Starting a new business is exciting and challenging all at the same time. The number one thing that most entrepreneurs worry about is financing the business and whether to get an investor. However, most entrepreneurs don’t ask themselves this very important question: “Is my business ready for an investor?”
Pitching to an investor can be nerve wrecking, so we compiled a list of 5 things that we investors will be looking for when deciding on whether your company is ready for investment.
- Traction – Evidence of demand for your product/service. This can come in the form of revenue, users or both. Cash is always king, but a significant amount of users would suffice as well.
- Financials – You want to have a strong understanding of the numbers (revenue and expenses). If you don’t have any revenue, that is fine, but make sure you know how much you are spending. Understand items such as cash on hand, burn rate, cost of goods sold, margins, and your run rate.
- Marketing – We don’t want to hear that you plan to use Facebook and Instagram. We want specifics: Who are your earlier adopters? What are their behaviors? Where do they spend their time? What are your distribution channels? How do you plan to reach your customer segment? What is your marketing message? Are there any trademarks?
- Industry – Demonstrate that the business will target a large addressable market opportunity, typically a market that generates $1 billion or more in annual revenue. The bigger the market size the greater the likelihood of a larger sale. What are some current market trends? Is your industry growing or maturing? What is some feedback from potential customers that are willing to pay for your product/service?
- Product – Every new product or service must solve a burning problem in the marketplace. A product/service should have a long lasting competitive edge to ensure it will generate sales and profits before the market is saturated with competitors, reducing profitability. How does your product/service work and is there any intellectual property around the product?
If you don’t have the answers to these questions, now is a good time to figure them out! Investors don’t expect you to be an expert, however they DO expect you to have a working knowledge of everything that involves your business.
You will most likely not fall in the exception category but rather the rule.
Fellow investors if I missed anything please comment below to make sure these founders are well informed.
By Pedro Moore