5 Things Investors Want To Know Before Investing
Pitching your startup idea to investors, mentors, incubator and accelerator programs can be a daunting experience, so it helps to be prepared.
Just as I teach founders to put themselves in their target customers' shoes when creating a customer avatar or profile, I teach the same when it comes to pitching to investors.
Think about who you are pitching to. Who are they? What's their background? An investor with a background in accounting is going to be extremely interested in the financial projections, so know your numbers. An investor with a background in sales or marketing is going to focus in on your plan for customer acquisition and retention, so make sure you've nailed that.
Overall though, any investor is going to be primarily interested in these five most important aspects that you absolutely must nail in your pitch, in order to get an investor on board.
01. Growing Market Opportunity
You've identified a problem and found a solution, but do you know how big a problem it is? Do you know how many people globally are experiencing the problem and whether other viable solutions already exist? In other words, how big is the market you're going into? How many likely customers will there be and is the market, and therefore the problem, going to grow in the future? You'll need to do some serious research and arm yourself with reliable statistics to prove to investors that this is a solution worth investing in.
The larger the customer base and the more engaged they will be with your solution, then the better chance you have of creating a global impact. Investors are looking for companies that will be able to generate significant revenue and profits and reach customers with multiple revenue streams.
An Angel investor will be looking for a large target market, so they can feel assured that enough people will be interested in buying the product, where a Venure Capitalist (VC) will be looking for limited competition and market growth opportunities.
02. Strong Business Model
This is simply the model by which customers will buy from you and how you will make money. There are now many different business models and picking the right one for your concept is key to how you will acquire and retain customers and how you will make a profit.
A part of your business model will be choosing the most appropriate pricing strategy and 'packaging' your services to provide different options for different customer segment, or by way of upselling from a base level service to a higher value package based on the increasing needs of a customer over time.
03. Realistic Financial Projections
Now this one is a real sticking point. Investors are looking for realistic, conservative numbers based off an actual budget ("bottom up" forecasting), where you can show them the costs of running the business and providing the product or service, and a realistic number of customers required to make a profit. You can build it up from there to show the expected growth over 3-5 years.
Whatever you do, don't ever go into a pitch presentation without knowing your numbers inside and out. I've watched founders present their numbers by pointing at a j curve graph and saying; "the revenue will go up over time". Yep, I'm not exaggerating. I actually witnessed this once, and many variations. So, you need to know your numbers.
After the initial pitch, investors will go through a period of 'due diligence' in which they will scrutinise your financial model, including budget and projections. Be ready for them.
Related: What is a Pitch Deck?
04. Unique Competitive Positioning
You need to nail the answer to; why should your customers choose you over any competitors? And, ideally you want so much uniqueness in your product and service that there really is no competition, even if there are other similar solutions on the market.
Look for your value proposition by aligning what your brand will do really well with what your target customers really need most, and what your competitors aren't doing, or aren't so good at.
If you have some proprietary features or technology in your product, this will be of interest to investors, but in this case, ensure you have applied for patents and trademarks before pitching. Especially important with proprietary products, where patents can only be applied for before you share your idea publicly.
05. Founder's Drive, Passion & Capability
When your company is just starting out, the only thing an investor can back is the idea, the plan to make it work and YOU. You're the only real tangible. If you make a strong impression with investors it will stand you in good stead for securing investment. If they buy into you, then that's part of the battle won.
So, what is it they are looking for? Well, passion and drive are extremely important. If you don't have real passion and drive for the business, then you won't have the staying power through the late nights, the critique and the inevitable rejections you will face as a founder. Passion is a great motivator and investors know that founders with passion will be relentless and never rest until everything possible is done to make the buisness a success.
Angel investors, in particular, are looking for someone they can 'work with'. They may take a more hands-on approach to their investment and therefore want someone they like, can get along with and can build a long-term relationship with.
"I look for founders who have ideally done something high stress where failure or rejection is constant on a small or large scale almost everyday" - Tim Ferriss, Angel Investor
You also need to demonstrate your experience and leadership capabilities and show an openness to criticism and feedback. If you come across as closed, or a 'know-it-all', investors will spot this and it will raise a red flag for them. A key success factor for founders is the ability to be flexible and adaptable to feedback from customers and change in the market.
Want more help?
PitchQuest® is an exciting online coaching program that takes founders on a strategic journey to turn their early stage idea into a viable commercial venture and create a pitch deck that’s ready to pitch to investors. Find out more and get your pitch done.