As a small business owner or startup founder, raising capital is challenging. You have faith in your business’ ability to succeed, but to help provide the funds to scale the business, you need to attract investment.
Investors must not only believe in your ability to achieve success, but they must be willing to provide you with the funds to attain your goals. Although each investor is different, there are a few common factors that startup investors look out for before investing. We have outlined four things investors look for before investing.
Knowledge of the Market
“Men fear what they do not understand” and so do investors.
Your knowledge of the market and the potentials of your business is fundamental to your success when raising capital.
You must as a matter of fact be able to explain this succinctly and accurately to a potential investor.
“A business is only as strong as the people behind it”.
Potential investors would require adequate knowledge of the key players involved in the business (startup). The founding team, their professional backgrounds and their level of commitment etc.
Potential investors are risk takers.
They want to see your financial projections or proof of traction, if your business is already gaining grounds.
When discussing your projected financials with potential investors, they will want to know that your assumptions are based on realistic projections based on market research.
Potential investors want to see strong legal foundations. These include the company ownership of Intellectual Property (IP) or license to use same. An intellectual property assignment agreement is very important in this regard.
Well-tailored documents raise investor confidence that you are running your startup properly.
Your investor may likely request amongst other legal documents, a term sheet, shareholders agreement etc.
Ultimately, an investor wants to know that your business is worth the financial investment and risk; and there is considerable potential for a significant ROI.
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