s and the story:
While the usual credentials of the founder are important, it is the vision of the founder that is most significant. The overall story around why you are the best person to take this start-up idea forward has to make sense. All other credentials such as your educational background, personal and professional experience are seen with the same lens of “Why you?” People choose entrepreneurship for various reasons; some want to solve the pain point that they faced, many others want to do this for driving a social change and some might want to do this for making tonnes of money. Whatever may be the reason, you have to be the best person to drive that cause. If you believe so, so will the investors!
The startup idea:
It’s very obvious. Isn’t it? Well, not quite. Many of us think that idea is as good as projected numbers on business plan. If the numbers look good, the idea must be good. Not really.
One needs to go beyond the business plan at such an early stage. I do not wish to undermine linking the business idea to the business plan, but would like to emphasize on more important aspects of the start-up idea such as:
- How innovative or disruptive is the idea?
- How does it create value for the users in current ecosystem?
- Does it solve any real pain point? Have you done some primary research on this?
- How will this world become a better place if this idea becomes a reality?
- Why will it become a better alternative than current offerings? Have you been able to demonstrate some use cases for this?
A quick pilot to further assess the impact on ground level is always advised before committing a lot of resources.
Traction and Opportunity:
Traction is defined differently for various types of businesses; E.g. for content platforms it is usually around engagement on the platform, number of unique visitors, page views etc. For an e-commerce company, it is about total number of sales, repeat sales, average ticket size etc. You need to find out the traction metrics for your business. A quick Google search and a call with some industry experts should help you zoom in to the right metrics. Thereafter, it is important to ask yourself these questions:
- Have you been able to demonstrate early user traction on various parameters?
- Have you already made your first sale? Or may be first 10, or first 100 sales?
- What has been your learning from initial customer acquisition? What part of your offering is most liked by early adopters or lead users?
Demonstrating initial customer traction gives a lot of comfort to the investors about the feasibility of the business idea. Many founders spend a lot of time & resources building a great product without understanding customer needs. This could be fatal. In its initial stage, the product should be good enough for you to test your business idea and may not have all the features.
Also, initial traction is typically seen in conjunction with the overall business opportunity. An understanding of the opportunity in context to the offering and analyzing industry benchmarks of competitors already operational in international markets is a good way to communicate the opportunity.
Talent IQ of startup:
A startup might have great founder/s, but if it doesn't have the right talent pool to drive various aspects of business towards success, funding might be a challenge. In a fast-paced environment, it does not take long before things start slipping out of the founders’ hands. Therefore, it is crucial that the owners for key functions are there to support the founder/s in their vision. It is often advised to find critical success factors for the startup; i.e. if it is a tech startup, having a technology leader in the founding team is a must.
The ability to attract and retain good talent is one of the main drivers that will draw investors towards a startup. At seed level, you may not have enough senior folks to lead all functions. In such a case, talent IQ for critical functions should be high.