What Do Investors Look For in a Startup?

When you imagine the beginning stages of a startup, you might picture a couple of friends working out of a garage with just a few thousand dollars and a shared passion, aiming to make their business as big as Amazon. 

While it can be good to take baby steps as you wade through the murky waters of launching your own business, you will eventually need to think bigger and ask for a bit of assistance. After all, even Jeff Bezos had to get a million dollars in seed funding from a group of angel investors after he used up the money his parents gave him to get his dream off the ground.

When you put your all into something, it’s inevitable that emotions will be attached. By trying to see your business from the perspective of a potential investor, you can hold your project at arm’s length and hopefully get a better sense of its strengths and weaknesses. 

What is the ultimate goal of investors? They want to know if your business will make them money.

That’s it.

There are a number of ways to make your business enticing to potential investors. They need to feel comfortable taking a chance on you and your vision in exchange for a robust return on their capital. They are not only looking for recommendations and people to vouch for you; they want facts, hard projections, and a track record (if you already have one). 

What you should definitely have 

• A business plan: It should be something investors will want to write home about, something that gets people as excited as you are. Where do you see your business taking you in the next three months? In the next two years? Five years? What about 20 years from now? 

You will need solid projections, specific goals (steer clear of generic stuff like “making customers happy”), and a good understanding of market trends. Investors want to see that you know what you’re talking about, and a stellar plan proves that you’ve put a lot of thought into what you’re offering. Make sure you are transparent and include a detailed breakdown of exactly where their money will be going. On that note, it’s comforting for investors to know about your financial history, so don’t forget to get audited before the big meeting.

• A unique selling proposition (USP): What makes you different from other companies in your industry? Why should investors bet on you and not your competitors? How can you spark a desire in potential customers for something they don’t yet know they crave? You will want to have a compelling story to go along with the numbers. 

The recipe for success is hard data plus a little bit of tugging at heartstrings. That said, a USP isn’t a long-winded sob story; it’s more like a tagline stating in a nutshell what niche your company fills (think The North Face’s “Shaping the future of human/nature” or Starbucks’s “Expect more than a coffee”). Keep it short and sweet and elaborate later. Check out some helpful tips and tricks for coming up with your perfect pitch as well as examples of successful USPs here.

Put yourself in their shoes

Now that you’ve looked closely at the nitty-gritty of your business, ask yourself if you would want to invest in it. Attracting financial backers to your startup hinges on your approach, and if your heart’s not in it, they will likely be able to tell. Practice your presentation with friends or family and welcome constructive criticism. Are your goals crystal clear to potential investors?