For most Southeast Asian startup, securing funding is one of their main goals and often their only path forward. Funding is crucial for resource intensive startups that may not be able to monetise immediately. Angel, pre-seed or seed rounds often help startups reach a stage where they can actually start to scale.
In an early-stage investor, a startup also gets a mentor and often an essential component of a startup, which includes experience and access to connections otherwise not available. However, early-stage investors also look for specific things when it comes to potential portfolio companies.
We look at 6 things that early-stage investors look for in startups.
A strong business proposition
Often startups looking for funding have no sales, a barely working prototype and a small unpaid team. Therefore, investors need to be able to invest in the strong potential of the business.
Knowing your industry and market will help an investor know that he or she is investing in a founder or founding team that is capable.
A lack of knowledge of their industry and gaps within it, signals a lack of discipline and know-how, which can turn away investors.
An understanding of where the money is going
Some early-stage startup founders we have spoken to are eager for the money, but lack the discipline and know-how to showcase how they will effectively spend that money.
Investors need to see a detailed plan on the usage of funds. There is never a scenario where an investor will provide funds without a clear plan on how the money will be used and what will be the outcome of the investment.
A high-quality team
At an early stage in a startup’s life cycle, the idea matters less than your ability to execute on that strategy. The team that runs the startup is as crucial as the idea, initial tech and potential of the industry.
Early investors need to resonate well with the leadership team and also understand what they lack. If the funding is used to fill critical gaps, the investor knows that the founding team is aware of their shortcomings and has a good idea on how to fix the issue.
Knowing what they want from an investor
Startups looking for funding should first research the kind of investors and VC firms to find out two things:
- Is this the right investor for us
- Which investors would want to invest in us
If founders approach the right investors, they will stand a higher chance of getting investment as well as showcasing that they do the relevant research to the investors. Startups should be upfront to investors about the their total fundraising expectation and if they are getting investment from other investors as well.
Genuine feedback from customers or users
Too often founders work within a bubble and only hear the positives. Truly great founders are not afraid to listen to criticism from users and make changes where necessary.
Investors want to see real feedback from users that show they like or use the product/service regularly. Nothing shows good potential to an investor like a strong user-base and a founding team that knows how to listen to their users or customers.
Put effort into your pitch deck
We just published a great article on what a awesome pitch deck looks like, we highly suggest giving it a read.
To summarise the previous article, a good pitch deck should present the following:
- The story of the company in their current position
- The plans moving forward
- A clear idea of the problem they are solving
- The target customer and realistic market share they can capture
- A strong understanding of near-term and long-term market opportunities
- A strong go-to-market plan
If you can, also include revenue and partnerships built to showcase to investors the strength of the startup. Do not forget about design – too often startups believe that a crammed deck with no flow and dated design will be impactful in a pitch. It will only serve to turn off the investor from an otherwise strong proposition.