Introduction
When investors in startups and founders are considering an investment opportunity, there are some basic points that they look at before making a decision.
Passion and Integrity
No matter how good a concept or an idea is, unless an Investor is convinced of the passion and integrity of the founder/s, the investor would be reluctant to make a decision.
Skin-in-the-game founder
A founder can prove his passion by committing part of the investment so the investor knows that if the project fails, the founder also loses his capital. The founder should also not withdraw a hefty salary so as not to drain cash flow and not burden the P&L until the company is profit-making.
Valuation while raising funds
This is one of the sticking points, and many investors decide not to invest because they feel the valuation is too high. High and imaginary valuations are done by founders in order to give us as little equity as possible to investors, which discourages investors from making a decision.
Exit Strategy
The investor is generally concerned about ROI, how he will exit from the investment, and at what x. Hence, a clear exit strategy explanation is essential while seeking investment. The pitch must show how/when and what multiple investors can exit and what they stand to gain. It is also advisable that the investment amount carries a minimum return coupon so as to gain the confidence of the investor and also to satisfy the investor that his money is going to earn him the coupon while the investment is still alive in the company.
More Advice For Investors in Startups and Founders
- Environment-friendly projects are in demand now. Minimum carbon emission, recycling natural resources, and sustainable projects are in high demand due to raised awareness of the critical issue for human survival. Hence, projects in such an arena are likely to attract more interest.
- Investors prefer women-led projects and gender equality projects, and founders should look at either a woman leading a project or giving board seats to women to achieve these goals.
- In general, an investor looks for an ROI of 25% yearly as a minimum and an exit goal of 3 to 5 years with a multiple of 5 to 10x his investment amount.
- The capital raise should not be high enough that small investors find it undoable. Small and several rounds of capital raise are the answer to this instead of trying to raise bigger chunks in the initial stage. This can also benefit founders by asking for higher valuation as the project progresses.
In conclusion
Being realistic, passionate, honest, less greedy, and ready to share the fruits of their project with the investor community, they have a higher and better chance of succeeding in their projects.