Investors want to get the perfect dish when looking for startups to invest in. Imagine eating a pizza and the sauce is missing. So make sure your startup gets the following five key ingredients right.
There are several things an investor considers before they invest in any startup. One of the most important is the team. If you don’t already have a leadership team, you are probably not ready for an investment firm or angel investor.
A solo founder can be good enough, but it’s often better to have more people. It’s hard for one person to grasp all of the strategic and operational aspects of a successful business. Multiple founders can divide and conquer by focusing on their unique strengths, while also bringing multiple perspectives to a problem.
Be sure you have a strong leadership team before you seek funding!
Another important aspect investors review as they do due diligence before putting money forward is the total addressable market (TAM). A TAM analysis can help you understand how fast you can reasonably expect to grow in a quarter, a year, five years, and long-term.
The goal of presenting the TAM to investors is to show them that the opportunity is big enough to produce lucrative returns with the right approach and execution. Consider using TAM to talk to investors about your target market, product-market fit, and the overall product roadmap.
Using TAM the right way can help you stand out from the pack.
Is now the right time for your product to go to market? That’s a key question in the minds of investors when they listen to your pitch. Timing can be the key to your success — or failure — as a company. Are consumers really ready for what you’re offering, especially if it’s new or innovative?
One of the best ways to prove that this is a great time for your product or service is to show excellent sales numbers and other KPIs. Another important factor is to be completely honest with yourself and your team about any negative results you get. After all, if you’re wearing rose-colored glasses, red flags just look like flags.
Investors hear hundreds of pitches a year from early-stage startups. They see lots of great ideas and unique approaches, but what they really need before they pull out the checkbook is traction. You need to show significant momentum behind your business idea or product. Prove that you’re not going to just fizzle out at the idea stage.
Being passionate, resourceful, and committed can give you the traction you need. Bootstrap your early production. Sign up early customers or use a Kickstarter with excellent results. Hire strategically to move your company forward. When investors see that there’s traction, they are much more likely to invest.
Investors know that there are thousands of startups out there, and before they invest in yours they want to know what makes it unique. What’s your special sauce? Do you have a unique production process, a new technology, or some other differentiating factor?
Don’t try to build the next Google. We don’t need another Google. We need unique ideas and new technologies that address real consumer needs. Show that your competitors can’t easily copy your idea or produce something similar to steal your market.
If there’s no compelling reason for consumers to choose you over thousands of competing options, you don’t yet have a successful business.