What Makes a Startup Investable?

Not all startups get funded. Different investors have different focus areas and points they consider before making an investment.

That said, I feel that entrepreneurs definitely need to figure out the following before approaching investors.

Proof of Concept – Has the business done enough to prove that the market is big enough and customers are adopting the product/service. Generally startups go in for a beta launch to do this. A limited number of people from the target market are exposed to the product and their behavior is analysed and recorded.

Scalability – Investors want to invest in big markets. Very few investors get excited by a business operating in a very small niche. Entrepreneurs must identify how big the potential market is and must ensure that it is big enough for an investor to potentially get a good return.

Barrier to Entry – This is important and often a reason for unsuccessful pitches. Investors prefer that the business model of the startup cannot be replicated easily by existing players in the market. For example, during my previous startup Beveragewala where we were selling teas and coffees online, investors felt that players like Amazon could enter this space and hence we did not stand a chance in the longer term. It is crucial for an entrepreneur to work out why his/her startup has an advantage which is sustainable. This can be a first mover advantage, an IP, a location advantage etc.

Team – The startup must have a strong team which is capable to execute the business. A perfect team is one which has all requisite skills which are required to run and grow the business.

Why Do We Need Funding?

Early stage startups tend to focus on growing their business to a stage where they can get funded. They keep discussing what they need to do before they reach this stage and how funding will be raised. A question which they often forget to think about and is as or even more important is why they need funding.

Let’s try to define funding. Funding is raising money to do what they are doing on a bigger and better scale/platform. Now before we start looking for funding, we need to be sure about these 2 things

What we are doing: We need to analyse our business and be very sure that whatever we are doing currently is scalable and efficient. If it is not scalable, putting in money will result in a loss of money. If not efficient, we will end up burning some money till we become efficient.

What we intend to do: We MUST know what exactly we intend to do with the money. Since we should have already worked out what we are doing currently, this becomes easier. We need to  pinpoint things we need to do with the money and the results we expect from them.

Once we have concrete answers to both these questions, funding makes sense for us. Till then, do not waste time simply thinking of funding. Look internally and sort out the business first.