Show Me The Money: Six Factors That Can Attract Investors To Your Startup
One of the biggest challenges of being an entrepreneur, especially in the Middle East, is attracting your first institutional investment. It’s a key milestone because it serves as a signal to potential employees, customers and future investors that your company is here to stay. Most importantly, it provides you with the capital that you need to realize your vision.
In addition to financing, good investors provide advice, guidance and vast networks that will help you reach your business goals. However, along with the money and other benefits, come big expectations. You read articles every day about startups raising millions of dollars of venture funding, but this doesn’t mean that it’s a simple task. While there is a nearly unprecedented amount of VC money available, the bar for fundraising is higher than ever. Before pitching to investors, there are certain essentials that your startup should already possess.
1. Have a (multi-) billion dollar idea
Venture capital is risky, and consequently, VC investments have a very low success rate. For many VCs, a successful investment should be able to return their entire fund. A business that’s worth tens of million dollars might be life-changing for its founder, but it barely moves the needle for its investors. As a result, VCs like to back entrepreneurs who are willing to boldly chase billion dollar opportunities.
2. Build for scalability
In order to get big returns, VCs want entrepreneurs to achieve massive outcomes with a relatively small amount of capital. Startups need to balance their immediate need to survive with the type of long-term thinking that will get them from 100 transactions to one million transactions or more. This involves pursuing scalable business models, and executing them with the long-term in mind.
3. Put technology first
A truly scalable startup needs to put technology first. Humans can solve problems one at a time, but only software can do so on a massive scale. One issue with startups in the Middle East is that they often outsource development to save costs and focus on operations. This can work deceptively well at a small scale but rarely leads to multi-billion dollar outcomes. It’s difficult to build a technology-led company without a strong technology team and investors realize this.
4. Bet on people
Michael Dell once said: “Ideas are a commodity. Execution of them is not.” VCs know that a great team is the only way to bring a great idea to life. A strong team can even salvage a not-so-great idea. Slack started out as an online game, Venmo started as a way to communicate with bands, Twitter started as a podcasting platform. World-class teams find a path to success regardless of the odds.
5. Apply your resources to the right problem
Even if a startup checks these first four boxes, VCs often ask entrepreneurs a very simple question: “Why are you the right one to solve this problem?” In other words, entrepreneurs should think long and hard why this problem hasn’t been solved before, because they’re certainly not the first people to think of it. Myspace came before Facebook. The BlackBerry came before the iPhone. Seeing a problem is not enough, an entrepreneur must solve it with the right team at the right moment in history in order to be successful.
6. Demonstrate traction
It’s cheaper than ever to start a business. This is great news for entrepreneurs, but it also raises the expectations of VCs. In the 1990s, many entrepreneurs raised huge amounts of capital with ideas alone. Those days are long gone. VCs will rarely risk significant capital on an idea without a product and customers. They want to see a signal from the market that a product is taking off. Without traction, everything else may be for naught. Walt Disney once said, “If you can dream it, you can do it.” At its heart, fundraising is about helping VCs to share your dream.
Related: 10 Ways First-Time Entrepreneurs Can Better Their Startup's Chances At Fundraising