The art and science of fundraising
The one question that lingers in any entrepreneur’s mind is: How do investors make investment decisions?
For us investors, it comes down to two key things: the TEAM! and market potential of the business.
Demonstrable clarity of thought in the founding team is very key.
Early-stage investors do not have much data to go by to make their decisions. It is a risk and we go by intuition. Thus, it really is an art! We intuitively look at teams where founders show passion, drive, and resilience to build a world-class business.
Deep understanding and expertise in the domain, the team’s makeup, and clarity of thought and vision are essential factors in our founders’ evaluation.
The other critical factor centers around the viability of the offering itself. Is the product/service able to address a significant gap, a new market, and is it a unique solution? Where does it come from, and what is the solution that they're offering? How big is the current market, potential future market or can it carve out a new untapped market?
Here, the MVP (minimum viable product) or a working prototype can also play a role in investor decisions. An MVP of the product helps accelerate decision-making. Another factor that we investors look for is (assuming there is a product already) ‘customer love’. In this place, we see if the offering establishes an emotional connect with the customer. The emotion or customer behaviour is measured in metrics, wherein comes the science.
Scientific measurables also come into play in evaluating the unit economics of the brand’s product/service. A pitch does not count for us, if you don’t know your unit economics like the back of your hand.
Other data points for investors include the growth trajectory. Growth needs to be fairly substantial for both early stage and later phase investments. Investors and VCs are looking to generate significant multiples on their investment. The whole startup should be focused on and set up for growth.
Additional determining factors for the investors encompass plans for expanding teams. Planning in terms of team make-up, adaptability, and growth are quite key in judging start-ups as the manner of planning exhibits clarity of vision, forward thinking and futuristic planning. All actually leading back to the first and most crucial point--an exceptional founding team.
Last, but not least, there is the question of how to approach an investor. Warm connects work better than cold calls when raising venture funds. Securing an introduction for a meeting helps get a startup a foot through the door. Cold emails on the other hand tend to get sidelined in the hugely pre-occupied VC mailboxes.
Investors tend to look at hundreds of pitches every month. One sure fire put-off for us is a pitch where an investor has no interest in the sector, stage or geography. So a business who has done their homework stands a much better chance at getting noticed. It helps to bear in mind that first impressions count and the VC ecosystem is a small community.
Hence, fantastic teams, resilient founders, a fine balance between intuition, emotional connect and gut instinct alongside hard facts, data and metrics is what gives the entire investor-fundraiser ecosystem its magical blend of art and science.