Investing in start-ups is not an easy task. Investors have to think about the risks and long term investment factors before investing. The process is not for the meek, as most experienced investors tend to be smart, sceptical and thorough in reviewing opportunities presented to them. Despite the amount of start-ups they may see, the truth of the matter is that there are several boxes that just about every investor likes to check before they'll invest, either money or additional time.
Listed down are some important factors that investors look for before investing:
1. MARKET SIZE: Any investor obviously would like to make profit, hence they want to be sure about the market size and the style of approach of the start-up they are investing in. The first question any Investor would ask is “how big is the market size?” Big is defined in terms of not just today, but the future as well. Investors look for ventures that can achieve huge profits with decent financial projections and maintains its impact on the targeted market.
2. A STRONG MANAGEMENT TEAM: The second thing Investors will look out for in a start-up is the team, a credible and an established management team who are capable enough of delivering goals, executing business plan and handling responsibilities as they believe in strong work-force & execution rather than just sweet thoughts. A potential investor will attentively look into why your team is well positioned to build and execute a plan and become a market leader. What kind of domain expertise does the team have that makes them an authoritative figure in the market? Does the team have complementary skills as it related to sales and marketing, product development and operations? Is there a strong chemistry on the team and does everyone play nicely with each other?A good Investor want to know if the team is uniquely positioned to execute, Why this team, why now, why can you do this better than anyone else? What unfair advantage do you have over the market? Investors value fresh ideas and innovations but they also know that to execute them well, a skilled and experienced workforce is needed.
3. EXPERIENCE: Investors particularly look for highly experienced entrepreneurs as they believe these entrepreneurs know how to minimize risks related to start-ups. Maximum investors take interest in those start-ups which have experience of high performance and executing correct business plan so that they can turn their investment into their expected ROI.
4. BUSINESS MODEL RISK: To de-risk investment opportunities, Investors like to see a product that is new and disruptive. For example, in a market like Nigeria’s, recession-proof products and products that are not foreign exchange dependent are more investment friendly. Investors want to see something simple that works and meets the current need of the target consumer. Essentially, the investor is thinking can this business make money in the proposed manner.
5. THE SPICE: There's always a clicking moment that happens between an investor and a founder that plays in the investment decision. Sometimes it is easy to identify an affinity based on a common background, such as shared work or educational experiences or perhaps a co-investor that's mutually known and trusted. In other cases, it could be likeability of the entrepreneur, or merely an instinct or impression that the investor develops, good or bad. Either way, this is where it helps for start-ups to be authentic and not too salesy while understanding the personal background of the investor to tease out any positive connections out of a conversation. Keep in mind, even if you don't land a check quickly, you have paved the way for a second meeting.
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