Startup Community: Learn how investors think

First of all, let me ask you this: do you really need funding to get your business going? Many companies actually don’t, and if you’re in that (lucky) situation, you should focus on building your business instead of pitching to investors! However, if your upfront costs are so high that it is unrealistic to fund it yourself, please listen up.

To maximise the chances of your fundraising round being successful, you need to understand how investors think. Startups have very different risk profiles and opportunities for reward depending on a number of factors.

Here are four key factors that investors look for.

The market
Many startups die because there isn’t a real demand for their product. This is why you should never spend millions before you test the water.

Please consider this early on and go and talk to actual people. Understand the customers’ pains and needs.

Build the product together with them, and do multiple iterations. This is especially true for digital products. It is not enough that they like the product – they should be willing to pay for it.

The quality
While there might be a market opportunity in terms of demand, you need to be able to deliver a quality product. Technical challenges could prevent you from taking advantage.

Make sure it’s available at a cost at which you can make money whilst delivering value for the customer.

Oh, and can you scale it?

The team
You and your team could be the difference between getting funding or not.

I have seen great business ideas presented by teams who didn’t stand a chance of executing them, and mediocre business ideas by teams who blew me away. Guess which one got the investment?

Who you are has a huge impact on the perceived risk and upside in the mind of an investor. Figure out what you are good at and leave the rest to other talented people.

The traction
The final factor that determines the perceived risk/reward of your business case is your traction – a fancy word for how far along you are in the process.

Many things can go wrong in that process, but usually traction can beat just about anything!

This proves you can execute and operate in the potential market space, grow your number of users/customers and show proof of concept.

In conclusion
So, ask yourself again: do we really want their money? Could we achieve the same without it?

Make sure you think it through and remember that when you take money from investors, huge accountability comes with it. Best of luck!