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Many entrepreneurs get anxious when it comes to raising outside capital for the first time. The process is not for the meek, as most experienced investors tend to be smart, skeptical and diligent in reviewing opportunities presented to them. Despite the wide variety of startups they may see, the truth of the matter is that they are several boxes that just about every investor likes to check before they'll invest, either money or additional time.
1. Dynamic market opportunity.
This is where most investors will start. How big is the addressable market that your company is looking to serve?
Big is defined in terms of not just today, but the future as well. If it's a market with existing solutions, be prepared to spend a lot of time explaining how your solution is different from your peers. If it's a new, emerging market, the focus will be on how big the market is expected to get and what's driving its growth. Investors understand that rising tides lift all boats - many of them will look to place bets in new, promising sectors.
2. Team's execution capability.
A potential investor will keenly look into why your 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 an authoritative figure in the market? Does the team have complementary skills as it related to sales and marketing, product development and operations? Is there a strong chemistry on the team and does everyone play nicely with each other?
These are several of the criteria investors will be looking for, so it's important to highlight as many of these as strengths as possible.
Related: 7 Ways Entrepreneurs Can Invest in Themselves
3. Commercial traction.
An important way to de-risk an investment opportunity is to show investors that you're not just all talk but have already begun taking action to build the business. Demonstrating that the market is already engaging with your product and providing useful feedback will set your startup apart from many others that are still sitting in the laboratory.
It can be quite powerful to throw real data into a conversation that supports your claims, or perhaps even forces you to adjust assumptions that you've started with. Furthermore, it reflects the commitment and initiative that the team is making in order to make things happen.
Related: It's Every Entrepreneur's Responsibility to Invest in Other Startups
4. Investor relevance.
Do not underestimate the importance of investor fit.
There are many aspects to this, including: the stage of your company, the industry that you're startup is active in and investor experience in your market space.
Think of it as a piece to a puzzle. If there are multiple connections between an investor's strategy and your startup, the investor is likely to get more deeply engaged and the fit becomes more obvious. Doing your research upfront will pay dividends and ensure that you don't spend a whole lot of time with an investor who ultimately isn't a natural fit.
Related: 7 Reasons NOW Is a Great Time to Invest in Real Estate
5. 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. Either way, this is where it helps for you to be authentic and not too salesy while understanding the personal background of your investor to tease out any positive connections out of a conversation.
While the fundraising process can certainly be daunting, you can put yourself in a great position to engage an investor if you bone up on your pitch to address these areas. Keep in mind, even if you don't land a check quickly, and have paved the way for a second meeting, you've done your job.
FAQs
This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.
What are the 5 questions to ask before investing? ›
5 questions to ask before you invest
- Am I comfortable with the level of risk? Can I afford to lose my money? ...
- Do I understand the investment and could I get my money out easily? ...
- Are my investments regulated? ...
- Am I protected if the investment provider or my adviser goes out of business? ...
- Should I get financial advice?
The following five steps should help you identify your needs, decide the most suitable asset allocation, and lead you toward your financial goals step by step.
- Assess your risk tolerance: selected.
- Diversify your investment.
- Do asset allocation.
- Assess investment performance.
- Rebalance your portfolio.
This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.
What do investors usually look for when investing? ›
Investors will want to see information that indicates the current financial status of the business. Usually, they will expect to see current reports such as a profit and loss statement, a balance sheet and a cash flow statement as well as projections for the next two or three years.
What are 7 questions to ask before you buy a stock? ›
Ask yourself:
- How does the investment work? ...
- What are your goals? ...
- What are the risks of this investment? ...
- How much do you expect to earn on this investment? ...
- How long do you plan to invest. ...
- What are the costs to buy, hold and sell the investment? ...
- What other investments do you have already?
75% of the fund's assets must be invested in other issuer's securities, no more than 5% of the fund's assets may be invested in any one company, and the fund may own no more than 10% of an issuer's outstanding securities.
What do investors need to know before investing? ›
Before you make any investing decision, sit down and take an honest look at your entire financial situation -- especially if you've never made a financial plan before. The first step to successful investing is figuring out your goals and risk tolerance – either on your own or with the help of a financial professional.
What are your top 5 tips for investing or accumulating wealth? ›
Here's a look at some steps that you might take as part of a wealth-building strategy.
- Understand net worth. ...
- Set financial goals. ...
- Earn income. ...
- Save money automatically. ...
- Spend money consciously. ...
- Pay off high-interest debt. ...
- Build an emergency fund. ...
- Invest your savings.
The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.
Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.
What is the 1% rule for investors? ›
For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price. If you want to buy an investment property, the 1% rule can be a helpful tool for finding the right property to achieve your investment goals.
What is the 70% investor rule? ›
Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.
What do investors look for in a startup? ›
Above all, angel investors are looking for a high rate of return on their initial investment. They'll want to know if the business idea fills a gap in the market with potential for significant growth. The product or service should be new and exciting – so you'll need a heavy-hitting, detailed pitch to sell it.
What data do investors look at? ›
The financial statements used in investment analysis are the balance sheet, the income statement, and the cash flow statement with additional analysis of a company's shareholders' equity and retained earnings.
How do investors evaluate a startup? ›
A startup valuation may account for factors like your team's expertise, product, assets, business model, total addressable market, competitor performance, market opportunity, goodwill, and more. If you have actual revenues, you're able to use concrete economic numbers as a starting point.
What 3 factors should you think about before investing? ›
Financial Navigating in the Current Economy: Ten Things to Consider Before You Make Investing Decisions
- Draw a personal financial roadmap. ...
- Evaluate your comfort zone in taking on risk. ...
- Consider an appropriate mix of investments. ...
- Be careful if investing heavily in shares of employer's stock or any individual stock.
Tips for Smart Investing
- Don't Delay Current Section,
- Asset Allocation.
- Diversify Your Portfolio.
- Rebalance Periodically.
- Keep an Eye on Fees.
- Consider Tax-Loss Harvesting.
- Simplify Your Investing.
- Key Takeaways.
You should always plan to answer all of these questions with your pitch deck.
- What problem (or want) are you solving?
- What kinds of people, groups, or organizations have that problem? ...
- How are you different?
- Who will you compete with? ...
- How will you make money?
- How will you make money for your investors?
Three key aspects that often influence their investment choices include risk tolerance, portfolio diversification, and goal-based investing.
