Is Your Startup Ready for Investment?
The world of startups is as exciting as it is daunting. Hundreds of startups are born every day around the world while many others die. On one hand, opportunities are increasingly becoming accessible to a vast majority of entrepreneurs but on the other, the race to the top is only getting tougher because of intense competition.
This competition is not only limited to market share but also extends to investor attention. Whether you’re looking to approach angel investors or venture capitalists, there are many startups vying for the same funds.
Before you jump to thinking about how you will stand out, have you studied your startup’s readiness for external investment? Here’s a checklist to help you.
Have you discovered your product-market fit?
In simple terms, product-market fit means that you have discovered a good market where your product or service fits in perfectly. In other words, if customers are deriving value out of what you have created and are flocking to you, you’ve probably reached a product-market fit.
The importance of this process stems from the fact that it is vital for startups to delve deeper into building a worthwhile product. It is not enough to know a problem and have a solution. The solution needs to work for the customers and only then can you move on to the next step.
You will need to build your MVPs and have multiple other iterations of the product so there is no shortcut to achieving the product-market fit. Without this, you cannot convince an investor that your startup is commercially viable.
Do you have a revenue strategy and a growth plan?
Investors are forward-thinking individuals. Your past record speaks volumes but they only benefit from what you do going forward. It is essential for you to have your revenue and monetisation strategy clearly defined because they will make money only if you make money.
As entrepreneurs, you also have to show that you can scale fast and efficiently. Funds will accelerate your growth and you have to be able to meet the demand. If your future plans are not in place or you are yet to figure out how to earn money, it plants a seed of doubt in the minds of investors.
Take time to understand all revenue streams and expansion plans but most importantly, remember to keep it real. You are the best judge of your capabilities and limitations.
Is your market growing fast enough?
Whether you talk about investors or entrepreneurs, nobody wants to find themselves in a market that is slow in growth or fading. In order to grow and succeed, you need to find a market that will give you more opportunities.
While one way to figure it out is through secondary sources which include reports, articles, and other similar studies, another way to confirm these metrics is through your own primary market research. All these, of course, will lead you to some quantitative measurement of the market size and growth potential.
Apart from this, also keep an eye out for what experts are discussing and the changing interests of the masses. It will further help you in ascertaining whether it’s the right market to go after. If you are not convinced of the market potential, try pivoting to a different market where your skills can still be put to good use.
Why do you need funds and where will they be used?
This is probably the most important question you need to ask yourself before you approach investors. As discussed before, startups are rapidly progressing and more money is being pumped into them each day.
Bootstrapped startups sometimes lose out on the limelight that they rightly deserve. Zerodha, MailChimp and GitHub are some big names that made it to the top on their own. As entrepreneurs, evaluate if you have the resources to bootstrap and if that will be beneficial for you in the long run.
If you feel strongly about raising capital externally, determine very carefully the amount you will require, exactly what it will be used for and the runway it will provide you. Investors have all the right to know where their money will be used and how long it will serve you for. These questions will most definitely be asked so be sure to think them through and have a justification ready.
Do the team members complement each other?
While numbers explain one half of your story, the real stars that emerge are always the team members and founders. The startup is only as good as the team because they are the ones with a vision, putting their best foot forward.
You should ideally have a core team with a decent amount of experience and skills that complement each other. Running a startup is no easy task and requires expertise in different fields. If they are well covered by the core team, then it builds investor confidence.
The team becomes all the more important at an early stage because financial records are limited. Funding is greatly dependent on the founders and their vision. Ensure that your co-founders have similar goals and fulfil their responsibilities. As you scale, the workload will only increase so the momentum must be built beforehand.
Do you have a clear moat?
No matter which industry you work in, there will be no dearth of competition. To stay afloat, you will need to have a significant competitive advantage or moat over your competitors. As you build your startup, remember that you are targeting the same customers as many others. The only way they will shift to you is if you give them something of greater value.
Having a moat is crucial for investors because it is only then that they can see a bright future for you. Run of the mill companies will hardly get attention. It is worth spending time thinking about the advantages you possess over rival firms and how you can use them to your advantage.
These moats should also act as a barrier to entry, i.e., others should not be able to copy them easily. Moats can be inbuilt in your product or service or can come in the form of patents and intellectual property.
Do you have the time and resources to approach investors?
While approaching investors is relatively easy now, it is a tedious and time-consuming process. On average, it takes entrepreneurs anywhere between 3 and 12 months to raise a round of investment. It is not an easy task to undertake.
Before you start approaching investors, keep these timelines in mind and consider the work that will go in with your pitch decks, meetings and calls. You should also have enough cash and resources to make it through all this time.
Plan well in advance so that you allow yourself some breathing space. Also, keep your team in the loop so that you can divide the workload evenly such that your regular operations don’t suffer.
Bottomline
These questions do not represent the whole picture but give you a heads-up on some important things to consider before you think about raising investment. If your answer is a solid yes to all of the above, you should be considerably ready to approach investors.
Don’t be discouraged by a few no’s on the way either because all investors have their own criteria to rate startups. Sooner or later, you will find the fit for you.
