What Investors look for in a startup

Now-a-days there are thousands of startup ideas coming from varied sections of people in our country. But only few make it till getting investors associated with their startups.

The plain fact is that investors are rejecting a higher percentage of bids that arrive on their desks. They are investing more money, but in fewer transactions. They want to be certain that they'll get a good return on their investment.

Now you may have a question like how much funding do you need? You could be tempted to believe that your first priority should be to secure as much financing as possible. To generate as much money as possible right away. But this is a very common blunder.

There are many types of investment sources, some of the common types are:

  1. Personal: To state the obvious, personal investment is when you put your own money and resources into your business. This demonstrates to investors that you're serious about growing your business and have invested your own money.
  2. Angel investors: Ex-founders (individuals, not VC firms) who utilize money from previous exits to invest in subsequent enterprises are known as angel investors. Typically, they invest in businesses that are at their most risky stages of development.
  3. Venture capital: Venture Capital firms invest in start-ups that have already demonstrated significant product-market fit and are making serious progress.
    • For Series A funding, company valuation is typically between $15-30 million, and the average funding amount is around $10.5 million.
    • For series B funding, the average valuation is between $30-60 million, and the average funding amount is approximately $25 million.
    • For series C and beyond, a company valuation will sit between $100-200 million and the average funding amount will be around $50 million
Angel Investors vs Venture Capitalists

Many entrepreneurs make the mistake of putting the waggon before the horse when it comes to fundraising. They rush to find an investor, whereas this should be done later in the startup process after you've demonstrated product-market fit and secured early users

The process of raising outside capital for the first time can be strenuous. The investors are smart and know exactly where to invest. Despite the wide variety of startups, what matters is that they check several boxes before they'll invest any of their money

Market Opportunity

One of the first things every investor would like to look for in a start-up is the market opportunity. The focus will be on how big the market is expected to get and will it grow over time or not. If the start-up is about a solution to an existing problem, they must be ready with a proper plan for why their idea is better and different from their peers.

Investment Plan

Next thing a potential investor will look into is, what will be the plan of executions and will it cope up to the market with top notch competition.

All such questions are what the investors will keenly look into. Buying ownership in a company has legal consequences and investors want to be sure that the start-up has already considered those issues.The start-up needs a clear plan for how the investment will work and to what extent will they have the right to get involved in the decision making regarding the business decisions. It's best to back up your request corresponding to the amount of shares in exchange for the amount they invest. There are many areas where negotiations are important, investors may want a large share for a lower price and they may want adjustments to the stockholder's agreement. There are many possibilities as to what the situation may turn into. So it's best for the start-ups to be prepared about such problems.

In the end all investors want start-ups to show them that they will return their money back with profits.To sum up, the Idea should be well studied and the plan should be as watertight as you can make it. Start-ups should be aware of how these things will proceed and what they are going to do with the money and how exactly the investment is going to be structured in developing their startups.

Investors play a crucial role in scaling a startup, today 1 out of every 10 unicorns have been born in India. In 2021 alone India witnessed the birth of 42 Unicorns with a total valuation of $82.1 Billion!