Here’s a hard truth: Investors know when a business is built on air. That means yours can’t be. No matter where you are in the startup cycle, smart supporters are inspecting and grading you — checking that you’ve done the necessary work on strategy, product, startup roadmap, team, go-to-market, funding, and operations.
With decades of experience in the startup world, most angel investors and venture capital firms can spot a flimsy business a mile way. You can’t hide a lack of structure and strategy behind a fancy pitch deck or a winning smile.
Investors recognize these keys to a successful business from past experience — both painful and positive. Fortunately, you don’t need to learn the hard way. And that’s a good thing, given the current startup landscape.
The Lay of the Land
If you are an early-stage startup, you are building on dry, rocky ground right now. When the Fed rapidly raised interest rates to fight inflation, startup funding was hit hard. According to a 2023 report by Crunchbase, the scarcity of startup funding has significantly impacted early-stage companies’ growth and survival rates.
Global funding in Q1 2023 was 53% less than in 2022, and a third of that investment went to just two companies, OpenAI and Stripe. Valuations are going down, and venture capital is dipping into dry powder stores.
Yet investors are still investing in promising startups. In fact, this is a great time to invest because so many weaker startups are being culled by market conditions. If you have a strong business and a solid startup roadmap, there is significant funding still available.
Before investors buy in, however, they’re looking more closely at core business fundamentals: Agile processes, your customers, your cash flow. No one wants to give new companies cash to burn their way into a market. Investors are doing their due diligence. This is how you do yours.
Here’s what the best investors out there know — and what you should too:
- There is a direct line between corporate values and company value.
Your startup’s mission, vision, voice, and values are your framing posts, the vertical supports for the business you are building. When founders set strong long-term business goals, investors see how high the company’s value can go.
- Rock-solid business strategy doubles the chance of repaying the investment.
A good strategy doesn’t just reassure risk-averse investors. It pays off big-time — a month from now and five years on. As you structure your business, set smart goals and priorities, as well as criteria to measure your success. In your business plan, build out a startup roadmap that envisions your timeline for seed stage and Series A funding, product development and launch, and market expansion.
- Your team is make-or-break.
Investors want to get a feel for a startup’s founder(s) before they make a decision. Leadership matters. But experienced investors also know that the founder isn’t as important as the full team.
Team issues cause nearly a quarter of startups to fail. Investors look to see if the team members in early-stage startups know how to come together to find the fastest way forward.
- Agile principles accelerate and empower startups.
As a founder, you’ve got a lot on your plate. While you’re developing your product and preparing for launch, you’ve got to work on prototyping, iteration, validation and testing, and commercialization.
All that work means you need fast ways to turn worthwhile problems into winning solutions as you tackle your to-do list. The Agile methodology can help you do that.
- Every pitch is essentially over in 120 seconds.
If you can’t tell everyone at the table what your product is in a way they understand, you are just running out the clock.
Now, think about your future customers. How much time will they give you from their busy day for you to make your pitch? Maybe two seconds?
Smart investors know that over 40% of startups fail because their amazing product couldn’t find and convert its market. That’s why they’re looking for a compelling, streamlined pitch. If they want to buy in, so will your future customers.
- Your business will need to change, and then change again.
You might think you know what your business will look like in five years, especially with a well-thought-out startup roadmap. But no one can predict the future, especially in our fast-paced, modern world. As a founder, you need to be prepared to pivot and adapt.
No business can be big enough or high enough to stop innovating and transforming. Incremental product improvements are not enough.
You might think your business is home entertainment or imaging or document production but it’s not. It’s building anew — from what you do best to what your customer wants and back again.
The startups that maximize their valuation build their business as well as they build their product. Not sure how or where to start? Beyond Formation shows startups at every stage the actions they must take to align stakeholders, attract investors, and achieve their most aggressive and exciting goals — fast.