What Do Startup Investors Look For?

It may come as no surprise that startup investors need a lot of data when evaluating potential partners.

You have a great idea. You scratch up some cash together, find the right people, and your startup is now up and running. If this is how your startup got off the ground, then you’ve probably asked yourself: What could my startup do if I had funding?

Well, if you have a clear answer for that, then you’re probably seriously considering looking for investors.

This article offers a better understanding of the criteria investors have before giving startups money. Prepare these key details in advance, and increase your chances of getting the funding you need.

1. Hard Data

Investors need to know that they’ll make a return from their investment in your startup. As such, the best tool to prove to them that they’ll be able to get a return is through sound financial and operational data.

Here are two key reports your potential investors will want to see:

Cash flow statement: The cash flow statement is an excellent indicator of the business’s overall health. Also, it’s a good indicator of how a company manages their finances. Providing this data to your investors gives a good idea of what to expect from how you’ll address their investment.

Operational metrics: Customer acquisition cost, runway, burn rate, and customer lifetime value are some of the metrics investors will want to know before investing in your business. These predictive analytic datasets give them the ability to make projections and provide them with an idea of your business’s potential.

2. A Solid Business Plan

Your business plan is the roadmap you intend to follow to become profitable. To your investor’s eyes, it lets them know how you’ll spend their money and when to expect to see their money back.

Here are three aspects to a rock-solid business plan:

1. Your sales channels: The best product in the world is nothing without solid sales infrastructure.Show your investors that you have a sales strategy to build revenue at the same time as your product.

A timeline to when you’ll reach your break-even point: this is the first milestone before making profits. So having a clear roadmap to this point lets your investors understand your focus.

Marketing strategy: your customers need to know that you exist. How you’ll get this done will make a massive difference to your investor’s confidence in your startup.

3. A Unique Idea

Unique doesn’t mean that it has to be completely new. A completely new market is often harder to fund. In other words, your startup is already in a space with other players. What most investors look at when it comes to your idea is a uniqueness in your approach to attacking this space.

In other words, what’s different? What gives you an edge over the rest of the competition in your space? It’s this edge that will give your investors a better idea of the likelihood of your startup’s success.

4. A Strong Message that Conveys that Idea

Being able to put into words what your idea is about is a necessary step to get funding. Said differently, your investors need to be able to understand what it is you want to do. So giving them a frame of reference, or similarity to some other recognizable business is often helpful. A great way to do this is to create an elevator pitch.

An elevator pitch is a 15-30 second spiel that lets anyone who asks understand who you are, what value you provide, and who you serve.

Here are three steps to create an unforgettable elevator pitch:

Explain who you are as a business: This will give your listener a reference point to what to expect from you. For example, We’re a SAAS business for accountants…
Tell them how you give value: This could be saving time, making more money, simplifying, etc.
Grab their attention: Give them one attention-grabbing outcome that you stand by. Preferably, include some numeric value—for example, a 30% sales increase in 3 months.

Questions You May Get From Investors

Naturally, investors will have questions for you. It’s unlikely that they’ll just write you a check and go on with their day. It’s important to remember that onboarding an investor means starting a new long-lasting relationship with a new person. Know their potential questions. Answer them confidently, but not with scripted remarks. Confidence and clear communication is key to establishing the foundation of how you’ll work together.

Here are some questions you should be prepared to answer when talking with investors.

1. What does your complete competitive landscape look like, beyond just where you’re playing?

Competitive analysis is valuable with fund-hunting. Knowing who you’re going up against is key to understanding the growth potential of your startup. This will help them know if your startup has the potential to become a unicorn or just be a profitable business.

2. What’s your competitive advantage?

Is your advantage your strategy? Do you have unique technology? Or is it your expertise? Ensure you are clear on what gives you the edge over the rest of the players in your space.

3. What are the risks?

Every investment has risks. So you must be upfront about the main risks that you have to manage to be successful.

4. What’s your exit strategy?

Will you be looking for an IPO? Or do you expect to be bought by a more significant player in your field? Knowing your exit strategy is one of the critical aspects that will let your investors understand the potential payoff of their investment.

5. Why me (the investor)?

Most investors don’t simply give you the funding. They expect to be involved with your business, even if just in a passive manner. That’s why looking for investors with experience in your market is a good strategy—they have a similar background as yours.

Attract Investors with Solid Financials

Getting the funding your startup needs helps you build the products that help the world. At Founder’s CPA, we’ve worked with startup clients that range in size from pre-launch to clients generating $40+ million annually in revenue.

Our current clients are funded by top venture capitalists and have partnered with Shark Tank, 500 Startups, Techstars, Y-Combinator, 1871, and more. Ready to find out more? Schedule a consultation with a financial expert today.