This is Why Investors Write the Check

The Jockey or The Horse?

Experts have debated endlessly on whether investments are made in companies (the horse) or in founders (the jockey). You’ll get different advice from different people when it comes to what makes an investor invest. And there isn’t one simple formula. The ultimate reason Investors decide to put money into a business is because they believe they’ll see an ROI (Return on Investment). The tough question then becomes knowing how to woo each prospective investor in a way that peaks their interest. How do you draw Angel Investors in? What is it exactly that makes a VC decide to invest?

“Investors don’t want entrepreneurs to make mistakes on their dime.” 

What Investors Are Looking For

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. Investors want to see markets big enough that the 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.
  • 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.
  • 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.
  • Discipline. Investors want to put their capital in the hands of leaders that will apply it intelligently. This requires discipline that takes many forms.

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

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By | 2019-05-09T06:56:23-04:00 May 9th, 2019|Daily Perspective|0 Comments

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