What investors look for before funding a start-up

When you approach investors for funding you need to know exactly what they are looking for in your proposal. You therefore need to cover these issues in your discussion with the prospective investor.

Obviously each investor might have his main issues that he wants addressed but there are general issues that apply to a majority of investors which you should highlight in your proposal.

An investor is firstly interested to know you and to be able to trust you. Investors are more likely to invest in people rather than just ideas. You should be a man of integrity whom he can entrust with his funds.

The business idea that you want funded might be good but if the investor doesn’t feel comfortable to work with you then there is no way he can part with his money and get into a relationship that will likely be sour.

It’s also about synergy. Is the investor likely to add value when he partners with you. An investor will likely invest in areas he is comfortable with, areas he has some expertise or has successfully operated in before.

This will enable the investor to engage with the entrepreneur well.

The other critical factor that an investor will want to get comfort on is the management team that will drive the business. Is the team capable of driving the mission?

Does it have the right skills? It’s therefore very key that you assemble the right team that will be able to take the business to a higher level.

An investor would want to know why you say that your team is qualified to do well in the industry you are getting into. What expertise does the team bring to the table?

What is your and team’s past record in a similar position? The investor should be impressed with the team. The team should at least be technical and business-oriented, the members should complement each other and show some previous experience in the industry they are facing, team members that have a proven track record of delivering goals on time, a team that can handle the responsibilities bestowed on them.

There should be a strong chemistry on the team, that is, they should be able to work together.

If an investor is to take a risk by investing in your business then you need to prove that the market size justifies one taking the risk.

Investors are looking for companies that will grow in which there will be economies of scale and also where returns on the investment will be attractive enough.

You should be able to establish how big your share of the market is likely to be. You can find out this by doing a market research. However if it’s a new product or service it might not be easy to establish the market size with certainty but you should therefore be able to say why you think the market likes your product.

The product or service that you intend launching should be one that meets a need. There should be a good fit between the product and the market.

In your presentation to prospective investors you need to show what differentiates you from the competition. What is your competitive advantage that gives you the edge over your competitors?

What is that differentiator that will outdo your competition in the long run? This could be a unique technology, skill or you might have patented your idea so that no one is able to copy you and compete with you. An investor is looking for long term profitability.

An investor would be interested to see your business plan. He wants to see in the business plan the clarity of your business model, whether the business is viable as reflected by the financial projections, how you will execute the plan, what’s the time line to get to profitability, and whether it does show that the entrepreneur knows what he wants to get into by how thorough the business plan is.

So make sure that you have prepared a very clear, concise and complete business plan, Ensure you write everything from the problem that you want to solve, the business model that shows how the money will be made, the market size, your competitors, your competitive advantage over the competition, the risks and challenges that the business is likely to face and lastly how the investor will make his money.

It will be clear to every professional investor that an entrepreneur without a business plan or who has a poorly written business plan is on the path to failure.

You need therefore to show the investors that you have done a thorough analysis of your business idea and how you will execute your plan.

Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy and performance management.

He provides advisory and guidance on leadership, strategy and execution, preparation of business plans and on how to build and sustain high-performing organisations.  

l For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com or +266 62110062 or on WhatsApp +266 58881062