Five things investors look for in startups

Five things investors look for in startups

by Mark Selby, 25 January 2019

What are investors really looking for when they assess new products and startups? Here’s our take on five of the most important factors when looking to secure investment and take your startup to the next level…

1. A great team of founders

For all their focus on money and product, you’ll find that many investors are most interested in the people. A good team is one of the first things they look for.

The ideal team of founders has at least two members – one who is the technical lead and the other who has the vertical commercial knowledge of their market. Anything else, like a team member who understands marketing, is just the icing on the cake. Once you get to four or five people the team may start to feel too big.

2. Big ambitions

Startups that can demonstrate how their ideas and business models will scale quickly will impress investors. Building a solution that only serves a local constituency will limit the revenue-generating potential of an idea, making it far less attractive. Companies who start with a global outlook will have an advantage – even if they start small.

Startups with the imagination to see the potential of their product in different markets and contexts will also stand out.

3. Revenue, revenue, revenue

It used to be all about scale – scale your product and then work out how to make money. These days, investors are much more interested in products that are already generating revenue, or that will do so from the start. Teams whose product ideas demonstrate a tight tie-in to a commercial opportunity, regardless of early scale, will attract more investor interest.

4. An existing customer base

The less developed a product is, the more exceptional the idea will have to be to interest investors. These days, startups that are already generating revenue from customers will stand out. It indicates many things to an investor, not least that the product is solving a problem that exists in the real world, rather than just in the founders’ heads.

5. A pitch that shows in-depth knowledge

There is sometimes too much focus on the pitch in these sorts of lists. It is important, but it’s essentially a tool — one that allows startups to demonstrate that they have everything else in place.

One of the most important things an investor will look for is real, in-depth knowledge of the market. Any pitch should at least nod to that knowledge with slides or comments that articulate facts about the market, the competition, and the target customer. The pitcher needs to be prepared to answer in-depth questions without hesitation. Many investors advise avoiding demos in pitches because it’s very tough to recover from a live failure of a product.

Click here to find out how Innovation Warehouse can help grow your startup