If you decide to seek funding for your startup, you need to take into account that investors have become more and more selective during the past years. Not all of them are interested in funding startups because it represents a great risk. On average, if an investor reviews 100 projects in a year, only one or two will eventually meet their expectations and get funded.
So before you start polishing your elevator pitch, you need to consider what investors are looking for.
The two main requirements a startup must have to get funding are:
A powerful team
Whether you are seeking seed-funding or early-stage funding, the first thing that investors will look at is how strong is your team. Startups need to have team members that complement each other and that have a positive and resilient mindset.
The first stages of any startup are very hard to cope with, so you need to have a powerful team that knows how to work under pressure. Your idea can be brilliant, but if your team is not strong enough to execute it well it’s worthless.
Investors are looking for an innovative value proposition, which needs to be viable and feasible with the technology that is available right now. Your startup doesn’t need to be profitable yet to get funding, but your proposal should be innovative and should have already been validated with users so the investor gets an idea of what the product could potentially become.
Apart from these two requirements, there are a few other aspects to consider when seeking funding.
What to watch out for before accepting investment?
You need to carefully study the investor you are letting your startup in. Make sure you understand how your investor gets paid. If only gets paid when you make a profit or if you have to pay back every month regardless of making any profit.
A good practice is to ask CEO’s from other startups that have received funding from that investor about their experience, how they’ve worked together and if the investor has actually given the support promised.
Would all investors have always decision-making capabilities in your startup?
Not always. It mostly depends on the type of investment fund you are going for and how much money you are getting. For early stages, if an investment goes from 300k to 0.5M Euro then your investor would probably take part in the decision making process and be part of the board of directors.
However if the investment is less than 150k most likely they are not going to make decisions but at least they will ask for information rights.
What is the minimum % of ROI an investor would expect to get?
They would normally expect to get a 15-20% yearly ROI however most experienced Angel Investors could expect no less than 30-40% ROI in early stages. It is important to remember than investing on a startup is a great risk as success and profitability cannot be guaranteed. For this reason investors expect to be well compensated.
Remember that investment is not an objective in itself, but a tool to help you reach your business goals.