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Blog: What Investors Want Before Signing a Check

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by Simona D’Agostino Reuter

What Investors Want Before Signing a Check

 

Preparing the ideas to share and discuss with investors, regardless if they are bankers, VCs or angels, is certainly difficult though challenging.

What do they look for when evaluating a Company? 

Here is a list of the key most important things that an investor wants to know before putting his money in a Company, in our view.

Effective business model: Company uniqueness. We encourage any Company to present the business model that is currently being used and prove that it will help the company to grow and become more profitable. It is a fact that the market potential is big enough to make investing worthwhile. So, the product or service should “preferably” be unique. Most of the times, investors look for features that distinguish the company A from potential competitors, and give it some sort of advantage, such as intellectual property protection, exclusive licenses and exclusive marketing and distribution relationships.

Background in the industry. Certainly investors look for experienced entrepreneurs and management teams with a strong track record of high performance and leadership in the Company’s industry or in prior ventures. Passion and commitment should be evident to inspire confidence in investors and stakeholders, especially if we are talking about a start-up. Angel investors place, for instance, great importance on “chemistry” between themselves and the entrepreneur because they generally take a more hands-on approach in the businesses they invest in.

Financial performance. It is important to show the numbers. We always need to prove to potential investors that a Company has excellent financial performance, also, or especially, if the Company is seeking funding from a bank. The management has to be ready to answer questions about the financial stability of his company. Investors may ask if and how the company shows signs of growth and if there’s some plans – such as issuing shares or borrowing money – to stimulate growth. The debt repayment plan should also be properly presented, it is extremely important to prove the business is capable of handling its financial obligations.

Also, it’s advisable to show proof that the current assets are enough to cover current or short-term liabilities; and expect investors to evaluate the revenue streams, acquisition cost and turnover rates.

Demonstrate the accomplishments met. To show a competitive asset, it can worthwhile to  mention any deal or traction already attained or ongoing, such as advance sales or other commitments from potential customers, or possibly a potential M&A. If you have received endorsements from industry players, high-profile recruits or advisors, let the investors know.  If you have patents or they’re pending, say so, but provide additional reasons why your technology is competitor-proof.

Investors look for companies that can grow quickly and manage this high growth scale. Investors must see that the Company can generate significant profits beyond the initial product idea with adequate financial projections and a plan to include multiple sources of revenue.

Delivering a Presentation Investors Love

What may attract most is a clean presentation, people can come in and perfectly know what they’re talking about.

It’s also important that entrepreneurs demonstrate likability and flexibility, because nobody wants to work with a difficult partner, no matter how great their model might be!

 

Any Company should try to cover a few fundamental points in the pitch:

  1. Describe the total value of the market addressed
  2. Briefly sum up the Company’s product. Clarify the deep and costly need for your product or service by addressing what “pain point” you are solving
  3. Explain why your solution is better than anything else on the market..
  4. Provide some highlights from your financial projections that indicate the kind of healthy return on investment your backers can expect
  5. Identify how much money you are seeking and how you expect to invest it
  6. Outline why you or your team have the right combination of skills and experience to solve this problem and bring the product or service to market
  7. Finally, write down a few points about the Company’s Investment Opportunity.

 

It may sound simple, yet not all entrepreneurs or managers are able to articulate these points. And almost no one can do it in under five minutes, which is all the time that many busy investors will give the counterpart before they start checking their phones.

In the end, be as prepared as possible. And be passionate and confident, but not arrogant.. If the audience seems to disregard the Company’s points or ask tough questions, maybe it’s not the management’s fault, it’s the presentation that has not convinced them.

We suggest to use this feedback to make the next demo much stronger.

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