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What Investors Look for When Funding Your Business

Gene Godick

CEO and Founder, G-Squared Partners, LLC

What Investors Look for When Funding Your Business

 

You poured your heart and soul into your business, and now it’s time to secure funding to continue its growth. But how would you fare if investors – like VCs, angels and bankers – were to evaluate your company? What components will drive their decision to invest or not? When you know what to expect, pitching your idea to investors my feel less intimidating and more like, “Let’s see if we’re the right fit.” Here’s a list of the top seven things investors look for when funding a business:

 

#1. Uniqueness & Fit

Your product or service must stand out from what’s already being offered in the market. Your differentiators should be easily definable. Perhaps your competitive advantage lies within your intellectual property, or maybe you’re solving a problem in a new way. Be prepared to prove to investors, using concrete evidence, that your market potential is large enough to warrant an investment.

 

Explain how you’ll “build a moat” around your business, such as using patents or other intellectual property to protect your unique position. Address the intangible elements you’ll use to protect your brand, making it as impenetrable as possible.

 

#2. Total Addressable Market

Total addressable market (TAM), or total available market, is the total market demand for your product or service. In short, your TAM represents your revenue opportunity for a given product or service. Understanding your TAM will help you make predictions about the real size of your market, how many prospects you can expect, how long your sales pipeline will remain satisfied, and potential revenue for a specified time frame, such as a particular quarter or year. Keep in mind that investors want companies that can grow quickly and manage that growth. You must be able to articulate your TAM to investors and discuss your strategy to achieve it.

 

#3. CEO Experience

As “top banana,” your experience matters profoundly to investors. They want to know you have a proven track record for superior performance, as well as expertise and leadership in your industry or prior venture. Make sure you exude confidence and passion and demonstrate your willingness and ability to change course should your company need to shift direction.

 

Other positive traits investors look for in CEOs are the ability to make decisions with input from your leadership team (there’s no room for indecisiveness); excellent relationship and networking skills; and the ability to build a company around core competencies and deliver on them.

 

#4. Business Model

A clear, replicable business model that is scalable and as detailed as possible is essential. Show investors that you not only expect growth, but you’ve planned for it. Be ready to prove how your business model will help your company become more profitable. Emphasize financial and market issues, as these are key areas for investors.

 

#5. Exit Opportunities

Investors assume risk whenever they invest. An exit opportunity provides them a “reward” for their risky move. It’s therefore imperative to integrate an exit strategy into your business plan. Let investors know how you plan to return their investment (and then some!). Will you pursue an acquisition? Merge with another company? Choose an exit strategy that aligns with your business and personal goals. Your time frame may vary, so think about when you may want to implement your exit strategy as well. The objective is for all parties to exit profitably.

 

#6. Capital Efficiency

Investors analyzing your company’s potential for investment will examine your financial performance from every angle. Let them know how you intend to grow your business quickly using the least amount of their invested cash. Spending wisely should be your objective regardless of economic conditions, so set a track record for sound money management. Establishing capital efficiency early can help your company develop insightful leadership and ultimately make you more attractive to investors.

 

#7. Investor Experience

Investors already familiar with your industry and market may be more likely to invest in your company because of their expertise and comfort. Note their knowledge may also mean more targeted questions for you, so be prepared to showcase your experience.

 

As exhilarating as it is, the fundraising process can be intimidating. But when you’re prepared, you can go in strong and confident—moving you one step closer to achieving your goal.

Gene Godick

CEO and Founder, G-Squared Partners, LLC