There are many factors that come into play to grow a startup into a successful business. Having a great idea and a strong vision alone will not suffice if the capital needed to turn that idea into reality is not readily available. Hence, one of the first objectives, and a very important one, for any startup is to secure sources of funding. This is where venture capitalists and angel investors come into the picture. However, finding investors and convincing them to part with their hard-earned money and invest in your business is a daunting task.
FinAKS has worked extensively with startups that have successfully raised funding or are looking for funding. In this post, we outline the basic requirements you or any startup founder needs to keep in mind to make a case for investments.
- Product or offering
For investors or VC funds to invest in your idea, they need to understand your core product or offering. It does not matter whether your business idea is simple or complex as long as the investor is clear about what you are raising funds for. And start-up founders need, in turn, to be extremely clear about the product or offering they are developing.
- Target Market
Your startup’s core offering was likely built for a certain market segment. Your investor will need to have a comprehensive insight into your startup’s USP, potential market size, and how the target market benefits from it. Be realistic about who you’re building your product for and the value that this segment will get out of your specific offerings.
- Know Your Competition
Develop a good understanding of the competition in the market, and how it can stand out from the rest. There are several factors that are important to consider here — whether an aggressive pricing strategy, cutting edge technology, a focus on customer service and so on. Investors will want assurance that you’ve understood how to stand out from the competition, and win, regularly.
The opportunity for growth and the ability of your startup to be rapidly expanded (viz. to scale) to a potentially broader market is a critical factor that most start-up investors look into. Startups are inherently risky, and prone to failure. Investors are looking to make a lot of return from those successful startups — typically by looking for rapid growth and scaling opportunities, while they invest.
Investors invest in people more often than they invest in ideas. Be ready to share details about why you and your team have the reputation, skills, passion, experience, and expertise to drive this business to success. Ensure that you and your key people can make a case for what may be ahead for the business, what skill-sets your team might be missing, and how you plan to fill those gaps.
- Business Plan
Investors always look for realistic optimism. Your business plan must have a good estimate of a realistic growth rate based on a thorough SWOT analysis and you must identify key milestones that you can achieve with the help of investor capital.
- Exit Strategy
Though this is not a must-have, it is helpful for your company to think through an exit plan over a period of time. Most investors want to understand your exit strategy – be it going public, getting acquired, or undertaking a merger. It is particularly helpful to demonstrate why your exit strategy might make sense in a few years.
You’re now all set with the basic knowledge to pitch your business idea to a potential investor! Stay tuned to our next article where we will take you through another critical step in the funding process.