What investors see before investing in a startup

So, you own an amazing concept that you firmly believe has the potential to revolutionise the world. Having resigned from your job and obtained financial support from friends and family, you are now prepared to present your startup to potential investors. Undoubtedly, they will acknowledge your exceptional talent and generously invest in you, right?

That's not entirely true. Before investors commit funds, they engage in a comprehensive process to ascertain the value of your firm and justify the allocation of their earned capital. Now, let us explore the factors that investors consider before investing in your startup, in addition to your strong conviction and attractive presentation deck.

The team: Investors know that a business's success depends on the team. It needs a mix of skills, like an innovative leader, a marketer, a tech specialist, and sometimes a financial expert. Sequoia Capital saw this in WhatsApp's founders, and it contributed to its success. ShopUp, a top B2B startup in Bangladesh, also got funding from Sequoia Capital India for its skilled staff and knowledge of local markets and tech.

The potential for growth and profitability in the market: Regardless of the innovativeness of your idea, if the market size is insufficient, investors are likely to decline. They desire evidence of a significant market for your goods or services. A wide and expanding market signifies the capacity for scalability and substantial returns on the money they invested.

Consider the case of Pathao, a ride-sharing and logistics network based in Bangladesh. Initial investors recognised the lucrative market for transport and delivery solutions in Dhaka's crowded streets, resulting in significant investments to expand operations.

Product-Market fit: For a product to succeed, it must be of high quality and meet a genuine market demand. Investors look for proof that the product effectively addresses a major problem or fulfills a need better than existing options.

Dropbox demonstrates successful product-market fit. Drew Houston, the founder, gained investor interest by attracting significant market demand with a viral demonstration video. Similarly, in Bangladesh, Chaldal-- a virtual grocery delivery business, attracted investment by catering to the need for fast grocery shopping in urban areas.

Personal background and academic qualifications: Investors frequently consider the educational backgrounds and expertise of the founding team. Their preference is for founders who possess relevant industry expertise and a strong academic foundation from esteemed educational institutions.

When the Bill & Melinda Gates Foundation invested in bKash, they were particularly drawn to the founders' extensive experience in finance and technology.

Competitive edge: Investors seek the unique qualities that differentiate your startup from competitors, such as proprietary technology, patented processes, exceptional talent, or an innovative strategy. The aim is to establish a lasting competitive advantage that protects your business from replication or outperformance.

For instance, Tesla's initial investors were highly pleased by its exclusive battery design and the concept of a whole electric vehicle ecosystem. These components offered a distinct advantage that was difficult to duplicate, rendering it a tempting investment.

Business model: An innovative concept with an imperfect revenue strategy may not attract investors. Stakeholders seek a clear path to financial viability, involving understanding revenue sources, pricing strategies, customer acquisition costs, and long-term financial forecasts.

Netflix's subscription-based business model impressed investors with its scalability and ability to adapt to market changes.

Sheba.xyz in Bangladesh showcased a scalable business strategy with diverse revenue streams from services offered to individuals and businesses.

Financial stability and forecasts: When seeking funding, it is crucial to provide investors with clear financial projections and demonstrate effective use of capital. Snapchat's transparency and strategic planning were key in gaining investor confidence.

The fintech firm bKash from Bangladesh attracted significant investment by presenting clear financial estimates and showcasing a viable strategy for achieving profitability.

Risk mitigation: Investors are keen to understand how you plan to minimise risks associated with your startup, including market risks, operational hazards, competition risks, and financial uncertainties.

During the first stages of Uber, investors expressed apprehension regarding regulatory issues. Yet, Uber's comprehensive risk management plan and aggressive strategy in dealing with legal obstacles provided reassurance to investors and ensured their support.

Vision & exit strategy: Investors want assurance of your long-term vision and exit plans. They are eager to understand how they will get their return on investment.

The pitch: How you present your startup can significantly impact its success. A compelling presentation that effectively communicates your vision, market potential, and strategy can capture investor interest. They look for enthusiasm, confidence, and the ability to articulate your startup's potential. An emotionally engaging story can have a stronger impact than just presenting data and graphs.

Take the case of Steve Jobs, who was famous for his skill in delivering compelling presentations. His Apple product presentations not only emphasised features but also crafted a narrative that resonated with viewers on an emotional level, thereby establishing strong consumer and investor loyalty.

Although your faith in your idea or firm is crucial, investors need more factors before they invest their funds. When getting ready for an investor meeting, keep in mind that it is not only about your enthusiasm but also about demonstrating that your firm is a secure and feasible investment.

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