A Beginner’s Guide To What Investors Want To Know Before Investing – Part 2
In this piece, we’re picking up from where we left off last time on the subject of “what investors want to know before making an investment decision.”
Is your business model scalable?
I believe that investors want to know whether a startup has the ability to sustain and grow. When it comes to scaling, what I find most appealing are businesses that can deliver profitable growth. This does not necessarily mean you have to hit it out of the park in the early stages, but you have to believe you can grow. If your business model isn’t scalable, you may have difficulty attracting investors or, as is more likely, giving your existing investors the exit they are looking for. I ask myself the following question when evaluating businesses that offer growth opportunities: Can the market sustain growth? This is different from figuring out how fast the company can grow. The ability of the market to sustain growth for at least three to five years is an important factor in making an investment decision.
Introduction to your team
People have a different opinion on what impresses an investor. Some investors seek a seasoned team that’s working on a social issue. Others look for experienced management teams with an excellent track record. This is an area where a lot of entrepreneurs miss the mark, especially when pitching early-stage startups. As an investor myself, I have seen many pitches that had no real grounding in their prospective audience. On the other hand, entrepreneurs should ask themselves if they have a solid, experienced team in place. Any entrepreneur will tell you that getting a team together is not easy. But, it’s an essential factor for any company to succeed. Founders who know what they are doing are able to attract a good team to work on their startup.
Should you have a clear exit strategy?
A clear exit strategy can often be an early warning sign of a potential fraud or scam. While most new businesses have some sort of exit strategy, investors will definitely ask about the route that the business has planned for in the future. If you don’t have a well-defined road map, you’ll risk losing potential clients and investors. Long story short, you should definitely have a clear roadmap for growing your business and a plan for exiting that growth.
Depending on your terms, investors have the power to kill your business and shut you down if you haven’t ensured that your business will generate enough to pay back its investment and meet its objective.
The investment and venture capital scene is one of the most crowded and noisy industries in the business world. With the new startup trend of the 2010s, there is much confusion in the minds of founders. But, some basic practices of starting, running, and scaling a business still stand the test of time—even in this age of decentralization and digitalization.
So, here is my take: Before you approach an investor, ask yourself these questions:
Have you clearly defined your value proposition?
Did you think hard about your competition?
Did you consider the market’s scalability?
Do you have a mid- to long-term road map for your company?
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