Pitching an idea to investors is the first crucial step and for that on needs to put oneself in the investor’s shoes. What do they look for when evaluating an investment proposal as they are bearing the risk by investing their hard earned money? Here is a list of the ten most important things that an investor wants to know before sinking money in a company.
An Unique Idea
- “new and innovative.”
- if the market is saturated with hundreds of identical products, then your company isn’t likely to be a huge hit.
- Financial performance.
- You need to know your numbers
- Your plans such as issuing shares or borrowing money to stimulate growth
- Your debt repayment plan
- your current assets are enough to cover current or short-term liabilities
You need to know your numbers. Prove to potential investors that your proposal has excellent financial performance. Investor will look for a potential of high returns and a clear exit opportunity and the proposal should have an answer to both these aspects. Expect investors to evaluate your revenue streams, acquisition cost, financial stability and turnover rates.
- Effective business model - your business plan
- Your intended market, with data to show why that market is your target
- Data-based, hard number financial projections
- Sales channels, with data to show why those channels will be effective
- Marketing plans and goals, with data to show why those plans will be effective
- Analysis of the competition for your product or service
- Projected timeline for when you’ll start making money
- Potential obstacles and your plans for dealing with them
Different types of investors seek different attributes from a business plan. It’s important to customize business plan and pitch to each investor by highlighting the right aspect a particular investor would be looking for or interested in based on the initial interactions with the investor.
A potential investor will keenly look into your team as to whether it 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?
The team, more specifically, your management team. Yes, the idea itself is of huge importance. But even more important is the team that is going to carry out the idea to accomplishment.
- Business Readiness
- Show your investors that not only can you talk the talk, but that you’re ready to walk the walk.
Many people have prospective business ideas, but not many people have the drive and wherewithal to take those ideas and shape them into a working, financially viable business. To show business readiness, you have to do your homework – your market research and your business plan and show to the investor that you have a clear plan in place.
- A Clear Investment Structure
- Buying ownership in a company has legal ramifications
- Execute a stockholder’s agreement with owners’ rights and obligations
- What and when will be the return on investment be paid
- what happens if an owner wants to sell,
- what happens if there’s a change in leadership,
- what happens if the business closes.
The investors are not just going to hand over the cash one fine day and walk away. They are looking for the return. They’ll also want to know when they can expect a return. Buying ownership in a entity has legal ramifications an the proposal need to have an investment structure in place that allows for other parties to buy in. You’ll also need to have a clear plan for how the investment will work. If the investors are partners or shareholders, will they have the right to vote on business decisions? They would also want to know if you have plans of issuing shares in the entity or borrowing money as debt to stimulate growth. Your debt repayment plan should also be properly presented. Prove to the investor that your business is capable of handling its financial obligations.
Also ensure your holdings in your business. You don’t want to grow into a successful business only to find that you’ve lost control to your investors.
- Be prepared for some negotiation and the trick is to come in prepared
Investors are in it to make money. The task is to show the investors that your business proposal will do just that – and that your business will do it better than the others investment opportunities. To make a successful pitch, the most important thing is to be prepared. This is one of those times when you should really consult an professional
- Background and experience in the industry.
Investors look for experienced entrepreneurs and management teams with a track record of high performance and leadership in the industry or in prior ventures. Most investors will research your business experience and your background in the industry. Passion and commitment should be evident to inspire confidence in investors and stakeholders as a startup but not all investors are looking for Startups. Investors who like to play is safe will always look for experienced entrepreneurs.
- A Strong Narrative
An investors hears a lot of pitches packed with hard data – given two proposals with similar projected returns, what makes an investor choose one over the other is nothing but The story! The investors are people, not robots, and they can be swayed by a great narrative about why this business matters to them, where the idea came from, and where you’re planning to take it. What needs are your business going to meet and last but not the least what makes it special?
- Market size. Some Investors typically invest in solutions that address major problems for significantly large target markets. Some on the other hand, look at market characteristics such as significant growth and limited competition while investing. The larger and more stable customer base that your proposal has, the stronger competitive advantage you will have when pitching to investors. A larger and more stable customer base will serve as proof that your proposal has a great impact to its target market.
Investors look for proposals that can grow quickly and manage high growth scale. Investors must see that the proposal can generate significant profits beyond the initial product idea with adequate financial projections and a plan to include multiple sources of revenue.
INVESTOR WANT TO KNOW
- Exactly why you need the cash
- Exactly what you plan to do with it
- Exactly when they can expect a return
- Exactly what is the exit strategy
There's always a clicking moment that happens between an investor and an entrepreneur and that plays into the investment decision. Sometimes it's easy to identify it based on a common background, such as shared passions, work or educational experiences. In other cases, it might be harder to find one and in such situations merely an instinct or impression that the investor develops, good or bad.
“What are investors looking for in an investment Proposal?” The short answer is that every investor is different, and each has their own set of criteria. Some may base their decisions purely on the facts; others might be more inclined to factor their feel for the people and first impression. Some may be in the right frame of mind for risk-taking; others might be playing it safe for a while, or waiting to see how out-standing investments play out. If an investor is familiar with your industry, they probably know of at least a few competitors for the business, and if they don’t already know, they can find out quickly. Before the investor invests in your proposal, they will want evidence that the proposal has some significant advantage that the competition cannot easily overcome. Look for some key leverage points of the business model that will convince investors that the business can build a sustainable competitive advantage, and touch on those virtues early and more often in the proposal to sail through and hit the Jackpot.
Again, there are no hard and fast rules when it comes to investors’ criteria for making an investment. But if one puts oneself in the shoes of an investor and what one want would be an incredible idea helmed by credible entrepreneurs and a return as per market standards.