What Do Investors Look for When Considering Investing in a Company?

Making money with money is the ultimate of capitalism — the embodiment of free markets and open trade.

And money spent in the venture capitalist sector has reached an 18-year peak, suggesting that investors are becoming more comfortable with taking on the risk and reward that comes with starting up a new business.

In 2018, Pitchbook estimates that the U.S. has surpassed the “.com” era with almost $131 billion invested from the V.C. sphere into the world and into the hands of entrepreneurs.

Want your cut of the pie? You’re going to need to convince someone to give you some money.

But the problem with investing is that people don’t get the gratification right away like when they buy something. Even those that have more money than they know what to do with want to see that dollar turning into something right away.

So, entrepreneurs and their companies get put dissected and put under a microscope. Investors want to take you and your life’s work apart to know what they are putting their money into before investing in a company.

But what are they looking for? That’s what we’re here to reveal here.

Stick around.

The Market

Nothing in this life exists in a vacuum; everything is interconnected and the market is the living, evolving web of connections that a business has to operate in.

But that market exists in time as well, adding another dimension to the discussion.

If the focus of the business is on a current opportunity in the market, investors want to know what is making the market act the way that it is. They will also want to know how soon you will be able to start pulling a profit off of these forces.

You need to move quickly lest you miss things during startup and scaleup phases for the company.

If you are looking at a future opportunity, you need to clearly identify what the driving forces are and understand them intimately. If the opportunity is only obvious to those that know an industry or issue really well it will be hard to convince people that don’t have those insights that the opportunity is real.

Even harder than that is trying to prove that the market and the driving forces will only become more potent.

What Talent Is on the Field?

Investors want to know as much as possible about the realities of business. And often they will turn to someone like a Christopher Sarofim, an experienced investment manager, to get a lead on a person or business.

Also, know that the pragmatism of investors is starting to be a touch more ruthless. The trend of investors looking for Messiah-like founder-CEOs is diminishing.

Adam Neumann is a prime example. He’s clearly a big ideas guy taking an approach to a tepid industry that could reshape how businesses use office space. But his personal issues plus his inability to shift his company from the capital grinder into an earnings producer led to his demise.

Talent is also a key market to watch. Is the market experiencing a shortage or a glut of the type of employees that you need? Questions like that come into play when considering the potential cost to staff a company.

What Have You Done so Far?

Actions speak louder than words, right?

The best way to show that an idea has merit is to produce results before getting someone’s money.

Progress and traction are the best things you can show to a potential investor because it shows that you aren’t just talk and ideas; you are the person that will get things done.

Further, finding and proving your own success allows you to articulate exactly what it is about your idea that works. The data generated will speak for itself in the boardroom.

It’s also a lot easier to see how a business will work at scale if its already working well at a smaller level.

Would Investing in a Company Be Relevant?

Just like business founders and owners, investors have a strategy that has worked for them in the past and they are more likely to have used the lessons learned in the past to influence the decision they make in investing.

And more often than not, the risk of investing outside of one’s experience or expertise adds a multiplier to the risk of the investment.

This isn’t just relevant to industry expertise but also expertise with businesses of a certain size or at a stage of development.

Often, investors don’t want to be the first one in on investment unless they know there is something they like a lot about a business. That is not common. Not rare per se; just not the norm. So, a lot of VCs will stay away from really early-stage companies unless there is something to make them more comfortable.

Plus, relevance is often key just to get a meeting with investors. Known investors have every Tom and Jerry coming at them with a proposal. If it’s not in their lane, they will not bother even at the email or phone call level.

In personal communications, the first two thoughts in everyone’s head at the start of an exchange are who is this person and what do they want.

If they don’t hear exactly what they are looking for, your proposal will hit the rim of the trash bin than a Shaq free throw.

That Je Ne Sais Quoi

If you don’t know, that’s a French idiom that translates literally into “I don’t know what.” However, it is used similarly to the English idiom “I’ll know it when I see it.”

Investors are looking for something that will impress them. This the secret sauce, x-factor or competitive advantage that sets your company apart from the company down the street making a similar pitch.

The Bottomline

Wearing graphic t-shirts with suit coats doesn’t impress anyone anymore. The world of startups doing big and impressive things is now the norm.

Getting insights on how to be the best you can be is more than just a good way to live, it’s vital to the survival of your company.

Keep it here for the best and latest on how to do you as a startup.