investment angel and vc investor

How to know if your Startup is Investment ready?

So, you’ve done all your pre-launch work, have an amazing disruptive idea and are all set to validate a scalable business model. But is it all so easy? No, the path you wish to tread is full of uncertainties, delays and disappointments.

Besides a top-notch business plan, entrepreneurial and managerial skills, having sufficient funds are crucial for survival considering the dynamic environment Startups operate in.

New ventures are generally businesses with uniquely creative ideas that intend to grow as large corporates and make an impact on a large base of society. But many a time, due to limited revenue or high costs, most of these small-scale Startup opportunities cannot sustain in the long run without additional investments.

The act of pitching your business to an Angel Investor or VC can be a harrowing experience. Many founders get demotivated counting the times they’ve heard a ‘No’. You may be making some improvements to your pitch based on past experiences, but that’s still not making the big difference. Conventionally, months of hard work put together, exciting wireframes, a PowerPoint pitch deck and it’s time to go and seek funds. Is that it?

Well, are you sure that you are investment ready and that this is a well thought of decision, not just based out of a billion-dollar dream?

Below are a few considerations to take into account to know if it’s time for a fundraise while preparing for your big ask-

1. First meeting, first impression but not the only chance – Have a solid foundation built prior to reaching out to investors. You better know your numbers well, COGS and Customer Acquisition Costs, Cash sources & use report, Income statement, Balance sheet, Cashflow Statements or you’re toast. But you don’t only get one chance. In practice it takes about 90 days or even more from first contact to actual funding. Don’t be hesitant, investors are pretty proactive and cooperative.

  • Try to have a clear view of what investors look for in each phase.
  • Look for investors that have experience in your industry.

2. Have a plan for the funding – It is not just about how much you want to raise; emphasis should also be on how much it costs you. Afterall its high-risk capital being invested by other people in your company. A well-developed plan will focus on several things –

  • How will the money be utilised to improve and build your business
  • Expected expenses
  • Future forecasts
  • Projected revenue
  • Know your valuation based on market multiples.

4. Did you sell your product? – Show early traction to get more leverage in front of investors. Tractions surpass everything, they indicate that the team can execute the purpose of business. Strongest pitches come with early validation in the form of pre-registered users, tractions and a working MVP. Quantifiable data and growth projections show strong progress.

Pitching to high-powered people with money brings along a sense of success, whereas selling to customers is a not all that glamorous. The purpose of any business is not a fancy road show but about selling something of value to someone and earning profits in return.

Initially you may make customers but in the long run they make you (market standing).

5. S.W.O.T it – throughout the operating life of your business, particularly while approaching investors, SWOT analysis is an effective tool to get any new business off the ground.

  • Strengths are seen internally; your team is your biggest asset. Take advantage from resources, employee skills and capabilities.
  • Research your competition. Explain (why/how) your superiority over them.
  • Have documents in place- financial info, revenue projections, bank statements, budgets and proof of business ownership. Projected growth plans and goals.
  • Device a solid Contingency plan.

5. Raised a friends & family round – Seed funding is the first step in financing any Startup company; which includes your own capital + additional from people close to you. Avoiding this is in some way indicative that you yourself don’t have enough belief in your plan to pitch it to people you value, because of the fear of failure. If this is so, why would an Institutional Investor, a complete stranger see it as a ‘business opportunity’ worthy of their time and money.

6. Evaluate the market opportunity– Have a well-defined market, large enough to make sense to Investors & VCs. Then showcase how you fit into the competitive landscape.

  • Analyse your competitors
  • Unmet needs of the Consumers
  • Understand growth potentials

Your estimates must be realistic, reasonable and aligned to your forecasts.

7. Product Market Fit– It is like a catalyst to both success- if you find it & failure- if you can’t. Having a PMF means that you’re in an ideal market with a product that satisfies the customers. The better you prove you’ve found a PMF, the more ready you are to start pitching to Investors.

Make informed, smart assessments of your business needs, expansion plans as well as the type of investors that best match your business requirements.

Authored by
Radhika Sharma
(Analyst, MergerDomo)

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