No other type of business in the world has the capacity to expand as fast as a tech startup. Investors weigh more than just your startup idea when reviewing startups, especially considering the fierce competition for investment in this space. However, they examine the core group, the size of the market, the business plan, your dedication, etc. in great detail. It is difficult to attract investors in the early stages. The following qualities are likely to be valued by investors in a tech startup.
1. Passionate Founder(s)
Being a startup founder demands more than having a good idea; it requires genuine passion. If you’re not positive about your project, it might not be the right venture for you. According to Roberto Boligan, you need to strongly believe in your product or service and be confident that it either improves on existing offerings or provides a fresh solution to an old problem.
Investors are not just investing in your business; they are investing in you.
Can you clearly express the journey you’ve been on so far? Can you convey your passion, skills, and creativity? Beyond passion, investors also look at your commitment. Are you willing to invest your own money and time? If you expect others to invest, leading by example shows that you truly believe in your product or service. Raising initial capital often involves using personal savings, borrowing, or gaining support from friends and family. This tangible commitment conveys your belief in the venture.
2. Traction
For a startup to attract investment, it needs to show traction. This means proving that there is a market for your product or service and that people are interested in what you offer. Ideally, your venture has already started operations and demonstrated its ability to sell the product or service. This is what investors call the ‘proof of concept.’
Investors want to see clear evidence:
- A concise description of the problem your product or service solves.
- Proof that customers are not only interested but are willing to pay to solve the problem.
- Evidence that your product or service effectively addresses the identified problem.
In the tech startup world, the proof of concept often comes in the form of an MVP . This is a simplified version of your product with enough features to satisfy early customers and gather feedback for future development.
3. Growth Potential
Investors are looking for opportunities with growth potential. While this depends on your market’s size, having a significant reach is crucial. Investors are interested in the scalability of your operations. Not every product or service aims for a global market, but having a sizable market enhances your ability to grow and improve operational margins, making it attractive to investors.
If your startup aims to disrupt an existing, saturated market, be prepared for close scrutiny of your growth potential. Gaining market share from competitors requires a demonstrable competitive advantage.
4. Competitive Advantage
Regardless of your product or service, it must have a unique selling point to attract investment. Roberto Boligan says that if your startup is entering an existing market, having a real differentiator is crucial for success. Investors want to know: What makes your product or service stand out?
Consider the example of N26, a German neobank. While not the only player in the online-only banking market, N26 positioned itself as ‘the bank you’ll love’ by turning a traditionally disliked service (banking) into an enjoyable experience through a relentless focus on user experience.
5. Key Team Members
In the early stages, startups often have a lean team. Whether it’s a duo or a team of ten, the key areas of the business must be covered. If your business involves a specialized field, like AI technology, having an expert in that area is crucial. Investors will closely examine the team’s ability to operate effectively.
Investors also look at operating control. They expect founders to have developed or be in the process of developing policies and procedures to control the business and ensure their investment doesn’t go to waste.
As a founder, it’s important to be able to ‘let go’ and delegate authority across your team. While your startup may feel like your baby, over time, trusting others to take care of responsibilities becomes crucial. Investors find comfort in seeing expertise and autonomy spread across a fully engaged team.
6. Exit Strategy
Investors approach the topic of exit strategies with a practical mindset. Understanding their perspective, focused on returns, helps you prioritize what’s essential for your startup. From a financial perspective, investors typically have two primary questions:
- How much do I need to invest, and when is the investment required?
- How much will I get back, and when can I expect returns?
Providing a thorough ROI (return on investment) analysis in your pitch is highly advised. Investors want to know the projected return and when they’ll start seeing it. While you can create financial projections yourself, hiring professionals for assistance is an option if needed.
Wrapping Up
To sum it up, a successful startup needs passion, proof it’s working (traction), the potential to grow big, a standout edge, a capable team, and a clear plan for investors to get their money back. Roberto Boligan concluded that founders should have such a strong belief in their concepts that they risk their own money. It’s about showing there’s a real need for traction and room to grow. With a strong team and a clear plan, it’s a safe bet. Potential investors see it as an invitation to set out on a path driven more by dedication and promise than by financial gain.
