What investors are looking for in early stage startups

Keeping an eye on that early investment prize is crucial when developing a business. And actually securing seed investment? That can be an overwhelming task, but we’re here to help. At Demium we create startups from scratch, which means teams and ideas are refined and validated before investment is considered. Then, when the time comes, we advise our aspiring entrepreneurs every step of the way through our incubation programme.

As infrastructure improves and the startup ecosystem grows from NW Europe to central and eastern areas, a number of the cities in which Demium is established see strong YOY growth in the amount of capital flowing in – both domestically, through business angels, and internationally, through foreign investment. And, according to reports, total VC funding is at a record high, an admirable chunk of which is being allocated to early stage startups.

So let’s start with something essential: get to know your city’s investment landscape inside out. Firstly, you need to understand which industries and specialisms local and foreign funders are interested in. This kind of analysis is something that Demium takes care of as part of our assessment of business ideas, which we explain in our generating business ideas blog post.

Secondly, you need a good team. One that works well together and whose skillsets complement each other. Almost every incubator MD at Demium says that the team is the primary influencer for seed investor decisions. They’ll want to know your background, areas of expertise and feel confident that they can have a productive and close relationship with you.

Investors will also need reassurance that your startup has the right mix of skills to successfully progress the company, but don’t worry too much about this, as we’ll aid the formation of teams at our AllStartup Weekend. This is the three-day event during which technical people are matched with a co-founder or two, as well as those with business, sales and marketing capabilities.

Failure is an asset in an investor’s eyes. It may sound strange, but discovering that you’ve flopped and bounced back is valuable experience for any entrepreneur, because it shows that you’re resilient. Another is being able to identify leadership qualities amongst the team, as you’ll need someone charismatic and competent to regale with your company’s back story, sell a vision to both investors and customers, and entice new employees.

Relating a clear understanding of the shape these initial employees will take and the types of skills they’ll add in order to drive early growth is vital. As is engaging the right advisors, who will bolster any investor’s confidence, knowing that you have someone capable to turn to.

Ultimately, to attract an investor, you need to think like an investor. The three areas they’ll be focusing on are, in the words of entrepreneur and author Scott Kupor: “people, product and market”. We’ve covered people and product, now for market. Work out what percentage of your industry, both domestic and international, you can realistically target. A firm knowledge of your target customer will give seed funders a good sense of whether or not your solution is genuinely going to solve the target customer’s problem.

Sound preparation of your business case is highly important too. What do your financials look like? What are your metrics? What are your key performance indicators (KPIs) and how do you intend to work towards them? How realistic are your projections? What are your baseline assumptions? Be ready to be grilled on these points and be prepared with coherent responses.

Obviously a revenue trajectory is compelling evidence, but if your product or service has received good feedback or you have strategic partnership opportunities, then this could be enough to convince an investor that your startup has the potential to scale up. Some startups even manage to gain early traction off the back of their MVP.

Last, but by no means least, it pays to do your homework. Find out as much as you can about the investor(s) you’re pitching to – what they’re involved in, how they started out and other relevant experiences. Ensure you look and act smart and professional. Your pitch needs to be polished to within an inch of its life and each slide must add value. Be well versed on how you plan to allocate investor funds because, naturally, they’ll want to know exactly how you plan to spend their money, and reference the milestones their investment will take you to. Be confident – don’t um and ah your way through – be likeable and, while this is your time to shine, showing humility and a willingness to learn will always stand you in good stead.