There is no other business in the world that can scale up as fast as tech startups. Given the competition to invest in startups, Investors not just evaluate startups based on the awesome startup idea that you have come up with. But they delve deep evaluating the core team, the market size, business model, your commitment etc.

When you are in the early stages, getting investors is not easy.  Once you invite an investor to consider funding your company, what criteria do they consider?

Here are the top five things Investors look when investing in Startups:

THE ‘A’ TEAM

Investors truly believe in the saying, “Bet the jockey, not the horse”. The majority of early-stage investors say that they actually invest in the people backing the idea, rather than the startup idea itself.

A skillful and passionate team with a proven track record will always have an edge over competitors who have a great idea but a sub-par team.

While investors looking to invest in small business ask these questions to themselves, “Is the founder a doer or a dreamer? Are they determined and ready to put in the necessary work to build the business? Are they trustworthy?  What is the core team’s track record?”

 MARKET SIZE

Venture capitalists and angel investors consider the size of the target market paramount. How big the company can grow depends on how big the market is for the product. To them, it doesn’t matter how mind-blowing the idea is if the market isn’t big enough. Most investors looking to invest in small businesses are on constant lookout for ideas that work across languages and cultures.

Investors ask this question to the founders, Is your idea universal? 

CLEAR BUSINESS MODEL

By looking at your business model, investors can identify how well you have thought out and planned your business.

They will look for how much and how soon the company can make returns, and what the exit strategy looks like.

Competitor analysis, revenue model, customer segments, and distribution channels are a few key things that need to be included in the business model.

RISKS

Investors take on considerable risk by investing in startups—especially early-stage startups. They want to know that the founding team or entrepreneur is aware of all the potential risks, and has developed a risk mitigation strategy to address these risks as they arise.

When they ask you, “What are the risks involved in this business?” the last thing you want to say is that there are no risks. Make sure you perform risk analysis. 

The standard SWOT (Strengths/Weaknesses/Opportunities/Threats) analysis is one method to consider the risks and come up with mitigation plans.

SKIN IN THE GAME

Investors look for proof that you strongly believe in your idea. Have you quit your job to get this business started? How much of your personal savings have you invested?

Have you already made some progress with your idea by building a prototype of some sort? Investors are more comfortable getting on a train that is already moving, rather than one that is just an idea.  

Assess your start-up by these five criteria. If you were an investor, how interested would you be in your own company?

Considering these elements is one step towards knowing if you’re ready to start fundraising.

If you are interested in finding more funding options for your startup, we have collated a list of venture capitalists, angel investors in Australia. Check out the link.

Don’t forget to share this article with your startup friends and spread the word.