What Startup Investors Are Looking For
I often get asked by other startup founders what investors are looking for, so I thought I’d take some time to explain it for future reference.
TL;DR? It’s T T T
BTW, if you like this post, you’ll probably love my Pitching Masterclass.
TEAM
Investors invest in teams. Not ideas. Not technology.
Why? Because what your idea looks like today is most likely not going to be what will make you successful, so you’ll need to have the skillset and the mindset to survive the journey to get there once your product starts to gather feedback of what it really should be like from the market.
And no, employees and freelancers are not team members. Team members are the co-founders with equity. Do your team have the required skills needed? The ideal startup team consists of a hustler/sales person, designer/product person and a developer/technology person.
If you don’t have a complete team yet, forget to raise funds before you are complete. If you have more than 4–5 co-founders, some of them are probably already redundant.
Do you have the necessary diversity and overlap in skills needed? If your team consist of only MBAs and no engineers, but you want to build the next level rocket engines that will take us to mars, good luck with explaining that to investors.
TRACTION
A rolling stone gathers no moss. A startup not rolling gathers no investors.
Unless you’re based in Silicon Valley or have founded successful startups in the past, the “Idea Pitch” is dead. Just having an idea is not enough. You need to show the investor some sort of proof that you are able to create something instead of just talking, that your idea is in fact solving a real problem or need and that users or customers are responding to your product. Because in this day and age it has become an order of magnitude simpler and cheaper to build a rough prototype or Minimum Viable Product (MVP) and firing off some marketing test rockets using your own resources.
Investors today need to see your hard data. And the way you track this data is called metrics and analytics. You need to track and understand concepts like AARRR, MAU, CAC vs LTV, TAM, SAM, SOM, BMC, CPC, Churn Rate, Growth Rate, Engagement Rate, Cohort Analytics ASAP!
TREASURE
That what makes you so special and potentially valuable, your Secret Sauce.
Do you have unique insights to a problem or a need? (Are you the user and can demonstrate that there are others like you?) Are you a domain expert in a niche? (Are you one of very few in the world who could know or do this?) Did you stumble upon a potential gold mine? (Did you start with solving a real problem — not building a solution?) Do most people laugh at your idea and call it stupid? (Most good ideas are stupid ideas until they are not) .
Have you patented something? (Conversely, have you checked that it isn’t already patented?) Have you seen what the future is can be like and you won’t rest before you have created it? (Are you truly driven?) Are you unbundling incumbents? (Are you creating a new market and stealing the customers from the old stalwarts?) Have you found something that nobody else has found yet? (Is now the right and only time?) Have you discovered a sustainable engine of growth? (CAC vs CLTV 1:3 or better?).
If you’re looking to understand your startup metrics and learn how to pitch your startup to investors like a pro, I recommend taking the Pitching Masterclass. It’s free.
Hat-tip to VC Thomas Grota for the TTT mnemonic — which also fits neatly in the startup pirate paradigm of AARRR metrics.
Image copyright Disney. I claim Fair Use.
