Posted on 03/15/2019 in Investors

What Do Investors Look For When They Invest?

What Do Investors Look For When They Invest?

Angel Investors are like the fairy godparents of budding entrepreneurs. They have the ability to turn pumpkins into carriages, and great ideas into viable companies that will have long-term success.

Angel Investors don't just fly in from out of the blue. Like their counterparts, Venture Capitalists, they have a certain set of criteria that they are looking for before they take the leap. Smart entrepreneurs know how to pitch investors without getting lost in the immense pile of funding requests that they get on a daily basis.

What Do Investors Look For?

While it's true that not all investors are the same, they are all focused on a few key qualities of a business. Angel Investors and Venture Capitalists are not foundations. Some of them relish a mentorship role, and most of them are certainly willing to take a gamble, but they don't just open up their pockets to anyone. Entrepreneurs often make the mistake of gambling on a single Angel Investor or Venture Capitalist. No matter what, you still have to know how to capital raise from other sources!

Venture Capitalists and Angel Investors are looking for solid bets on companies that have teams in place to be able to make their visions a reality.  

Return On Their Investment

What do investors look for? They want some serious return on investment. Return on investment, or ROI, is one of the first things that you must prove to a potential investor. In order to prove that you're able to give your investor their ROI, you need to prove beyond a shadow of a doubt that you have a vision for scalability. You might be a smaller company now, but you have the potential to be the next Uber in three years. One of the best ways that you can do this is with a solid business plan and a method for how to capital raise. Show the investor that you will not be hanging off their purse strings for the long run, and you'll have a greater shot at getting some of that coveted investor money.

How Can I Prove ROI?

  • Present a realistic, concise and actionable plan for scaling.
  •  Show the investor how you are going to raise capital independently.
  •  Don't be ambiguous in any area of your presentation. Have your ducks in a row.

A Great Team That Is Fully Invested In The Venture

We are sure that there are plenty of companies out there with a single brilliant person at the helm, but that's not what investors are looking for. Angel Investors and Venture Capitalists will get a little reluctant to throw big money into your bank account unless you have a team behind you. Having a team in your pocket shows that others believe in your vision, and more importantly, your ability to execute your vision!

Having a great team that is as invested as you are is a major plus. They should have specific skill sets that set them apart. You should have a stellar sales manager, someone to handle day-to-day operations, a marketing guru, and an ops person. If you are a technical company, make sure that you have a coder or computer whiz on site who can scale the technology rapidly as they need to.

Components Of A Great Team

  • Your team has a variety of different skill sets that work complimentary.
  • Each member of the team is invested in the vision.
  • Everyone on the team can articulate their role and purpose.

Financial Details

Now we get down into the nitty-gritty. When it comes to how to pitch investors, it all boils down to the cash. As we mentioned earlier, Angel Investors and Venture Capitalists want to see how they can make their money back. If they weren't as financially oriented this way, they would never be able to rake in the big bucks and be in the position that they are in. They'll ask lots of detailed questions about the finances of your company. Be prepared to answer them, or be prepared to have the investor decline to fund your company.

Here's where salability comes into play again. You need to prove that your finances are moving in a direction that will be fruitful for the investor. Make sure that you have all of your tax information in order, can list off avenues for bringing in revenue, and have a separate bank account in place for your company. Changing your status from a Sole Proprietorship to an LLC or Entity is also a decent idea. It shows that your business has credibility and the ability to bring in some cash.

How Do I Prove Financial Solvency

  • Consider changing your tax classification to an LLC or Entity.
  •  Be able to prove scalability.
  •  Show the investor where you are getting additional streams of revenue.

A Superstar Business Plan

Angel Investors and Venture Capitalists get deluged with all sorts of pitches. Their inbox is clogged with hopeful entrepreneurs just like you. One of the biggest things that they are looking for is a solid business plan. They want to make sure that you have thought your company through as much as you are asking them to! Have a refined elevator pitch that you can deliver quickly, and that encapsulates what makes your company different from all of the others. Outline your mission and vision. Talk about your marketing efforts and how you plan to raise more capital. Go into details about your vision for scaling. Your business plan should be heavy on substance and low on fluff.

Elements Of A Rockstar Business Plan

  • Have a clear mission and vision statement in your business plan.
  •  Talk about all aspects of your business in the plan.
  •  Fine-tune your elevator speech so it is simple and impactful. 

A Piece Of The Company Pie

Most Angel Investors and Venture Capitalists are looking for a little piece of your company pie. Whether it is shares, an equity ownership position, or a seat at the head of your board, be prepared to give a part of your company in exchange for those big investor bucks. Each one is different, so be prepared to negotiate and draw up an agreement that details exactly what each party is giving to each other. It might be unnerving to give up a little bit of your company. After all, we see our ventures like our babies! It's very common practice in the investment world for Angel Investors and Venture Capitalists to get a little piece of the pie, so don't worry, many companies that have come before you went through the same process.

Giving Up A Piece Of The Company Pie

  • Expect Angel Investors and Venture Capitalists to ask for a piece of the company in share, a seat at the board, or equity. 
  • Always draw up a shareholder agreement that details what both parties are getting and giving.  
  • Weigh the pros and cons.

Your business can dip into that coveted well of investor money if you know how to play it smart and give the investors what they are looking for.

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