10 Things Investors Look for in Your Startup

Tilman Kemper
At APX, we support startups in becoming “investment-ready” for their next round. However, what does it really mean? Can it be generalized? Isn’t each company unique in its own way?

Over the past years, we’ve collected feedback from startups and investors to identify distinct trends and patterns for becoming ready for investors. While it is true that each startup follows their individual journey, questions of VCs and Business Angels largely remain the same. One of the simplest yet trickiest questions in pre-seed: “What’s your traction? …oh, you’re too early”. Sounds familiar? So what do you do if your revenues are still at zero?

We believe there is more to traction than revenues — actually, a lot more. We follow ten dimensions of investment-readiness and encourage our founders to work on each one individually until they can convincingly answer any question thrown their way. Our assumption: if you can demonstrate traction, or better, positive momentum in each of these ten dimensions, your startup is well-prepared and has a good chance of raising follow-on funding.

Dimension 1: Product-market fit

Product-market fit is an essential element for your success path to further investment and growth. As a founder, you need to imagine the future you are building while also always staying connected with the reality of everyone else. Do people use your product? Are you able to create organic growth? Are people willing to pay for your product? You need to demonstrate to investors that you’re solving a real problem.

Dimension 2: Product roadmap

Investors look for founding teams that can demonstrate a clear vision of their strategic product direction over time. Next steps in the short-term need to be very concrete while mid-to-long-term plans can be held more broadly. Are you able to understand your customers’ needs, segment them, set priorities and goals for further product development, and execute the outlined strategy?

Dimension 3: Business roadmap

Is this really a billion-dollar company? Show investors that you are offering a real opportunity to them. If you limit yourself from the very beginning, investors won’t be attracted. You cannot prove that all your future assumptions will certainly become true, however, investors don’t know. It is about coming up with qualified, smart assumptions that allow you to turn a dream into reality. What are the next steps? What milestones do you want to hit? Talking about the past and the status quo is easy, yet, knowing what you need to do in the future makes you special.

Dimension 4: Marketing and Sales

Do you have a broad understanding of your segment, its needs, and buying behavior? How do you reach your targets and turn them into customers? You need to explain your marketing launch plan: Discuss channels and identify multipliers as well as exhibit a solid sales process backed by a deep knowledge of your customers. Investors will want to understand whether you can turn a lead into a customer (a.k.a. funnel conversion). And, of course, be as precise as possible regarding customer acquisition costs as every investor loves talking about it.

Dimension 5: Pricing

Your ability to design a solid pricing strategy and come up with the right price point for your solution plays a central role in your future financial performance and may convince investors of your potential. Are you able to justify your pricing decisions in light of value drivers and your customers’ willingness-to-pay? Can you set up processes and best practices that allow you to iterate on customer feedback and adjust prices? Don’t forget benchmarking.

Dimension 6: Go-To-Market strategy

Demonstrating growth potential starts with your ability to bring your product to the market. Are your early business metrics achievable with the initial market you’ve selected? You need to have a clear definition of your target customers and show that your marketing and sales strategy, product and business roadmap, and pricing strategy align with their needs. Also, consider whether there are any flywheel effects for accelerated growth.

Dimension 7: Technology

Is your technology able to solve the problem you are tackling? Is the IP well defined? The more quantitative (e.g. time/money saved) you can answer these questions, the better. Demonstrate to investors that you have the ability to leverage those factors, as they will provide easier access to the market. Be aware that you might need to defend your tech-stack and show that you’re building a cutting-edge product.

Dimension 8: Financials

How will this make money? Be sure to include unit economics and explain how you can improve these over time. Have you already generated learnings that led you to adjust your assumptions? Investors want to understand your financial projections, (monthly) burn rate, and growth drivers. Derived from your model, you should also be able to roughly forecast your future financing needs. If you can, create FOMO among the investors.

Dimension 9: Hiring and Team Growth

Building a successful team is a key success element for sustainable growth. What are your hiring goals and the organizational structure of your startup? What are key skills still lacking? Where do you find your next key hire? Having strong hypotheses and making progress in building a team are crucial signs of good leadership.

Dimension 10: Funding

Do you have a game-plan for funding? How do you determine when to raise capital and how much? Leverage your networks and establish processes that will put you in front of the right people. Your story needs to be compelling to investors. Keep positive momentum going and close your rounds as fast as possible, given you’ve found the right investors.

 

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