If you are an entrepreneur, you know first hand that running a small business can be costly. You may have even begun to seek financial help in the form of loans, investors or even a Kickstarter campaign. Pitching your idea can be intimidating so it is important to prepare thoroughly. What do investors look for when evaluating your company? What information do investors want to know about your company before investing in it? Here are the top five things investors look for in start-ups.
1. Financial Performance
An investor’s goal is to make a return on their investment so it is crucial that you know your numbers. If your business has been running for a while, clearly outline the financial performance your business has had since opening. If you are just starting out, then you need to clearly outline what revenue you project you’ll bring in, when you will hit your goal targets and when your investors can expect to start earning money back. Expect investors to evaluate your revenue streams, acquisition cost and turnover rates. You must know your numbers in order to prove to investors that your business has the potential to bring in high returns.
2. An Effective Business Plan
Having a strong and convincing business plan will let investors know that you are serious about your business. Present the model that you are currently using and prove that it will help your company become more profitable. While a business plan alone might not be enough to convince investors, no investor will put money into a business without one. Also note that different types of investors are looking for different attributes in a business plan, so it is key that you customize your plan and pitch to each investor. Some key points to include in your plan are:
- Your intended market, with data to show why that market is your target.
- Data-based, hard number financial projections.
- Projected timeline for when you’ll start making money.
3. Company Uniqueness
Your product or service needs to be unique. These days the market is filled with hundreds of identical products. It is your job to prove to investors, with concrete evidence, that your business’ market potential is big enough to make their investment worthwhile. What is it about your product or service that makes it stand out? It is not necessary to come up with a brand new invention, but you do need to show why your product or service is different from or better than what your competitors offer. In short, what is its competitive advantage?
4. Large Market Size
The larger and more stable your market, the stronger your competitive advantage will be when pitching to investors. It shows there is a great opportunity to scale. If you can show potential investors that your business has the ability to generate profits far beyond the initial idea then you’ll be golden.
A good track record shows opportunity for success and that’s something investors look for. Oftentimes, investors will take a look at your background in the industry to see what results you’ve driven in the past. In addition to experience, investors want to know you’re passionate and committed to the project. Can you actually follow through on your ideas or will you give up the second things get hard? Prove you’re ready to work to bring this to life.
At the end of the day, investors are looking for a return and impact. The most important way you can prove to them that your company is worth investing in, is that it will be profitable. The best thing you can do as a startup pitching your business idea to investors is being prepared and showing progress. Demonstrate that you are serious about your business and that you are ready for the future.