7 Factors That Make An Investor Sign The Cheque

For startup founders looking for funding for their venture, dealing with investors and getting investment from them can be very frustrating. Most founders try to get investors interested enough in their business to actually put their money in it, but fail to realize that one of the best ways to do that is to think from the cheque-holder’s point of view. Put yourself in the investor’s shoes and find out what they look for when founders approach them for an investment. According to a survey, angel investors are the right option for about 90% of startups because they have experience as regards what the entrepreneur will encounter and as such are more patient about how long it will take to get profitable. These are 7 factors that make investors sign the cheque.

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  1. The uniqueness of the idea and the market for it: Investors look for an opportunity that will excite them in a market whose workings they understand. With the massive number of startups that come up annually, planning on getting investment in their business,  the idea has to be unique indeed. Ask what sets you apart from the competition and what you offer that is peculiar to your venture. Then learn how to show this unique quality with clear evidence. The market must also be attractive – by that I mean million dollar market and growing. Your chances of getting investment will increase significantly if you can show that your venture can make up to millions in sales. The vast majority of them want to see that someone is willing to buy whatever you are trying to sell and would want to see validation. Surveys, are okay, but not until you try to get people to part with their hard-earned money, do you find out if you really have a tangible opportunity.
  2. The experience of the entrepreneur: A lot of businesses that didn’t make it eventually didn’t fail because the business ideas weren’t great, but because the entrepreneurs couldn’t make them sell. Investors will be more easily swayed and getting investment would be easier if the entrepreneur knows how to sell a good idea he has come up with and developed. Some investors confess to backing businesses where they see that the founder is way more impressive than the product or service they want investor backing for. Those investors are completely convinced that they would continue to back such entrepreneurs in whatever new venture they wanted to go into in the future. They also confessed to meeting some founders who had amazing ideas, but were unable to take advice or listen to more experienced individuals when they made recommendations. Investors want to use their experience and connects to help upcoming entrepreneurs grow and not just give them cash.value-getting investment
  3. Proper valuation: A startup founder must know the value of the business they are trying to build and communicate this accurately to investors. When you overvalue your business, you rule yourself out of getting investment very quickly. Consider all the relevant variables – intellectual property, the market, time and money already invested and other factors and be informed enough to communicate all these effectively when a potential investor asks about your valuation. While you have to be careful not to give a valuation that is over what your business is truly worth, be careful not to undervalue your business or give away too much equity to an investor. Make sure the value is as accurate as possible to avoid feeling like you got the short end of the bargain. If you feel like you gave away more than you should have, it would be a constant distraction in the back of your mind.
  4. A good financial performance: Every investor will be interested in knowing just how financially stable your company is. They will want to see signs of growth and how you plan to consolidate on that growth. Most founders think that they only have to start showing signs of growth after they have received investments, but the truth is that if you can’t show signs of compelling growth before investors give you their money, you would still find it difficult to make money from your business after receiving investments. If you went into debt to start the business, investors would like to see a proper plan for paying off your debt.
  5. Scalability: For investors to be willing to invest in your venture, it must be able to scale – that means grow in all aspects, including but not limited to customer base, profit and popularity of the brand. A company like Google, when it started would have found getting investment relatively easy because it showed potential to grow infinitely – virtually everyone wants to find information quickly everyday.
  6. A good business model: A company’s real value isn’t shown until it starts to make a profit. A result of this is that founders have a better chance of getting investment if their business model can prove that the company will actually grow. Investors will look at the condition of the markets to see how possible it would be to make a profit and how long it would take.exit-getting investment
  7. An exit strategy: Even though mighty few entrepreneurs would like to discuss this, investors would want to know when you would sell. From an investor’s point of view, having a plan to make your business attractive to potential buyers and a timeline for exit is a good sign and is essential for getting investment.

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