The Things That Make Investors Invest

“But there are some basic things that most investors look for when they’re evaluating an investment opportunity.” 

Certainly different investors look for different things when it comes to what they consider to be a good investment opportunity. Is is unlikely you will have all of these, but the more you have, the more likely you are to garner an investment. Here are a few things that most investors look for in any opportunities or pursuing:

• Large Market Opportunity. The market you are pursuing and the problem you are solving for your customer is large and significant. Keep in mind this does not mean that you have to solve world hunger–there are many niche markets that in and of themselves provide significant market opportunities. For example providing insurance for pets has become an incredibly lucrative business but this does not that the business was falling short by not addressing the whole insurance. Investors want to see markets big enough that they business can thrive even if your company only garners a small market share and there are competitors. If a market is big enough, investors can see opportunity.
• Unique Value Proposition. You must be able to demonstrate that your product or service or even your approach is unique and how what address is your target market. It does not need to be unique for every market but it does need to be unique for the market you’re going after.
• Effective Business Model. You need to be able to show how your unique approach to the market translates into a business and pricing model that customers are likely to embrace. When one of the bike sharing services in a major US city priced its service, it priced the “one-use” price very high but the monthly and annual very low. It caused a vast majority of customers to purchase an annual plan – which caused the service to miss its projections because it thought that many more customers would pay for the higher price (and higher margin) single use price.
• Current Market Traction or Performance. For more mature companies, this takes the form of actual financial performance. For less mature companies, this takes the form of evidence that the market (not just you) believes that your product or service brings value. The best evidence is revenue and customers but other market response also shows market traction including positive press and even the fact that a talented set of employees have joined your company. You need to be able to answer the question that an investor will be asking themselves, “even if I believe this is a large market opportunity what has the company done today to prove that their approach this market is working.”
• Leadership with the Right Stuff. Investors prefer leaders that have a proven track record at growing a business as well as experience in the specific market the business is pursuing. Investors don’t want entrepreneurs to make mistakes on their dime. For founders that are in their first venture, they want to see two things–potential to be one of those leaders and maturity to understand what skills they do have and the skills that they have to supplement with others. Passion and commitment is a must and often for angel investors, having the right chemistry with the leader is key because they generally take a more hands-on approach in the businesses they invest in.
• Discipline. Investors want to put their capital in the hands of leaders that will apply it intelligently. This requires discipline that takes many forms. It starts with having a true financial plan and understanding the numbers and metrics that drive success the plan. If an investor asks, “how much will you average customer spend” and you don’t know, it tells you something. Next, even if you are a technologist, an artist, a fashion designer or a chef, and hate numbers, you must understand their importance and be willing to bring on an outside resource to create the financial processes and discipline you need. Many a chef has seen his or her restaurant go out of business by spending on designing the menu and building the restaurant without an understanding of the financial implications. Even the way that you run your investment process shows discipline (or the lack thereof). Can you answer the key questions about the business and financial drivers that lead to success? if you can’t, investors will be skeptical that you can deploy their capital effectively.

We all wish we had all of these characteristics but the bottom line is that if you lack to many of these, it becomes very difficult to raise money.