In a startup ecosystem, investors are akin to the grease that ensures that entrepreneurial cogs stay well-oiled and in motion. They, in the process of maximising his own capital surplus by providing financial backing to emerging businesses, an investor also devote his time and efforts into nurturing a startup.
The presence of an investor who possesses deep knowledge of the industry across sectors – and thus is well-equipped to mentor entrepreneurs – can make a great deal of difference for a fledgeling startup. This relationship becomes the cornerstone for driving productivity and profitability while simultaneously adding value to the participation of all stakeholders.
Conversely, startups must fulfil certain criteria to convince potential investors of the bankability of the prospective association. It is necessary because the volatility of the marketplace renders investment into start-ups a highly risky business.
The following are some of the factors regarding a startup that investors must keep in mind while entering the fray:
Founders’ commitment to their vision
As an investor, you are investing primarily in founders. Therefore, it is important to have an eye for identifying innovators who are worth their salt. The founder(s) should not only have a clear understanding of the pain points of their target consumer base but must also be dedicated to addressing the same through innovative solutions.
The entrepreneur’s ability to create effective go-to-market strategies while also building a team that can contribute to scaling the business are some of the attributes that differentiate good leaders.
Uniqueness of business model
A high-potential venture can be easily identified by its ability to secure a place for itself in the market. This is possible either when the start-up is looking to address an entirely new market space or catering to an established market in a disruptive way. The quickest way of spotting the golden needle amid the copper rods is by identifying a start-up which possesses an innovative and globally defensible IP.
How founders leverage the funding
Investors should also base their decisions on how the founder proposes to use the capital infusion and how they have used previous funding if any. This not only gives insight about the scalability of the founder’s vision but also their commitment towards realizing it.
Scope of sector-wise growth
Some of the potential questions that all investors need to ask themselves include: what need-gaps is the venture addressing? What is the size and value of the target market? Is value proposition a “need to have” or a “nice to have”? Are the solutions effective? And last but not least, does the enterprise show the potential for growth in the sector?
Potential for robust returns on investment
Before investing in a venture, early-stage investors – whether angels or VCs – always struggle with the question of whether the returns are worth the risk. The answer mostly depends on how well the founder succeeds in convincing the investor that the situation will work out in their favour. It is therefore advisable for investors to look out for entrepreneurs who can clearly communicate the kind of value that the association will drive for them.
Viable exit strategy
Every investor pours their energy into driving their association with a startup towards a fruitful culmination. And to say that devising the right exit strategy is instrumental to generating lucrative returns would be an understatement. Therefore, it is advisable to consult experienced investors and draw on your own industry experience to come up with the perfect exit strategy.
The investment landscape is dynamic on account of its association with the marketplace. However, it is one of the key contributors to keeping liquid capital flowing. While no one can keep track of all the intangibles that make the world of investment go round, keeping both your mind and eyes open to the aforementioned factors can help ensure that you hit the mark more frequently than you miss.