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What Investors are looking for? Useful Checklist for Startups

There has never been so much money and hype around the startup industry as today. In fact, 2021 broke all the records for startup funding, with over $240 billion in investments only in the United States alone… 

In this article, we will discuss a list of things you need before raising any capital for your startup. 

You will also find a detailed fundraising checklist (Airtable) so make sure you read till the end 😉

Financial freedom & Successful Exit — the Lifelong Dream of any Startup Founder

At first sight, it may seem that launching a startup and raising capital is all fun and games. But Be careful! Don’t fall into a trap…

Early-stage startup founders mistakenly think that their ideas are worth millions from the start and that investors will give them money as soon as they launch. 

But in reality, the fundraising process is one of the hardest final challenges that you will have to go through as a startup founder.

“You will have to knock on the doors of hundreds of investors, and pitch your business over and over again. It will take anywhere from three to twelve months. You will be tired and frustrated and will possibly think about giving up”.

And although patience and perseverance plays a big role, It is really important to understand… Investors do not fund startups without strong fundamentals, proven product and customers.

So before, you burn out and hear a thousand NOs, stop for a minute, and ask yourself: Do you have what it takes?

WHAT DO INVESTORS ARE LOOKING FOR? 

In order to understand what you need for successful fundraising you need to identify what investors are looking to pay for and what they value.

Although every investor is different, and each has their own set of criteria for funding a startup, here is a fundraising checklist with things that investors look for in startups:

1) Idea

Everything starts from an idea..Yes, your business idea might have seemed perfect as soon as it came to your mind, and while at first glance it might appear flawless, that’s incredibly far from the truth. 

If you can perfectly visualize an idea in your head, but you cannot explain it in a few simple words to an outsider, then you clearly need to work more on perfecting your idea. 

To avoid losing your focus, you have to adequately assess your idea from the start, and do intensive market research on your potential customers. After this you will understand whether your idea can truly become valuable to the world and have

A Good Startup Idea consists of:

  • Problem
  • Solution
  • Business Model

After identifying these 3 things, you have to make your idea as short as possible and train pitching it 100’s of times in simple words to anyone you can, until they effortlessly understand what you do from the first time. 

Having a clear vision is important, but remember… Ideas are worth nothing without execution.

Find out how you can easily validate your business ideas from home in our previous article.

2) Team

Many investors consider the team behind a startup more important than the idea or the product. Try to build a reliable team from the start…

You can always find a technical co-founder from the first day, or find them when the time comes to MVP development. It is, however, important to understand that you are partnering with them, and you will have to divide the equity

The investors will want to know that the team has the right set of skills, drive, experience, and temperament to grow the business and stay in a reliable long-time relation.

Team Questions:

  • Are you a Full-time Founder?
  • Do you have founders with the right set of skills? 
  • Do you have a cap table? 
  • Are you properly incorporated? 

3) Product

Product is the real moneymaker, after all, that is what your customers are really paying for. In order to be attractive for the investor, your product has to be stand out from the crowd, be scalable, and must solve a problem. 

Constant product improvements and a customer-centric approach are the key ingredients for your startup success. 

After collecting feedback, making various prototypes and testing your MVP, you will know your product like no one else in the world. This will help you get prepared and feel more confident in front of the investors. 

Find out more product goals for your startup in our fundraising checklist below 👇

 Product Questions:

  • Do you have an MVP? 
  • Is your product scalable? 
  • What is your product margin?
  • What are the costs? 

4) Market Opportunity

Most investors are looking for businesses that can scale and become meaningful, so make sure you address the issue right up front as to why your business has the potential to become a unicorn. 

Don’t present any small ideas. If the first product or service is small, then perhaps you need to position the company as a “platform” business allowing the creation of multiple products or apps. 

Investors will want to know the actual addressable market and what percentage of the market you plan to capture over time. For most investors, a “big” market opportunity is in excess of $1 billion in sales annually.

Market Questions:

  • How Big is your Market Size? (TAM, SAM, SOM in $ or Quantity)
  • What is the market growth rate? (CAGR in %) 
  • Who are your competitors? 
  • What are the risks and opportunities? 

5) Traction

There are a lot of great talkers in the world, but at the end of the day, it’s all about the follow through. Investors hear hundreds of entrepreneurs talk about their ideas, but very few of those ideas yield results. So one of the best ways you can stand out from the crowd is to provide proof that you’re going to hit the ground running — or that you already have.

