Many entrepreneurs get anxious when it comes to raising outside capital for the first time. The process is not for the meek, as most experienced investors tend to be smart, skeptical and diligent in reviewing opportunities presented to them. Despite the wide variety of startups they may see, the truth of the matter is that they are several boxes that just about every investor likes to check before they'll invest, either money or additional time.
1. Dynamic market opportunity.
This is where most investors will start. How big is the addressable market that your company is looking to serve?
Big is defined in terms of not just today, but the future as well. If it's a market with existing solutions, be prepared to spend a lot of time explaining how your solution is different from your peers. If it's a new, emerging market, the focus will be on how big the market is expected to get and what's driving its growth. Investors understand that rising tides lift all boats - many of them will look to place bets in new, promising sectors.
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2. Team's execution capability.
A potential investor will keenly look into why your team is well positioned to build and execute a plan and become a market leader.
What kind of domain expertise does the team have that makes them an authoritative figure in the market? Does the team have complementary skills as it related to sales and marketing, product development and operations? Is there a strong chemistry on the team and does everyone play nicely with each other?
These are several of the criteria investors will be looking for, so it's important to highlight as many of these as strengths as possible.
3. Commercial traction.
An important way to de-risk an investment opportunity is to show investors that you're not just all talk but have already begun taking action to build the business. Demonstrating that the market is already engaging with your product and providing useful feedback will set your startup apart from many others that are still sitting in the laboratory.
It can be quite powerful to throw real data into a conversation that supports your claims, or perhaps even forces you to adjust assumptions that you've started with. Furthermore, it reflects the commitment and initiative that the team is making in order to make things happen.
4. Investor relevance.
Do not underestimate the importance of investor fit.
There are many aspects to this, including: the stage of your company, the industry that you're startup is active in and investor experience in your market space.
Think of it as a piece to a puzzle. If there are multiple connections between an investor's strategy and your startup, the investor is likely to get more deeply engaged and the fit becomes more obvious. Doing your research upfront will pay dividends and ensure that you don't spend a whole lot of time with an investor who ultimately isn't a natural fit.
5. The X factor.
There's always a clicking moment that happens between an investor and a founder that plays into the investment decision. Sometimes it's easy to identify - an affinity based on a common background, such as shared work or educational experiences -- or perhaps a co-investor that's mutually known and trusted.
In other cases, it might be harder to put a finger on, such as likeability of the entrepreneur, or merely an instinct or impression that the investor develops, good or bad, that they have a hard time shaking. Either way, this is where it helps for you to be authentic and not too salesy while understanding the personal background of your investor to tease out any positive connections out of a conversation.
While the fundraising process can certainly be daunting, you can put yourself in a great position to engage an investor if you bone up on your pitch to address these areas. Keep in mind, even if you don't land a check quickly, and have paved the way for a second meeting, you've done your job.