Starting a business is challenging and complex, but with careful planning and execution, you can increase your chances of success. To run a successful business, you need more than a great idea and a team; funds are essential to running a startup. Without sufficient funds, you won't be able to kickstart your startup. Initially, every entrepreneur is optimistic about their startup and scoring funding.
This optimism is sourced from the stories of the entrepreneurs who finished their seed funding round in 10 days and then, after some years, they are trading on the NYSE. But unfortunately, that rarely happens. Scoring funding is much more complex. Not trying to burst your bubble, but if you don't face reality, you won't be able to find funding.
"The studies show that only 20-30% of companies leave the pre-seed stage, while the follow-on rate is a bit higher and floats at around 50% on each stage. This means up to 70% of startups fail on the pre-seed stage and 50% fail on every stage until they reach the series D stage.” -Dmytro Serheeiv, a co-owner at PDFliner, said
Investors know the ratio of startups that succeed and fail; therefore, they are pretty cautious about which startup they fund. But with the help of the ten traits I'll share with you today, you can see what investors look for in a startup. You should ensure that your startup includes these traits before going to any investors, so you have the best chance of getting your funding.
Let's dive into the 10 traits investors look into when looking for startups.
You must develop a thick skin when looking for investment for your startup. This whole process will be exhausting, and everyone knows that. Founders are interested in startups, passionate about their projects, and not scared of hearing no. As an entrepreneur, you must remember that you won't get funding on your first try. You will need to knock on plenty of doors. But if you believe in your startup and are willing to do the work, you will find the investor best for your startup.
Not everyone will feel as passionate as you about your startup; your job is to convince investors that this is their dream startup. Igniting the same passion, you feel about the startup in your investor is the goal. When investors see your persistence and investment in your startup, they will think before turning your startup down.
Initially, you will have to raise funds yourself, such as dipping into your savings, borrowing from family and friends, or getting a loan. When an investor knows your money is at stake, they will know you are more invested in the startup.
The market size of any product is the potential audience you will be serving with your product. Most investors will look at the potential market size of any startup when analyzing its future growth. For example, suppose an investor has to choose between a revolutionary product with a limited market size and a product that isn't that revolutionizing but has a significant market size. In that case, they will automatically go for the latter.
Therefore, when working on your product, you need to keep this aspect in mind because you won't be able to grow your startup without any investors. To get those investors interested, you need to show them that your startup has potential for growth; one factor is significant market size.
Traction refers to the progress and momentum a startup has achieved in terms of customer acquisition, revenue growth, and other key metrics that demonstrate the viability and potential success of the business.
Having traction shows investors that the startup has a solid customer base and a proven business model and is progressing toward achieving its goals. This can increase investor confidence and interest in the company, making it more attractive for investment.
You might be thinking, at this early stage of your startup, how can you demonstrate all of these factors? Not to worry; there are other ways to show traction to your investors. Companies often use testing as a way to predict traction for their product. With the help of results from these tests you can show proof of potential traction for your product.
You can only use different mediums to attract customers for your product, such as Twitter, Instagram, etc. You can also take help from other startups, collaborate, and promote to get the word out there and monitor the response. With the help of this data, you can show your investors the traction of your startup and land the funding.
Remember that your product should be unique when you start working on your startup. Your product should be unique and targets your customers' pain points. If your product is the same as dozens of other products already in the market, there is a slim chance of success.
Therefore an investor will be looking for a product that has the advantage of being unique and doesn't have a lot of competition. Investors will automatically be intrigued by your product if they haven't seen a product like that before. They will want to invest in your startup and not lose the opportunity to get invested in a product with potential growth and success.
A scalable business has the potential to grow the business to a wider market without increasing the cost proportionately. Any investor will be interested in a business model that has the potential to grow rapidly and earn them more money. There are different factors that make scalability of any startup so appealing such as potential rapid growth, lower acquisition cost, and increasing success margin.
Investors looking for startups to invest in want to bet on a startup with the highest returns and lower risk. So when you show that your business plan is bulletproof and scalable, they won't think twice before saying yes. You can make a scalable business model by following the traits I have mentioned above. Your startup should have a unique product; it should have a significant market size.
On top of that, you should focus on traction and always refine your business model as you move forward.
At times startups skim on hiring employees because they can run the startup with limited staff. However, it can be possible only if you have the right team.
With the help of a skilled and experienced team, you can grow your startup and make decisions based on experience.
Of course, every startup has a chance of failure, but if you have the right team on your side, you can face any hurdle that comes your way. Another huge advantage that an experienced team provides is that they have connections, and you will be able to get the word out there.
Therefore investors prefer startups that have a skilled and experienced team members. They are interested in the growth and success of the startup, and it is a better chance of that with an experienced team.
You need to have an exit plan when it comes to your startup. Investors need to know that you know when to quit and sell the startup if everything doesn't go as planned. This will help investors know that you aren't going into this blind.
Common exit strategies in startups include:
The appropriate exit strategy for a particular startup will depend on various factors such as the company's size, the stage of development, the market conditions, and the founders' and investors' goals and objectives.
Now that we have ended, I hope you get the investment you are looking for. Keep in mind that it may take time to find the right investors for your startup, but you will if you keep at it and improve as you go along. If you want a free consultation with our experts and know if your startup has all the traits it needs for investment. Don't wait to get in touch with us! Goodluck.