Guest Entry: How Does An Investor Think?
Nailing that vital investment from an investor is tough, but a good starting point is knowing how an investor thinks. What is important to them? The team? The Idea? What key things are they looking for when they decide to pull the trigger and say: “Yes! I want to bet my money on you!” It is tough to say, but hopefully, reading this can provide you with some valuable insight.
Helle Uth is Investment Director at PreSeed Ventures, Denmark’s largest and most successful innovation incubator. She has been with PreSeed Ventures since 2014 and has invested in, and helped scale, a number of successful companies, including Dexi, Plytix and OrderYoYo.
To understand how an investor thinks, you would need to know what kind of people you’re dealing with. A typical mistake is not understanding your investor's business. Understand who the investor is, what sector they invest in, what stage they operate at, and what their normal ticket size is. And adjust accordingly.
Although your company might be unique, the journey of a startup isn’t. The investors will know what challenges you will be facing down the road. That is why they look for certain things.
Here are a few points of emphasis that matter to almost every investor:
One thing investors are fond of saying is “We don’t invest in your idea, we invest in you!” And that is often the case. If you present a subpar idea, but have a total rockstar team, you might just get the investment anyway. In that case, they will be taking a chance on you and not your idea. Either way, the business might pivot several times, but the team is not something you pivot.
But how do you find a killer team? That differs from case to case, and there is no specific recipe on how to build the perfect team. However, there is one rule of thumb; you need to have a Product Visionary and a Tech Rock Star. It is vital that your team members complement each other. And if an investor finds your team lacks complementary skill-sets you will probably be told to come back when you have the right team in place.
Investors are recipients of hundreds of pitches every year, so you need to impress them to stand out from the bunch. That can be done in many ways, but one thing is key. Show them you’re passionate about your project. Show them you can execute, you can get things done and you’re ready to make the sacrifices necessary to succeed with your business.
Experience is also very important. Have you spent 10-15 years in the exact industry you’re aiming to take over? Is this your third startup, and did the two prior ones result in successful exits? Or did you fail, but learned something along the way that makes you more adept to succeeding this time? These are some of the things that can really turn on an investor.
But what if you don’t have any experience from the industry or from previous startups? Have you then hired some key people with incredible competences? Or have you already attracted business angels with industry experience? Have you already delivered impressive results? It comes down to the people involved in the business. Either you need to do something to impress, or the people you have surrounded yourself with need to. Either way, make sure you focus on those things, that will make you or your business stand out from the crowd.
In order to land the big check, you will have to convince the investors that you are about to tap into an absolute goldmine of a market. Preferably one that only will grow bigger as you grow your company. Without the market potential, there is no billion-dollar business, which makes it unlikely for an investor to commit. You are also well on your way if you can show that the market is going to be big in 10 years. It's better to count on a small and rapidly growing market rather than a big but slow growing one.
An investor loves to get a huge market served on a platter and a company to facilitate and monetize it. So prove for the investor that there is a huge market. Or at least a promising one. Show the trends, maybe the market is exploding in another part of the world and is just waiting to be nourished and harvested. If you can leave the investor with the feeling of this opportunity being a "no-brainer", then you’re well on your way.
Simply put, it may be difficult to point out what an investor is looking for exactly, but these points should be at the top of the list.