If this post were a tweet, I would end it with #imho, because indeed this post is mostly opinionated based on trend-watching and outcomes of discussions with one or two investors.
So with no further ado, here are 7 things any start-up founder or entrepreneur should be looking at when working towards or worrying about raising money from investors — angels, VCs, family, and friends.
Investors are tired of reading through pitches about some idea that will change the world. They get thousands of those weekly from BetaList and ProductHunt, so take it up a notch by building a Minimum Viable Product (MVP) that is validated by users. It cost close to noting to hack most MVPs today but should in case you do need resources, call in favors from the ecosystem — developer community, incubators, and co-working spaces.
Another way to get validation should in case you decide to build anything is to go the buffer way — describe the product (video format recommended) in words and wire-frames on a landing page to get sign-ups. Ah. There’s kickstarter (or any crowdfunding platform) which doubles as a means to raising funds and validating an idea/product/market/problem.
Bottom line is to try to go as far as you can from idea-on-paper to product-in-hand before approaching any investor.
Business Model (LTV > CoCA)
This may not be of concern to a founder when setting out with a start-up venture but truth is a business model separates a project from a business; not an obvious fact to many entrepreneurs who just want to change the world. It is very important to get a handle on your business model with room for flexibility should in case the usual occurrence of pivoting comes to play.
Perhaps the best tool I’ve come across so far in hacking this is the Business Model Canvas by Alexander Osterwalder (download it here), it is important to get talking with other successful founders, business developers, and even investors when getting this together. Over time I’ve come to see the two most important metrics for the investor are: Life Time Value (LTV) and Acquisition Cost (CoCA) of a customer, and what you should aim for in attracting [growth] funding from an investor is:
LTV >> CoCA
Scale and Process
Having a MVP and Business Model is good to have but sometimes not enough to whet the appetite of some investors. Perhaps because the sustainability factor of any start-up depends on being able to scale as well as having a defined process in place — one that comes with standardization.
You should be able to come up with a clear process from start to finish on how things works while taking into account stakeholders such as workers (team), suppliers, and customers. A recommended practice deal with this is process mapping as this overtime allows you have an in-depth understanding on your start-up as well as cause and effects of different players interacting with it.
Solve or Fake-Solve a Problem & Storytelling
While some start-ups are out to solve obvious problems, others are out to create or magnify [ignorable] problems and then hack products and services that are popularly tagged nice-to-have. Make no mistake, nothing is wrong with these two types of start-ups; where the problem lies is not being able to convey the message of meeting a need to an investor.
The old school folks may know this to be the art of selling — or pitching, but now the buzz term is storytelling. You have to know how to appeal to the emotional intelligence of angel investors and VCs alike — even though this works more on the former than the latter.
Team — Skillful, Competent, and Teachable
This can not be overstated. Investors fund ideas and products but most importantly people. Cliche. You’ve got to communicate that you have the best team to deliver on and drive whatever you are looking to build. Showcase your team skills, knowledge, and competencies on a deck, web page, and blog.
One big mistake start-ups make is to restrict team members to founders or only people in the C-Suite: CEO, COO, CMO, CTO, etc., but this should not be the case. An investor would rather be impressed and more comfortable with funding a start-up that can extend its reach for skills and flexible enough to take on new and quality hires, freelancers, temps, and contract workers if need be.
Extra: If you are looking to secure funding through an incubator or accelerator, investors take in high regards how teachable a team is. This is because of the sickening amount of pivot expected. They want to know you’d take on board advice and recommendation and not stay stiff-necked to your original ideas and views (this should not be mistaken for being strong-willed and resilient).
Founder Success-Failure History
Perhaps a trend I have to notice is start-ups that secure funding have their founders to be second or third-trial entrepreneurs — i.e. they have started one or two start-ups before which ended up in either success or failure — at least one success though as no one wants to fund a serial failure. Another trend is how easy it becomes for a previously successful founder to raise funding for a new start-up idea even without an MVP, again confirming investors would rather than people — in this case their credibility.
Bottom line here is to work on developing a start-up venture report sheet as this makes it easier for a investor to decide to fund you based on your profile and previous experience with start-ups.
Last but definitely not the least point to consider if you are good to attracting funding is how compatible your start-up is to the ecosystem. After checking off all the above on your list, this could be the break or make factor in landing that funding and brilliant investors are increasingly seeing the importance of having a ecosystem compatible start-up.
What does this mean? A start-up that is ecosystem compatible should be one that works well with and can leverage on available and accessible talent, industry PR and media outlet, trends like mobile, analytics, other start-ups — competitive or complimentary, stakeholders — early adopters, power users, suppliers , and perhaps most interesting, investors.
There may be more to attracting start-up funding than the above 7 items but checking these off your list sure puts you in a better place when dealing with investors. All the best.