8 Key Elements that Investors Look For in a Startup

March 23, 2021
Marene Ter

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If you are an entrepreneur considering raising capital for the first time, you’re in for a massive challenge. Many investors are already experienced and diligent enough to know what types of businesses and business owners to invest in. If you or your startup don’t have what it takes to get funded, you might miss out on a great opportunity.

Smart investors know when and where to invest both time and money. As a startup founder, you need to align with their standards and values. A solid idea is not enough – you have to know how to make it profitable.

What attracts investors to startups, and how can you leverage your business to ensure that you can raise outside capital? Let’s go through the eight most important elements that we look for in startups.

1 – A financially viable business model

How sure are you that your startup is economically viable? Do you have the numbers to back up your goals? Investors need hard data, so be sure you have these before anything else. Otherwise, your plan to raise capital will fail right off the bat.

A quantifiable and validated business model will help you turn an idea into a sustainable business. Not only will it help you anticipate how you are going to spend your capital in the coming months or years, but it will also give you a clearer picture of when you’ll need to raise capital.

The business model is a non-negotiable requirement in fundraising. All of your funding plans rely on financial data that back up your business idea. This will inform investors of how you’re doing and what your targets are. Investors want to know your projections and what’s in it for them in the short and long term. 

2 – A compelling business plan

You might have a unique idea, but do you have what it takes to execute it? More than the concept itself, investors want a startup with a solid and convincing business plan. If you illustrate how far your plans for your company have reached, your company will become more attractive to investors. 

Do you have a deep knowledge of your market? Are there marketing campaigns you are planning to execute? Did you work on financial projections for your business? Do you have long-term plans that show the depth of your vision? Investors want to see these in place before they decide to take the risk.

Investors are more likely to fund startups that have earned a certain level of revenue or reached a higher level of development than those still in their very early stages. Gain some momentum first before trying to get funding so that you can present a refined approach and concept so that investors become captivated by your idea.

3 – An authentic brand story

Investors want to know if your startup has a story that will resonate with your market. To make sure that it does, you need to have strong branding backed up by a compelling story. This includes both the details of your business and your feelings towards what you do.

A strong narrative can sway investors as much as it can sway buyers. You want them to see what drives you, what they can expect from you, and what you hope to provide. You can also include your company’s history, how you started, and how far you see it going. 

Investors are human, too. They want to see how much your company matters to you, so they can help you change the game. Having a brand story is a great way to begin your pitch. Remember that they are choosing both companies and their team members. The more you tell them about what makes you worth the risk, the better.

4 – A strong team

Startup founders might not realize the importance of teamwork and leadership when trying to raise capital. In reality, investors are equally investing in your team and your business. They will be more inclined to invest in a passionate team with a technical and enthusiastic leader at the helm. A great team can turn even the simplest idea into something extraordinary. 

If you feel like your startup doesn’t have enough technical skills or knowledge to be built up, find a co-founder or CEO who is more knowledgeable to help lead the team. This is one way to fill the gaps and create more refined systems and processes in place to execute your ideas. Having a business coach or advisor to help steer management towards the right direction will also contribute greatly to a team’s strength.

The people in your startup contribute greatly to how an investor will perceive your business, so make sure they are the right ones. A team should possess skills that complement each other. Do you have the bases like marketing, sales, product development, and operations covered? Are you able to collaborate and treat each other well? Your team’s chemistry can make or break your startup, and investors will see that, too.

5 – A dynamic market opportunity

You might have a great product and a good team, but is the market attractive for your startup? This plays a huge role in the decision of the investor. If the conditions aren’t favorable for your idea, then it will be much more difficult for you to raise capital. 

Do you know the size of the market you’re after and if there’s a good revenue opportunity there for your startup? Investors are more eager to consider businesses with a large market target. Another important thing they will consider is your capacity to reach this market and have them adopt your product. 

Investors are rightly skeptical of businesses that look like they will struggle to grow. A large market should always include the present and future of your business. Depending on your company’s sector, you will have to prove how viable your plan is and how you can drive growth so that investors can see how they can help you scale and get their money’s worth at the same time.

6 – A competitive edge

Contrary to what you believe, investors are not as willing to take huge risks. They want to make sure that they are betting on something sustainable and profitable for them. Having a significant advantage over your competitors in the industry will help investors determine your startup’s viability.

This doesn’t mean you have to have the best product or service. If they do their due diligence, they will already know who your competitors are. What do you have to offer that your competitors do not have? What are you doing differently to make your business stand out? You have to provide evidence that you can outlast your competition so that they can consider your business.

Your business model will show you exactly what your competitive advantage is. Leverage these points to convince investors that whoever competes with you will sink. This way, you can prove that you have a sustainable plan in place to help them grow their money, too.

7 – A clear investment structure

What kind of funding do you need? What are the ways through which you can get capital? Investors want to see if your startup has already considered these aspects and if you have a financial structure in place.

How will you consider your investors – will they be partners or shareholders? Will you allow investors to buy into the business? How much involvement will they have in decision-making? All these will need to be taken into account so that investors can have a backup for your request for funding.

Be ready to negotiate with your investors. They might want a larger share or ask for additions to the shareholder agreement. Having a prepared investment structure will help you get ready to go into negotiations. Don’t forget to consult a lawyer to be sure that you maintain control over your startup.

8 – A shared vision

Not having a common goal with your investor can make or break your funding opportunity. Something has to click for an investor to realize that your startup is worth it. A good impression and a genuine connection are more important than you realize. 

Investors have met startup founders from all over, and they have honed their judgment of characters. They want authenticity, enthusiasm, and drive. They can also be looking for shared experiences or mutual network connections. Establish your credibility and there’s a good chance you will find an investor who’s a good fit for your startup.

There’s no solid formula for getting investors to take a chance on your startup. Remember that they are also people, and you should treat them with thoughtfulness and understanding, too. If you give them something to believe in, chances are you might find a great investor and friend in one.

Ready to get funding? Raising capital is an art and a science. Startup founders need all the help they can get to prepare for it. Speak with us at Trinitas Investments for tailored advice and financial solutions that fit your business. We’re here to help you save energy, time, and money down the line. 

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