A venture capitalist is able to invest in your startup because he’s shrewd with money. And how does a shrewd man decide whether to go ahead and invest with your venture?
People
Venture capitalists look at you and your team. They ascertain whether the team have the skillsets, energy, perseverance, passion, networks, and self-awareness to build the business into something larger, sustainable enterprise. They look at key roles and the people handling these roles. Are these the right people? If you have a gap there, do hire a right fit for such roles, in order to get the investor interested. Investors look at your advisors and board members and assess them.
Market potential
No individual investor wants to get into your business if you have a market of 100 people worldwide. They look for a big accessible market. Do a lot of research on your TAM (total accessible market) and explain it to your investor. Focus on the core customers while demonstrating to the investors. A good idea while presenting this information to investors is to describe your customer targets in terms of concentric circles — target customer, next ring of customers, etc.
Micro-market leadership
Investors are impressed with start-ups that demonstrate micro-market dominance. You stand a chance to gain from the investor if you show him that on a small scale with a focus on a niche/targeted customer base that you can quickly become a leader. This is a critical point to be considered because it shows that you can build brand loyalty. Investors believe that if you can hold one loyal customer base, you have got a reasonable chance of doing that with more and larger groups.
Unit economics
Investors look for unit economics that are promising. So, it makes sense to focus on unit economics, as opposed to focusing only on overall business level economics. The investor is interested in knowing if unit economics are good enough for you to be ready to start scaling rapidly. Research on cost to acquire a customer, scalable customer acquisition, your current life-time-value (LTV) of customers, cost of customer retention and such.
Technology
In this day and age, your startup must use the best technology that your budget can allow. Technically sound systems allow easy scalability. If you do not have the technical resources currently, put some effort and have a pilot ready.
USP (Unique Selling Proposition)
Investors do not want to venture into a plain vanilla startup that offers nothing new. So, brand yourself as unique. If you don’t have a unique selling proposition (USP), work on it and work towards creating your own USP. A venture capitalist would look at a dozen startups at once. So, make sure your venture stands apart. That’s where a USP helps you.
Here and here are USP ideas you can incorporate.
Reputation
No one wants to be associated with a venture that sounds shady. So, ensure that you follow all norms and regulations that are applicable to you and the startup. Make sure you liaise only with other businesses that are completely legitimate.
