What Do Investors Look For Before Investing in Startups?

The article is contributed by Mrs. Deepti Sharma, Managing Director, Thinker Place.

Investors are always on the lookout for ideas that are unique and can be of use in whatever sector they are being pitched in. Every idea, irrespective of what the idea contains, can be a great idea depending on the pitching method and the solutions/interactiveness that the idea has with its target audience. Ultimately, it all boils down to the product that you have and the potential - whether prominent or hidden, it contains.

From personal experience, investors always want a thorough breakdown of potential products they are going to invest in. The standard breakdown questions by investors include the following:

1. What is your idea/product? - A question to check what made you come up with the product and to know the root of development and the thinking process behind developing something.
2. How does it help? - Products are made for consumers. Investors look for your target audience and the functionality of your product through this question. Products/ideas that provide immediate solutions or benefits to the target audience are ranked higher for investors.
3. What does it do? - A trick question by investors to know the end-to-end process of a product. This is a critical question where investors check the development state of a product and make decisions on the amount to be invested.
4. Materials used in the product - Investors today are always on the lookout for sustainability. The materials used in a product give investors a judgment on the cost of making a raw product and can help them determine the selling price. As an entrepreneur, this is also a key moment to display hidden trinkets and other special features that your product may hold.
5. The “Units Sold” question - After the idea and the products have been pitched, investors ask about the market trend and public reaction to the product. This is a statistical question that is answered purely in numbers, raw data, and through a variety of content.
6. Additional cost questions - The “make or break” question while pitching. Cost questions by investors look at individual raw material costs, production costs, the team’s cost, and most importantly - sales and marketing costs.

PRODUCT IS KEY. There is no other way around it. Taking an idea and perfecting it to near-perfection is what all entrepreneurs and business owners strive for. On an added note, investors fall head-over-heels for PR activities and recognition that a product or entrepreneur has received. In short, the more recognition or “brand awareness” that you or your product has, the better.

As an entrepreneur, you are not only pitching for the idea and the product that you’ve worked so hard on, it is also a pitch for trust. Investors look at your convincing power, your confidence, your real-world knowledge, your market knowledge, and above all, how far you will go for your product.

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Statistically, most investors have already decided whether or not to invest in your startup business based on the first 5-10 minute interaction you’ve had with them.

A quick guide to getting into the good books of investors:

• Do your research - Knowing who you are pitching to, their background, their job profile and work history, what and who they’ve invested in previously, and any other details can help you in your pitch.
• Dress to impress - There is no excuse for not looking professional. Think of it as a very important job interview. Though the new-found trend is to dress as one sees fit when attending business and pitch meetings, dressing in formal attire is a classic move that can never fail. Professional attire emits seriousness and intent and makes a lasting impression on investors.
• Be confident - Pitch meetings can be nerve-wracking. Being anxious and nervous is a natural feeling for most anybody. Displaying what you’re feeling inside can leave a bad impression on your investors. From the moment you meet your investors, your confidence should be on full display. The way that you walk and the firmness of your handshake or head nod can assist you in showing confidence and seriousness.
• Being organised - Before you start your pitch presentation, or before sharing your business module with investors, make sure to have all your documentation, gadgets, flashcards, products, and other necessary documents and items organised. One way investors know that you are not-so-serious about having them as investors is by being flimsy with documents and slow with setting up your presentation. For investors, time is of the essence, being organised always goes a long way in assisting your pitch presentation.
• Portray yourself as the subject matter expert - The pitch for investment is all for you and your product, so it is only natural that you know thoroughly all about the origins of the product, where your product stands in the market, and the complete inside work of your business. Investors look for the devotion and near-obsession that entrepreneurs have when it comes to their products. This point answers the very important “Why should we invest in you?” question quite clearly.
• Quick and logical thinking - Most of the time, based on data and other statistics that are provided to them, investors hunt to find defects or loopholes in your pitch. As such, they come up with scenarios or situations for the entrepreneur to answer. An entrepreneur should have quick and logical thinking based on real-world statistics about their product and should be able to answer all questions smoothly. Roleplaying different situations, and foreseeing or predicting the future of your product and the company is a sure way to answer most questions belonging to this category.
• Negotiation skills - Lastly, but most importantly, entrepreneurs need to have a clear picture about what’s the purpose behind the investor pitch meeting. The skill to bargain and negotiate or “not settle” for something that’s outside the expected quotation is vital for success.

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Conclusion

To conclude, getting an investment is like a game of chess. Playing the right move at the right time to pique the interest of your investors and to keep them always occupied with you and your product is the key to a perfect pitch. What really matters is convincing investors to trust you and your product and to see the vision that you have. With the right attitude and confidence, getting investors on board is easy.