THE 3 THINGS AN INVESTOR THINKS BEFORE INVESTING04 Jan 2016
We looked at the 3 questions you should be ready to answer in your pitch deck. Now let’s look at it from the investors’ point of view. What is the investor thinking when they’re considering funding your startup? Along with the answers to the questions investors will ask you, also have the answers ready for these questions.
Here are the three important things an investor is considering before investing:
- Do I want to be in this business?
Notice that here; it is not about the product or service your startup is providing. It is about the business you are in. Research your investors before you pitch. Different investors have different preferences in the kind of businesses they invest in. For example, you can take your manufacturing startup to an investor who is only known to invest in tech startups. Other things that make an investor reconsider investing are regulation trouble, legal hassles, whether materials are easy to source, manpower is easy to hire etc.
- Do I want to be in this business with this person/people?
So the investors like the business model, but then they have to be convinced whether you are the type of person who can head this startup or not. Very often, the founders are inexperienced, lacking in domain knowledge or skills, or aren’t fully committed. Sometimes, there are founders who are trying to do it all on their own because they don’t have the money. Y Combinator’s Paul Graham says he wouldn’t put his money on single founders, as two or more people can bring strengths to different areas of a business. People in a startup, whether it is the founders or the investors, are not in it for the short-term money; they are in it for the long haul. So make sure you can convince the investors of that.
- Is this the right time to be in this business?
Investors will look at whether the market is ripe for this product or service? For example, is this startup the 1st in the space or the 50th? 1st might be bad, because you have to educate the market, and 50th might be bad because the market is oversaturated. Timing is crucial. If you’re too early then it takes very long to generate the hype required and if you’re too late, then others will already capture the market.
These are the things investors are thinking about when you approach them for funding. But these are things you should also be thinking about when you are trying to build your business. Think about all the aspects put together that can attract the investors: one: is your startup a great business opportunity for the investor, two: do you have a strong and committed team, and three: are you in the right business at the right time? If you can get all these three aspects right, chances are you will get your funding.