Starting a business is hard, but it is even harder to find an investor to invest money in the business. Many people engage in heavy networking to find the right connection who can invest money in the business. Networking will lead you nowhere if your business lacks the essential components to raise the investment.
Reports indicate that 20% of the startups fail in the first year, and within five years, 50% of the business shut down. The data makes it easier to understand why investors take so much time to invest in a start-up. If not cautious, they can lose a huge chunk of money. However, they still go ahead and invest in businesses. What do the businesses that manage to raise the investments have in them? In other words, who do investors look for in start-ups before investing? If you are planning to raise an investor, check the checklist below.
If the founders are not passionate about their business, they will fail to evoke the same confidence from the other people. Thankfully, the passion element comes naturally to most of the founders. It is only their passion that drives them to start a business. It needs to be noted that if, as an entrepreneur, you are starting a business, you will have to raise the initial capital on your own. Receiving investment simply based on a prototype is rare.
A Massive Market Size
A business has a scope to grow only when it is catering to a significant business size. The growth potential is highly crucial to all businesses. It has become a small business with a very niche target market that actually limits the growth of the business in the long term. Therefore, before starting a product or service, ensure that you can show the investors that your business will cater to the requirements of significant market size. For instance, if you started a start-up related to Lottery Sambad, you need to analyze the market size and analyze how many people are willing to buy Dhankesari or other similar tickets.
Why are you making a particular product or starting a new service? How does it make your business unique? It is one of the make-or-break questions for any business trying to gather investment. If you are bringing a product or service that is entirely new to the market, you naturally have a competitive advantage. However, if similar products or services already exist in the market, you need to find what makes your product or service different from them. The competitive advantage of your business is basically the USP.
Good Team Members
Many start-ups have limited staffing. Limiting staffing is not a problem as long as the team members are good. The number of employees in a business is not crucial as long as there are key members in it to drive the business. For instance, if you are a business that deals with cybersecurity problems. Is there a cybersecurity expert on the team? If yes, what are his accomplishments? It is essential for people with accomplishments and experiments to gain the trust of the investors. Furthermore, delegating the roles of the different stakeholders involved in the business is also critical.
A polite investor may not directly ask about the exit strategy. However, an exit strategy is something that keeps running on the mind of the investors. The primary questions that one has to answer regarding this include how much investment your company requires and when. The next section involves questions like how much will be returned on the investment and when exactly they will receive it. A financial projection based on robust data is required to answer these questions. Additionally, the business model that will help the investors earn a profit is also essential to explain.
Keeping these things in mind will help raise money for your start-up. Investors need to ensure that they will earn a good return on their investment. Similarly, as a business owner, it should be crucial for you to ensure that you bring a good investor to the board. Therefore, it is critical for you to run a background check on the investors. For instance, many investors are involved in a company’s micro-decisions that can hamper a start-up’s free spirit. Not many entrepreneurs are a fan of such working conditions. Firstly, figure out what sort of financing you require and then narrow down the list to bring good investors on the board