Every bit of traction matters in a startup pitch, so however modest it may seem compared to your overall ambition, don’t be afraid to touch on it in your presentation for investors. Every bit of traction matters in a startup pitch, so however modest it may seem compared to your overall ambition, don’t be afraid to touch on it in your presentation for investors.

Traction Questions

  • How many customers do you have? 
  • What is your customer growth? 
  • What is your retention?
  • How many downloads or purchases have you handled already? 
  • What is your current MRR and ROI? 
  • Do you have any strategic partnerships?
  • Do you have Public recognition? 

Fundraising checklist for Startups 

We have discussed only 6 fundamental aspects that investors like to assess before funding any startup. In reality, this is just a tip of an Iceberg…

Here is a full checklist of things that will help you prepare for your startup fundraising. 

Open full checklist

What’s important for Tech Startups

There is a big chance that you’re startup is related to technology. But not every startup that uses tech is a tech startup. They have to build a solution based on technology. Investors are looking for something that will generate money in a 3 years duration. If your solution is the automation of existing problems on the market and can be monetized — probably you’re in a good fit.

Tech Industry

Let’s recap how the market is structured. It’s not surprising that FinTech & Healthcare hold main positions as their solutions are often relevant to the most important things in life — wealth & wellness.

Distribution of startups by industry, Source

#1. FinTech

The fintech sector is booming, with a record $91.5 billion in global funding so far this year — that’s almost twice as much as what the sector collected in the entirety of 2020. 

A great fit for FinTech fundraising is showing your cases (customers) and how your technology can increase the profits of target businesses.

#2. Artificial Intelligence

Many companies tout AI technology initiatives and machine learning. Investors are looking for AI technology to improve products or gain a strategic edge. The best scenario is showing a demo with stats that show the value of your technology usage in a specific market.

#3. BioTech / HealthTech

The post-COVID era has killed a lot of startups, but in health, industry demand increased significantly. If you can prove that your company works on a product that can save lives and has market demand — you will get no problems with investments

Gaming

Just like with HealthTech these years people pay more interest to the gaming industry. Being fun & unique is a good strategy, but more important is your monetization & business model. Not everyone is ready to pay for a game if you can prove that they will and forecast profits — that’s way better. 

But the Gaming industry is not all about games. That’s also game engines, special marketplaces, streamers, and all they have a need in.

EdTech

During the pandemic, education systems around the world had to find creative solutions to face the challenges of remote learning. 

If you are seeking investments for the first time, you should definitely spend some time understanding who you would like to target. Make sure that your strategy is aligned with your business stage, growth, and profile, as well as with management and shareholders’ priorities.

Media (VR, XR, …)

Metaverse 👋. 

Whether you personally intend to use VR platforms or not, the question comes down to the numbers. And frankly, virtual reality stocks post very compelling ones.

VR isn’t just for gaming — that’s only a stereotype. Instead, tech engineers are exploring various applications, from defense to healthcare to education. 

Step away from any preconceived notions about the segment and focus on big problems, that will show a good signal for VCs.

Are trends that important?

VCs don’t believe in trends, they follow them. They are focused on finding & investing in a proven long-term solution that will be in demand for at least a couple of years.

If your startup is relying completely on a trend, you might want to change the focus and find a real value that is going to serve your users for a long time…

Here’s a couple of examples:

  • “…Meanwhile, however, other top investors show a worrying tendency to double- and triple down on their perceived winners. On the rise are so-called insider rounds, a practice that raises concerns that higher valuations aren’t being validated by new investors…” — How investors changed after WeWork
  • “The VCs are reacting rationally to the environment that they’re in” — The Great Competition to Give Away Money

Incubators & Accelerators

First-time founder? A lot of people who start their own startup do a lot of mistakes. Of course, a good investor knows that for sure. There’s a rule in Silicon Valley that you gain trust after either if you had 1 successful exit or failed 3 startups before.

Everyone makes mistakes, but being a part of the acceleration program is a big boost to your knowledge & investor relations. Take a look at those programs:

Now you’re reading to become the next unicorn and start fundraising (of course if you completed all the items from our checklist). There are many startups that failed this path. And today, over the internet there is a lot more information about what you Should & should NOT do.

Looking for investors right now? Then you might be interested in showcasing your product on our platform. On projectium, you will find Angel investors, Early startups, and a supportive community that will bring your startup to the next level.

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