What do investors look for in a start-up?
I attended an entrepreneurial forum at Stern recently. It had 5 VC’s on the panel sharing their wisdom and experiences on what VCs, angels and private equity investors look for when investing in start-ups. Some takeaways:
Quality of Idea
- Defensibility (Intellectual property)
- Revenue addition or multiplication (little equity required)
- Huge profit margins to accommodate startup mistakes (especially for all those ad-supported and freemium business models).
Quality of Team
- Domain expertise (how long have been in the industry)
- Start-up Expertise (VCs always love your 2nd venture)
- Relationships with other players in your space
- Passion - willing to risk everything for the start-up.
Business Plan Pitch
- Presentation - keep it short & crisp; 1-pg executive summary. Why you? Market size? Break-even analysis?
- Background - Industry trends, competitive analysis, mitigate risks to get from pt A to pt B.
- Style - VCs in a long-term bond with the entrepreneurs, hence looking for open-minded, fun people.
Story - Have your pitch down.
Personnel - Highlight why your team/management is good.
Opportunity - Research the market.
Opposition - Research all contra points, failure scenarios.
Finance - Releastic 2-yr revenue projections, not 5-yr pie in the sky numbers.
Valuation
As much as you should have a realistic valuation of your start-up, one VC suggested that it is really their job to valuate the company. Why? If your valuation is too high, you’re being unrealistic. If your valuation is too low, you lack research and confidence.
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