Startup Investment – What Are the Parameters You Need to Be Aware Of?

It often happens that new startups miss out on the bigger picture while putting together a new business. 

You may have got yourself a new office space with all the facilities. It can include the essentials like signature stamps, licenses, designing of SOPs, defining hierarchy, etc. However, many entrepreneurs often miss out on signature stamps, which serve as an efficient and effective way to sign documents and checks. 

You should understand what drives the investors regardless of the setup you own and the investment you seek. Only 35% of the ventures can fetch a positive return on capital for the investors. Such a risk makes the investors selective while considering investing in a startup venture.

Innovative Service or Product

A product or service with a unique proposition and compelling reasons for the customers to change their current habits is what attracts the investors. Another desirable factor for the investor can be meaningful trade secrets and patents. In any case, the product should be able to create a strong differentiation.

The innovation and uniqueness which drive the product should have readily apparent functionality. This aspect also helps to make the sale process easier. The chances of conversion are higher in the presence of minimal barriers during the buying process.

It is a vital plus point to have a differentiated business model. In recent years, the accessibility and reach of consumers increased manifold by leveraging the internet. Some of the prominent examples which one can observe are:

• The direct shipment of FMCG or fast-moving consumer goods to the consumers’ homes vis-à-vis in-person retail
• The disbursal of online mortgage loans vis-à-vis physical bank visit
• The availability of cabs at the tap of a finger versus hailing taxis

It seldom happens that the investors put their money into a successful and existing ‘me-too’ product. The reason being the higher chances of the fight for market share. Only a fraction of ideas that the investors see mature into investment. 42% of the startups that failed have had products that had ‘no market demand.’

Future Potential

The businesses that have higher traction in a well-defined market attract more investors. They generally look for low customer churn, loyal customers, and a high rate of repeat purchases. Such factors can be a good indicator for a viable service or product.

Studies suggest one of the most common factors among successful startups is their constant lookout to satisfy the organization and the customers, which are in line with their goal. Therefore, you should design the service of the product keeping in mind customer satisfaction.

Furthermore, it is also crucial to have evidence of a large potential market for the service or product in consideration. Unless there is a significant gap in the market, very niche products will not pass through the screens of the venture capitalists.

You should note that due to inherent risk and low success rates investors are less likely to take huge risks. They will only focus on the opportunities that present an upside for a high return.

The Team 

A very crucial aspect that investors often seek is a strong team composition led by a justified leader. It is one of the leading factors which investors consider as a chief criterion for businesses to thrive. In a nutshell, investors invest in the team and the business.

In general, the teams with passion and knowledge about the service, product, and the industry make the cut. More often, it is prevalent for the investors to ask questions to the founder or the leadership team:

• How experienced are they, as entrepreneurs or in the industry they aim to cater to?
• How committed is the team?
• Are they open to criticism and seek advice?
• Is the team capable of finding solutions to the problems, or will they pivot in case of any roadblocks or headwinds?
• Can they handle pressure and remain calm?

Data suggests that around 23% of the startup failures are due to a wrong team. Therefore, you need to select the right people you surround yourself with within your startup.

Apart from these three factors, you can also choose to consider a detailed business plan, investment thesis fit, and investment terms as the other crucial factors which can make a significant difference in your investment pitch. In the end, you should remember that an investor is always fearful of investing in a startup that fizzles out or missing out on a startup that can take off.