By definition, a startup is a company that is in the first stage of its operations. It usually needs to rent an office for its operations, hire staff, and purchase equipment, but more importantly, it needs to grow. Taking an idea off the ground and becoming profitable requires not only a lot of time but also resources – an amount that is usually well beyond the ability of founders and their family and friends to finance. It is the part when investors come into play.
At Idealogic, we’ve worked with a lot of various startups and we know their pains. Investors are not a panacea but they surely help young companies to kickstart. Not only outside cash may help a startup to live and grow, but it also becomes a competitive advantage in crucial matters such as the development of the product, hiring key talent, marketing, sales, and public relations. While each investor has his own requirements and is looking for startups that align with his personal pursuits and interests, there are several things you should take into account if you want to stand a chance of getting funded.
It isn’t surprising that investors usually put their money in businesses and industries that they can understand. Therefore, it would be wise to do a little research – look up some data on personal preferences and check investors’ portfolios. Understand what areas they are familiar with and reach out to those investors who may be interested in your industry.
If the investor is a match with your industry the next most important thing for him will be you and your team. There are a few essential characteristics of a team that is likely to attract investors, among them being its experience, willingness to invest both time and money, and, of course, passion. If a team consists of people of complementary skills it will also be a great plus for a startup as it is easier to distribute roles in such a company.
Investors receive hundreds of pitch decks and hear a great number of innovative ideas, but only a few startups provide proof that the idea is worthy. So one of the best ways for you to stand out from the crowd is to demonstrate the actual data. If you have already tested your product or signed up early customers – show it! Tell about your traction, investors love it! They look for the signs showing that you’re resourceful and determined to make things work, even if there is no substantial capital yet. Every small bit of traction may be crucial, so be sure to include any data about early customers, hiring outstanding people, or actually building your product with bootstrapped resources. Since the farther you can come on your own, the more likely investors are to believe in your project.
Most investors are looking for startups that have great growth potential as they yield more profits, so a small target market is likely to disadvantage your idea. You need to have a market with significant reach, and if the economies of scale can be incorporated into your operations, it will be a great plus. Besides that, you need to clearly understand how you’re going to conquer or disrupt the market, what advantages your product can offer to potential customers, and what monetization strategy will be the most effective. Having deep understanding of your industry and product is one of the keys to impress a potential investor.
That one is definitely going to be an essential issue for investors. What makes your product unique? What will help it stand out on the market? There has to be something that sets your product apart. If you’re developing a product that is completely new and unique – awesome, you’ve got one less problem on your plate. But although entering an existing market is usually more challenging, if there is something special about your idea that is genuinely interesting and unique, be sure to tell investors about it. Demonstrate to them why people will be interested in your product and what will draw their attention to it.
Even if you don’t have a polished MVP ready to be promoted on a selected market, you have to show potential investors what you’re going to build. Depending on the stage of negotiation with an investor, the presence of a comprehensive clickable visual prototype, detailed technical specification, and development estimation will give you a huge advantage because you can easily answer the questions while also having a strong visualization example of your idea. That’s why we, at Idealogic, always advise that you should start with the Product Design stage to get the first concept of your idea as soon as possible to prove why it is viable and what needs or doesn’t need to be changed.
It would be too easy if an investor’s decision can be simply broken down into those small parts of the great idea, traction, passionate team and so on. However, there is always the X-factor. Sometimes when you meet with investors, there’s a strange connection that you fail to explain. It may be just chemistry. It may be having mutual connections. It can be anything.
It’s almost impossible to predict the X-factor, and it’s definitely difficult to seek it out. However, the best way to find out if the X-factor exists is to be authentic in your presentation. Be passionate, be smart, be yourself. The comments investors make and the questions they ask will tell you what is important for them and may guide your answers, tone, and further presentation.
Understanding the key parameters investors are looking for in startups will indeed help you to make your pitch deck and presentation more attractive to them, so be sure to consider them before trying to raise capital.
But remember: if or when investors say “no” to your project, never take their answer personally. There is an infinite number of reasons why they could have rejected your startup, so do not give up and keep going! However, if investors go on with saying “no,” that may be an alarm bell, so it will be useful to try to revise either your strategy of presenting the project or the idea itself.