Getting funding is an important milestone of any start-up and having correct investor on-board plays an important part. Many start-up entrepreneurs get anxious in spite of vast preparation and experience; when it comes to raising outside capital for the first time. The process is obviously not simple and involves articulation of the idea, defending the growth numbers and demonstration of the execution mechanism. In general, experienced investors tend to be smart and will have skeptical approach and will be extremely diligent in reviewing opportunities presented to them.
While investors evaluate multiple startups it is important to note that they are factors they consider before they’ll invest, either money or additional time.
- Addressable Market of the Idea
Typically, this is the starting point of most of the investment conversations. How big is the addressable market that the start-up is looking to serve?
Addressable market size is defined in terms of not just today, but the future as well. Is this idea scalable? If market already has similar product, then what are those unique differentiators? In case of a new idea or product or focusing on an emerging market, the question will be on how big the market is expected to get and what’s driving its growth. What are those micro-macro factors which would influence the growth?
- Core Team and Execution Track Record
A passionate, cohesive team with complementary skills the key for success of start-up and investors pay keen attention to this factor. Important aspects they evaluate are how a start-up team is well positioned to build and execute a plan and become a market leader.
What kind of domain expertise does the team have that makes them a compelling story in the market? Does the team have sales and marketing, product development and operations experience? Is there a strong chemistry on the team and does everyone play nicely with each other? Are the interests of all the founding team members are aligned?
- Investor Philosophy and Fitment
There are multiple facets to this aspect, the stage of your company (Because some investors only invest in seed funding, some focus on Series-A and so-on), the industry (there are industry and cluster specific investors) and investor experience in that industry segment.
Going for industry specific investors will pay rich dividends in long run; the investor is likely to get more deeply engaged and start-up can get benefited by investors industry connects, network and exposure to other portfolio companies.
- Demonstrating the Commercial Traction
It is extremely important to show investors that the idea has the merit and you have already begun taking action to build the business. Demonstrating that the market is already engaging with the product and providing useful feedback or even better if there is a Beta customer; who is willing to sign. And a list of prospects whom a start-up is engaged with in different stage of sales lifecycle.
It can be quite powerful to throw real data into a conversation that supports the claims. More importantly, it reflects the commitment and initiative that the team is making in order to make things happen.
- The ‘X’ Factor
There’s always a clicking moment that happens between an investor and a founder that plays into the investment decision. Sometimes it’s easy to identify – an affinity based on a common background, such as shared work or educational experiences — or perhaps a co-investor that’s mutually known and trusted.
In other cases, it might be harder to put a finger on, such as likeability of the entrepreneur, or merely an instinct or impression that the investor develops, good or bad, that they have a hard time shaking.
One should keep in mind, even if one doesn’t land a check quickly, and have paved the way for a second meeting, you’ve done your job.