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What Do Investors Look For In Businesses?
Our collaborative Blog asks and answers, ‘What do investors look for in businesses?’
Starting a business is, without a doubt, an expensive venture. Fundera’s research reveals that 77% of small businesses depend on personal savings for their initial funds. Still, very few entrepreneurs have enough cash to fully bring their startups to life without some external help.
Investors will likely reject several proposals because they want to ensure they are investing in worthwhile business ideas. Investors are a common funding source many business owners turn to in their time of need, but this option’s rejection rate is relatively high.
Below we provide insights on the common factors all investors look for in businesses.
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Factors Investors Look for In Businesses
- Business Readiness
While entrepreneurs may have exciting business ideas, few have the drive and means to transform those concepts into operational and financially viable businesses doing well. Investors need to see a valid return on their investment. Therefore, investors will want to see several signs of business readiness to convince them that your startup is ready to hit the ground running.
It’s best to remember that investors want to enjoy investment returns as soon as possible. Demonstrating that you have all the essential components will pique their interest. For example, if you need cash for expansion, having a new business location or supplier on standby shows investors your startup is serious about growth. Similarly, building a great product with limited resources and hiring strategic talent indicates that you are ready and committed to making your idea work. These minor details can make your company the preferred choice over other businesses with equally good ideas.
2. An Effective Business Plan
Every investor will ask to see a solid, convincing, and complete business plan before they consider funding your idea. For starters, a business plan proves to investors that you are serious about your company and not just winging it. In addition, they want to know that you are realistic about your company’s future and have a vision and clear plan of how to achieve your goals. Therefore, always have a well-thought-out business plan if you intend to convince investors to sponsor your startup.
For instance, if you intend to join the cannabis industry, writing a cannabis business plan is non-negotiable. This document should contain detailed marketing plans, financial projections, specifics about your target market, and related matters.
A 2014 study concluded that entrepreneurs that write formal business plans receive more funding than if they had no plans. Therefore, your business is more likely to receive funding if you don’t skimp on this document but include everything relatable.
3. A Unique Idea
Every investor dreams of backing the next big thing. That’s why a company like Elizabeth Holmes’ Theranos raised more than $700 million from private investors and venture capitalists despite being Silicon Valley’s greatest deception.
New and innovative ideas excite investors since the potential financial returns of funding the next big thing are encouraging. Consequently, no investor will be thrilled to commit a lot of money to an idea that does not stand out from several others in the existing market. As such, it is essential to demonstrate what sets your products and services apart from what your competitors are offering. The concept can be entirely brand-new, or it may address a unique, pressing problem. Whatever your idea, it is of utmost importance for investors to realize there is some novelty in your vision that is worth the financial risk.
4. Product-Market Fit: What Do Investors Look For In Businesses?
Product-market fit is the perfect scenario where an enterprise’s target audience is buying, using, and informing others about their products. Essentially, it is the degree to which your product or services satisfies genuine market demand. Investors want to verify that a significant number of people find value in your business offerings.
Moreover, investors want to recognize the market need and that the customers are willing to pay for the proposed products and services before offering you money. Product-market fit confirms to investors that your idea is viable enough to attract the right level of interest and patronage to see them earn returns relatively short term.
5. Strong Leadership
Investors are investing in your team, not just your product or service. Therefore, they will want to ensure that they invest in a knowledgeable, expert, strong, and driven team that is passionate about making their enterprise successful. For example, hiring a passionate technical co-founder might be prudent to strengthen your leadership team if you are not technical.
Furthermore, investors also want to ensure that you collaborate well and have solid interpersonal relationships that give your business a good foundation. An excellent idea to have example stories to share. Include in each how you have worked as a team to overcome challenges, whether successfully or otherwise. This way, investors can more easily understand the individuals behind the company, the teamwork, and their roles in your business’s future success.
In Conclusion
The work behind the preparation for possible funding needs to be factual, strategic, all-encompassing, and intriguing enough to increase interest to provide you with the financing your business needs. Teamwork and following the above guidelines will enable you to give the investor what they need to say ‘Yes!’ to your project.
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Sales Tips: What Do Investors Look for In Businesses?
- Before seeking funds for your business, it is essential to get into the mindset of investors to realize what investors look for in businesses.
- Review all operations within your organization to realize potential hotspots for negative results.
- Discern whether there is possible discord among employees or teams to resolve ahead of time.
- Request input from both leadership and employees where improvement may work well.
- As an entrepreneur, consider whether a partnership of some type may be beneficial.
- Realistically conclude what you need vs. what you desire to move forward successfully.
- Confirm the direction you want your business to take and the potential for growth on all levels.
- Create a concise long-term vision and work backward, setting goals to achieve it.
- Upon speaking to an investor, share your story about the reason for setting up your business, the driving force behind it, and your devotion to making it a success.
- Celebrate Success!
Today’s insights are provided to help you achieve the Smooth Sale!
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