Out of the hundreds of thousands of startup entrepreneurs who applied for the Tony Elumelu Entrepreneurship Program, only 1,000 will make to the first round of the competition; less than 5 will make it to the last round. What are investors looking for in startups? What makes the difference between the ones who make it and the ones who don’t?
Africa is seeing a steady increase in angel investment participation. Freddie Achom told me in an interview that he is looking to invest in Nigerian startups, and any entrepreneur who has a great idea should contact him. There are lots of other angel investors like him willing to fund startup ideas in Africa.
The thing is, for you to get an investor interested enough in your startup to sit down and discuss with you, your startup has to tick a few boxes. Having an idea is one thing; having an idea worthy of investment is quite another.
Those boxes are what we will look at in this article. What do investors want to see in your startup before they consider you for investment?
1. The team
One of the first things investors look for in a startup is the team. The most brilliant startup idea in the world will certainly fail in the hands of a bad team. I asked Freddie Achom what he looks for while choosing a startup to invest in:
I look for start-ups with a vision and business strategy to disrupt the market they intend to go into. But most importantly I look at the entrepreneur behind it; you can have the best business idea in the world, but you need the right person to execute it (Read Full Interview)
Investors look for a team that has the experience and knowledge to steer the ship. They also look for attitude. The market is a rough place; investors want to know you have the can-do spirit, the doggedness and sheer determination to succeed against all odds. Keep this in mind when building a team for your startup.
Pule Taukobong, founder of African Angels Network (AAN), puts it like this:
The second thing, which is equally, if not more, important is the people behind the business – the team. By “the team”, I not only mean the Co-Founders or the developers. I also mean their mentors, their advisers, who have walked down their journey. That’s absolutely key for me.
2. The opportunity
What opportunity is your startup trying to leverage? Is your product innovative enough, will your idea fly? Your idea could seem like the next big thing to you but investors want to know if that idea is ready for the market and if the market is ready for that idea.
Who wants your product? Why do they want it? Why would they pay you for it? If the opportunity is not ripe for your startup idea, it could be a hard sell convincing investors to consider it for funding.
3. The plan
So you have a brilliant business idea, what is the plan? Do you have a clear road map about how the business should move ahead?
A business plan is an important business tool to show the long-term feasibility of the startup idea. Investors want to see that you have thought the whole thing through and you know enough about the business to bring it to long-term light.
They want to know how long it would take to get their money back, what the potential pitfalls are, and your plan to overcome them. If you are just building a startup without a plan, you may want to start giving a serious thought to your business plan.
How scalable is your idea? Can you maintain or improve profit margins when demand increases without significantly increasing your cost base? How soon can you go from small to medium to large-scale, and how does this expansion affect your bottom line? Many entrepreneurs obsess with the genius of their idea but they don’t pay attention enough to scalability.
As far as business is concerned, the customer is king. Many startups fail because the customer does not understand the advantage of using the product or service. Your startup idea/product should make sense to the customer, enough for them to buy into it. If the customer does not understand your product, the investor will not invest in it.
Added to being relevant to the customer, your idea should fit the investors interests. You should not expect a tech investor like Freddie to invest in agriculture unless your startup is an innovative tech solution to agriculture or unless Freddie changes his mind about where to invest. Relevance.