Not to sound too gloomy, but 90% of startups are going to fail. Startups can fail for a plethora of reasons, whether it means that money ran out or the startup simply didn’t do their research in the market. Because of this, your goal is to be part of the 10% that succeed. Finding angel investors and venture capitalists that will help your startup avoid financial roadblocks will be a route you’ll want to consider.
Before you begin connecting with investors, think about the following questions:
- Have I done enough market research?
- Are my finances in order?
- Am I passionate about my startup?
Market Research
Investors need to know if there’s a need for whatever product or service your startup offers. They also want to know what the market looks like, where does your startup stand, and if it can scale up (or if you’re even in the right market). To do this, you will have to do some homework and do research through multiple channels.
There are several sources of information you can use to figure this information out:
- Syndicated data: data that has been collected and repackaged for consumption. Suppliers monetize their businesses by selling subscriptions to their data sources. Another great (and FREE) source of syndicated data is the U.S. Census.
- Quantitative research: research that collects non-numerical metrics, like text, images, objects, etc. Doing focus groups or interviews with open-ended questions will help you understand how people feel about your startup.
- Quantitative research: research that can be collected numerically. Think of creating digital surveys or intercepting people Billy on the Street-style to collect data.
Pro-tip: Consider doing a SWOT analysis for your startup. A SWOT analysis is a strategic planning technique that allows you to determine your startup’s strengths, weaknesses, opportunities, and threats. This will help you and your potential investors understand what internal/external factors have the ability to make or break your startup.
Financial Matters
Investors want to make sure founders know how their startup finances work, ensuring that you understand Key Performance Indicators (KPIs) that matter in the startup process and that you won’t spend their investment recklessly.
Keep these few KPIs in mind:
- Revenue: the income generated by the sale of your product or service.
- Customer acquisition cost (CAC): how much will you need to spend on sales and marketing to earn a new customer?
- Customer retention rate: the number of customers retained over a period of time.
- Lifetime value (LTV): the net value of a customer over the whole future relationship between both.
- Earnings before interest, taxes, depreciation, and amortization (EBITDA): a measure of profitability that can be used to compare other startups in the industry.
Silicon Valley Bank offers more KPIs that startup founders need to look at. Keep in mind that it will take a TON of numbers to crunch so be mentally prepared for that endeavor, unless you’re into that.
The Founder and the Team’s Passion
Working on a startup from the ground up is one of the hardest things a person can ever do, especially when considering how difficult it is to succeed. It will take so many late nights, effort, and being told “no” so many times. If you and your team are not passionate about the startup, why even bother pursuing further investments into something nobody in your team cares about?
Investors will have to see how much you care about your own startup before investing. They want to be reassured that you will be dedicated enough to face any challenge or roadblock that you and your team will face. Figuring out how you fit in a market and how your finances work starts with your passion to even pursue this information. Do what you love!
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