Five things investors evaluate before funding early-stage startups
Generally speaking, the nature of investing in startups, especially those in their infancy, is pretty risky. This means investors often cast a broad net when initially trying to find a startup to invest in; the key to which one they choose lies in their evaluation process.
Whether you’re a new investor looking for guidance or an early-stage startup trying to attract investors and get your project off the ground, this list of 5 things that investors typically evaluate before funding startups in their early stages will be sure to spell it out for you, presented to you by a leading investment company.
Probably first and foremost, investors usually evaluate the growth to date of early-stage startups. The faster the initial growth of the startup, the better it looks to investors, as it signals that the business is filling a gap in the market.
If your startup company is growing around 5%+ per week, this is a signal to investors that you are capable of raising capital quickly, making the venture a worthwhile investment.
This also goes hand in hand with Return on Investment; another thing investors thoroughly evaluate before investing; naturally, if your startup is overgrowing, you will be able to offer the investor a higher ROI.
Make sure you always deliver a believable ROI; however, otherwise, the investors might the second guess you.
You might think that the organization you work with is more of an in-house concern that investors aren’t interested in, but I suppose you might be wrong. Only those startups with driven, tenacious, yet realistic people in their founding team (and extended team) tend to succeed, as they are the ones who can build meaningful and lasting relationships with investors.
Investors require to understand that they can trust you to do the job properly and lead the company in a way that will maximize their capital. Make sure to highlight your successes to investors so that they know they can rely on you.
Nowadays, many investors tend to be more concerned with creating positive social impacts. This means that, if possible, your startup ought to have a clearly defined mission statement that showcases your sense of direction and potential social impact.
This ought to extend beyond customers and into the office; illustrate how this mission statement will help you in the office to foster a positive, productive workplace for you and your team.
This looks similar to an accessible one, but the product that you are offering is paramount to an investor’s confidence in you. If all you have at this stage is a prototype, that’s fine, but make sure to showcase that prototype to the best of your ability.
Double-check that it’s prepared and working as well as possible before presenting to your investor; being organized and communicating the potential of the product is more likely to win over the dollars of your investor.
You might be growing at an attractive rate for investors, but do you have staying power? What does your result better than the rest on the market, and does it have the potential for longevity? These are all questions that investors will examine carefully when pondering whether to invest in your startup.
Be prepared to talk about how your product is different than the rest, and what your unique selling points are to come out on top.
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