What Do Investors Look At Before Putting Money In Start-ups?

What Do Investors Look At Before Putting Money In Start-ups?

The fastest-growing sector in India right now is the start-up sector.


What Do Investors Look At Before Putting Money In startups?

The fastest-growing sector in India right now is the start-up sector. Even though the business idea is significant while investing in a start-up, but there are a lot of other facets one should look at before making a decision to invest in a start-up. 


1. Skilled Founders

Not only the ideation and conceptualisation of the business concept of the Start-up are important, but the founders also play an equally important role. Investors should be satisfied that the founding team is well equipped and proficient in the business idea they want to carry out. The relationship between the founding team should be one of trust and loyalty.

A person you trust as a friend may not be a person you want to share your trade secrets with. Care should be given in choosing a competent team, almost like if you have to marry them. Most investors look at the status-quo between the team before making a commitment to invest. 
 
An Investor will check for instances or behavioural patterns to understand that the founders are financially responsible. That the founders would be accountable spenders and can handle the amount of the investment strategically. 


2. Right Amount Of Funding

The right business plan for a start-up would include the right amount of the working capital requirement of the business, this implies that a correct amount is stated to an investor which is not over or below the capital needs. 

In any scenario, stating a lesser fund is riskier than asking for a higher amount. The working capital requirement of a start-up should include the founders’ salary, which should be mutually decided with the investors, or enough funds till the next round of funding but still keeping the business running. 


3. Business Forecasts

What would you rather pay for – good food which takes time to prepare at a reasonable price or bad food served immediately at a decorative price? Understanding the business forecasts of the start-up keeping in mind the proposed business is an important factor. 

Target plans and supply forecasts should be given a priority rather than focusing on the per year revenue generations. The right business forecast explains where the business of the start-up would be in the next 5 years, the total revenue-generating capability and not merely what each founder would earn. 


4. Business Plan And Strategy

At times, a start-up has a brilliant idea, a good team, the right forecasts but not a good business plan, about how to make money out of the product or service they’re selling. 

The commercial viability of a product or service is the fundamental goal of a start-up. Investors are interested in if the needs of the ultimate consumer will be met with the start-up’s offering if the offering is commercially viable or not. A clearly defined monetisation strategy is required. The business strategy should be aggressive and not passive. With a long term view and with motivation to make the entity bigger and stronger. 

 

Edited By Team CLIQTAX

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