A lot many startup founders look for advice to pitch investors even while their idea is still at a concept stage. One of the biggest challenge they face is not knowing how to attract the investors, what are the factors that influence the VCs most and many more things. From there a question arises, that “Whether having an Idea is enough to attract investors to invest in your business?”
Where to find investors
Before coming to how to attract the investors, one should know about where to reach them:
Let us understand what these groups mean and how one should identify them:
- Friends & Family
Friends and family are the ones who know you the best, as they know each and every acceptable and rejectable attributes in you. But it is also said that, “Never mixed up person relationships with the professional ones” and it is possible that a majority of acquaintances you approach don’t like your idea. So if you make up your mind to go with this option, make sure that the other person should know that putting money in a startup is risky and the investor should invest only when he/she is prepared with the 100% probability of losing money.
- Individual Angel Investors
One of the hardest routes to raising investment, involves finding an individual who is ready to invest in just the idea of a startup. You should find an investor who understands your area of expertise, the business model and brings a real value to your startup. So, identify those individuals, and try to figure out someone they know, who can credibly make a pitch introduction for you.
- Angel Investor Firms
Angel investor firms actively seek to make investments in startup ideas. Instead of going with an individual angel investor and getting a million for the idea, it could be worthwhile to raise higher investment from a group of individuals. Such firms help in doing exactly this.
- Startup Advisors
In my personal experience, many startup advisors are available in the market who understand you better than investors. They help in bringing the right investor or group of investors to the right startup but in lieu of bridging this gap they might charge some equity or compensation.
What Investors Look in Startups
So, now comes what an investor looks in a startup before he/she/the group gets excited or what the startups should do to attract the VCs/Investors in order to crack an investment:
- Experienced Entrepreneurs:
The investors might prefer more experienced and older entrepreneurs to invest in rather than a young tech guy who is inexperienced and is rather new in the field. But it doesn’t mean that investor should go for that part only, a young tech guy can overcome this part by having an experienced co-founder in the team.
Traction is a sign that your company is taking off. The only essential thing is growth. Everything else we associate with startups follows from growth. The pursuit of traction is what defines a startup. If you are successful in showing a traction in your startup to the investor then it will be turning point in order to generate the funding for startup. Out of all things that you could possibly show an investor, traction is the number one thing that will convince them. The point of a company’s existence is to get users, and if the investor sees users – the proof is in the pudding.
The team is an important part of the startup that the investors evaluate. What investors look in a team and an entrepreneur is presented in the diagram below:
- Business Model
An investor will look into if the startup’s model is Profitable/Expandable/Predictable/Revenue-sharing etc., on that basis an investor takes a probability and plans his exit accordingly. It is important for you to define clearly what’s your business model and then pitch it to the investors.
- Customer Base
If we are taking the view to invest, we have to consider the adaptability and acceptability of the product in the market. What will be the customer response for that product, what problem gets solved by this product, whether it is worth the price and so on Positive responses to these questions will become a major factor to attract the VCs.
- Idea with Execution
A famous proverb is there, “Worth of an idea is zero, but worth of a better execution is in millions.”
Investors want big ideas and ideas that can change the world. Having an idea is not enough to attract a VC you should have executed it. The risks of investing in a new company are so high and the chances of getting a reward are so small that investors can’t afford to bet on ideas that won’t surely have huge returns. So in order to attract a good investment make sure that you at least have a prototype for your idea.
Well, attracting an investor is not a simple task. One should be fully prepared before going to pitch for an investment. If have undergone self-evaluation and found areas in which you are not good or excellent, please find someone who can help you fix them or fill the gap. Your extra investment of time will significantly improve your chances of getting invested.
About the Author:
Agam Gupta is a practicing Chartered Accountant and the a founder www.Quickcompany.in, an online portal for registering a company in India.