Global investors are looking for the best growth corridors and will invest where they see the opportunity. It is not necessary that the startup has to be focused on the global market, instead they should be very clear on the market segments they are going to own and how their business model will prove successful.
Startups should be focused on the below key points and have a clear plan to attract any investor and particularly the global investors -
You should be very clear on your business model and how the unit economics work. First and foremost, the unit economics have to make sense before any investment can be attracted to. You need to show that the business model is tested and initial traction has proven that it works profitably. This is by far the most important part of the equation for any investor. If the business model is applicable in different markets and have a global outlook, then that is great but it has to be proven in one market first. Be clear on what is the unique positioning and why you will be able to win against the competitors. At times the biggest competition will be the way things are done right now and customer’s willingness to change. Be very careful not to take the early adopters as the persona of regular customer, since they could be simply trying out the service because they find it fascinating not because the product market fit has been achieved.
The venture and the underlying service offering have to be scalable. As the venture grows it is going to change a lot of aspects of the business, people management and overheads will make some aspect less efficient while the use of technology and economies of scale will make the other aspects more efficient. These impacts of growth should be clearly thought through and the step changes should be well defined.
Be aware of who the competitors are, even if the competitor is using a different business model but approaching the same opportunity and the market segment, he is still a competitor. How easy is it for someone to pivot their business model and cover the differentiating advantage you may have? What is the cost of competition and how will you defend and grow your venture? Be very clear what your plans are for different scenarios, although you are not going to be able to foresee every possibility, you should have done some scenario planning.
This will be quite important for the global Investors while it may not be emphasized as much by the local investors. Startups must be very vigilant with compliance on various fronts, taxation and structure of the company, board and company secretary compliances, banking and FDI compliances, various employment and benefits compliances. No investor would like to get a surprise, that soon after they invested the money there is some liability or worse an injunction on the business as the founders did not comply with the regulatory requirements.
Valuation and Structure
You must become familiar with various structures of debt and equity. It is very important to understand the differences and what the associated terms mean. Straight equity in the form of Common Stock has very different rights associated with it compared to a Convertible Debenture or Convertible Bond. There could be different valuation attached to different structures and depending on the outlook and business plan one may be suited better than the other. You need to be clear on how much you are willing to dilute and what amount are you trying to raise. Why are you raising this amount and how are you going to use the proceeds, what is your break even position and time horizon are some of the questions you need to have an answer for.