What investors really look for in a start-up
Learn the start-up qualities that grab the attention of the early stage investor.
The songs have sung it, the start-ups have wooed it, the successful entrepreneurs have tamed it – money. Money is the oil that greases the start-up engine and gets the most brilliant of ideas off the ground.
For most entrepreneurs, however, the shift from idea and fledgling business to being funded by an investor is often murky and confusing. How do they make the move? What are the investors looking for? What should they do to attract them? Very few start-ups get funded every year. The dizzy media dream of funds dropping from the sky may have happened briefly in Silicon Valley, once, but today the market is a very different beast.
Raising money as an early stage company is difficult. The average VC looks at around 400 companies for every one they invest in while angel investors look at around 40 – so work on getting both, but prioritise the angels.
The 4 M’s of early stage investing
1. Management teams
If the VC or the angel investor isn’t impressed with your management team, then it will be almost impossible to get investment. Prepare a biography of your team and make this one of the first things you discuss at a pitch. Ensure that your team is experienced and relevant to your industry as these qualities will interest potential investors.
This can mean many things, but the reality is that investors want to see traction in your industry. They want to see revenue and they want to know that you have users or customers alongside a minimum viable product (MVP). You should also be able to demonstrate relationships with strategic partners, have good media contacts and a media presence.
3. Market opportunity
Almost all investors want to invest in a large market with an ambitious team. Support your market opportunity with verifiable metrics and research and focus on realistic metrics or a specific segment of a large market.
Investors want to put a certain amount of money to work – if they have R1 billion and you’re asking for R1 million, they may not be interested at that level. They want to put a substantial amount of money to work for the effort involved so research into which bracket they invest into before you arrive. For early stage investment, many times they will want to own between 20-25% of your company, but they may consider 15% if they are co-investing.