Five elements a promising startup must portray to attract investments

April 2, 2015

If there would be just one moment in time when the world was filled with vibrant, energetic and forward-thinking youths who are crazy about setting up businesses, it would be today. In reality, it’s a startup’s world we now live and work in, and many who realize the power of ideas are setting up lean institutions to execute these ideas and transform their sphere while creating some monetary value for themselves.
Today, all sorts of businesses exist, it appears almost every idea can be commercialized and monetized if it solves a need that people have. The ease with which these businesses set up is no better exemplified than with the “app world” which gets updated with new apps every day, solving new problems and attracting new rounds of investments. The way businesses are set up has also changed; entrepreneurs do not necessarily have to raise huge financial capital just to start, the more efficient route is creating a prototype, a so-called minimum viable product (MVP) that can be used to gather a few customers, woo investors and scale up the business.
Because of this transition, the millennial generation continues to adopt the entrepreneurial lifestyle, looking for the next idea that attracts investment; if you fall into this category, there are five things investors would like to see before your startup can be termed “promising.”
The core business idea is feasible
A whole chapter can be written about feasibility as it is the starting point for deciding whether or not you should float that business; however, the essential gist is contained in one question: “does your business idea make sense in your current time and place?” Timing is important, and by this, certain ideas will just not be feasible. The Facebook idea may have made sense 40 years ago but it surely wouldn’t be feasible then because it required a critical technological advancement, namely the internet, before it could be floated. In same vein, certain ideas just cannot work today, but may be feasible in 5 years. This is why I continue to encourage entrepreneurs to not totally discard “failed” ideas but to shelve them until they get to such a time and place where the idea will stand a greater chance of surviving.
Location, a.k.a place, is another driver of feasibility because what works in Indonesia may not work in Rwanda due to different market conditions including demand profiles, regulatory policies and a host of other factors. However, there are also ideas that can work practically anywhere; hence, ideas can be grouped into the universal and market-specific buckets, and you need to carefully consider where your idea falls and act accordingly.
The market conditions are compelling
This is probably the most critical factor that drives investments. Once you can demonstrate that a significant market exists for whatever product or service you seek to provide, and this market can potentially grow with time, you begin to gain the ears of investors. This means, some market research must be done and local contexts must be thoroughly understood in order to recognize some of the biases and preferences of customers in target regions.
Your idea also passes this test when its value proposition is sound. So, are you offering something brand new that no one else is offering at the moment? If you are, you may stand a better chance of penetrating and growing the market due to the first mover advantage you have. However, if your idea is already being executed by others, then you would need to think up a new way of doing that same thing, something that differentiates you and gives you a competitive advantage; you know you are succeeding when a potential buyer can immediately see why your stuff is better. I believe it was this line of thinking that birthed “LinkedIn;” Facebook was already in play so it had to come in a different way: a social network for professionals.
One last question, which is often overlooked, you must answer with respect to your market would be: “am I offering a product/service that people actually want?” Believe me, you do not want to go through the rigour and process of designing and fabricating something that no one simply wants, it would be as inefficient as it would be unprofitable, not to mention that investors wouldn’t spend one more minute with you.
Your potential business is scalable
Investors live and breathe for scalable businesses, businesses that start small but can grow with market demand and effective strategic management. So, part of what your business plan must clearly demonstrate is the ability of your intended organization to grow beyond one town and location, from a few hundreds to millions of customers. The requirements for scalability vary depending on the sort of idea you’re championing. A web-based service may just need to focus on fine-tuning the product and marketing aggressively in order to scale but scale in manufacturing is achieved through efficiencies and resource management.
You show a good understanding of your numbers
Can you clearly estimate the time for your business to breakeven? Investors would usually want to know this, so you should demonstrate, at least, a basic understand of the financials. With massive open online courses (MOOCs), you can easily take a crash course and learn how to compute the most basic financial metrics your plan must contain. Also, part of the requirements for scalability is that your business is able to grow its revenues faster than its expenses, you want to show this clearly as well.
The first product to sell is you
People don’t just invest in businesses, they invest in people. So, you can be sure your investors will do a background check before parting with their money. They’d want to know your background, and they surely will be looking for some indication that you will not squander their money. So, if you’ve set up businesses in the past, or have studied businesses aggressively for the past few years or have showed a great aptitude for learning on-the-fly, you probably will ease their fears about your ability to make prudent decisions. Also, if you’ve worked in a structured environment for a few years and have thoroughly developed certain skills that represent critical success factors for the sort of business you want to start, you’d be a better sell for investors. If you lack all these, you’d want to take some steps to build a profile that supports your idea, start by taking a few courses online.
Source: Ventures Africa
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