Entrepreneurship · Business Development

What factors convince investors to provide finance?

Shamim Hasan CEO at Xpart Solutions

September 23rd, 2016

I know the question is quite generic. There could be many factors. I want to know most appealing factors from the perspective of investors.

Hamzah Kattan

Last updated on March 4th, 2017

1. That you are solving a real problem:

  • Primary evidence that backs up your offering's Problem/Market Fit
  • Primary evidence that backs up your offering's Solution/Market Fit
  • Revenue & Traction

2. Confidence in the core founding team:

  • Have all the disciplines covered within the team
  • Excellence and ability to execute
  • Compatibility and aligned incentives

3. And a worthwhile investment:

  • Profitability: attractive LTV-to-CAC ratio
  • Defendability: an accumulable Unfair Advantage over time
  • Market: size & share
  • Valuation: (discount) your future cashflow potential
  • Enough skin in the game

Chuck Bartok Social Media Consultant, Publisher, and Contrarian Curmudgeon

September 23rd, 2016

The only things we look at before investing is
  • Ability of management to perform 
  • Product demand within it's Market and the company's ability to provide product with strong margins
  • ROI for our capital.

Michael Leeds CEO & Founder

September 23rd, 2016

1. You and your team's knowledge and passion

2. The potential size of the market (so if you do it right, they can make a lot of money)

3. Actual growth - are you seeing traction

4. Revenue (and/or attention) - are people paying you with money or time

Bryan Brewer Startup mentor, educator, and entrepreneur advisor; focus on helping companies raise investor funding.

September 23rd, 2016

There are multiple ways to parse the many valid answers to this question. But based on my 15 years of experience helping entrepreneurs raise investor funding, it comes down to these two major factors:

First, you need to have a "fundable" company that has enough of the right stuff for investors to take you seriously. Take my free Minimum Fundable Company Test at www.mfctest.com to get an idea where you stand in this regard.

Second, once you have crossed that threshold, investors then base their decisions on these factors: Do they like you and trust you? Do they personally resonate with your business concept? Do their friends and fellow investors like the deal?

Matthew Mellor EVP of Innovation at Zelis Healthcare

September 23rd, 2016

Investors want to grow investments and (by extension) manage the risk of not achieving that growth. So a great idea and plan is important, but the ability to demonstrate that you can execute on that plan is as important if not more so. When you hear about investors 'betting on a management team', that's risk management. They want to know that the people who are in charge of executing can get the job done.

Evan Gow Associate at Tritium Partners

September 23rd, 2016

this article breaks down what you need based on the type of business


Neil HereWeAre Want To find-close Business Online without competition Before They Google Search? We solve this problem 1(508)-481-8567

September 23rd, 2016

What do investors look for that can let them see if what your idea/product/service/business is a good investment with a powerful probability of success and cause them to invest?

A great team is critical BUT with the right people/skills/depth to go from idea to market success and long-term profitability large enough to be worth it as in ROI. That needs to be in place, not a planned for addition.

That team should be composed of the appropriate disciplines as in tech, software, hardware types, appropriate engineering, possibly production, definitely a skilled sales person in the industries targeted, skilled market analysis/marketing, and finance person in place who can work as a team, respect each other together deliver a real and profitable business.  

However, that's not enough to get the home run and funding.

The market analysis re the business and its offering must be deep and very real.

In that analysis, the investment requestor must know, have and soundly prove the following:

A) If they want funding, The requestor must never forget from the day of their idea that there is quite a difference between what you see as a great idea and an actually  "needed something or other" that folks or businesses would actually spend money for. This need and why afor specifically targeted audiences, specifically who in them must be known, not guessed at nor assumed. This is an absolute for even starting down the path to launching a business let alone asking for finance. 

B) Knowing not guessing why enough people would switch to and pay money for the idea/product must be solidly known, justified to an investor along with a very real plan for reaching this very clearly defined market, its real numbers of prospects and how to reach them.  

C)  Their pre-business launch exploratory must be a lot more than checking with friends and colleagues who always say "great idea" but most of whom have no buying power .

D) The applicant must have this info accurately researched, proven and their focus tied to its results to grow business:
--who are the natural target markets, WHY?
--what really are the market issues that if solved are truly natural for their "product" and actually would be welcomed, paid for if the solution existed? 
--understood if their idea had a real market and one that was on a large enough scale and if properly approached would say "Hey that’s me! I need that product, service, software, solution to solve my x issues so I can gain a better roi, faster production, competitive edge, leaner operating, etc. I need to call these guys now" and they would pay for it.

D)  They didn't say in justifying their reason for starting up that 
--"there are x gazillion global prospects who because of their industry they were in and or the way they do business  could use the solution."
--"If we get just 3%, we are golden" and the dove right in with development, maybe even production for that "giant" market opportunity to get their 3% share

E)  Instead, The investment requester dug deeper, revealed what actual portion of that giant number they actually might logically fit into, why and then how exactly to ID the people to contact, how to approach them, what to say that could get powerful receptivity and how to define/implement a great acquiring paying customers approach to get those real opportunities as customers. 

That's really what investors need to see in order to see the value of the idea/product and the real market analysis, a clearly revealed and large enough genuine opportunity potential if they invest.

Martin Omansky Independent Venture Capital & Private Equity Professional

September 23rd, 2016

I have answered this question before, and I speak on behalf of my angel groups only - not for the entire industry - but you will get my drift. We look for (but don't often see) breakthrough technologies that (a) can be well-protected by international patents; (b) large actual or believably addressable markets; (3) competent and realistic management teams, preferably with prior successful experience; (4) endorsements from credible sources; (5) financial and time commitments from the founders; (6) awareness and appreciation for any regulatory impediments; and (7) multiple applications of the base technology. I am aware that this model does not pertain to many software, internet, or media projects. We focus on stuff made out of atoms and molecules. If you are in that end of the entrepreneurial game, we are unlikely to be of help.

Andrea Gentili COO (and co-Founder) at Kobo Funds

September 24th, 2016

Investors look for enterprises that demonstrate real Market Opportunities for Profitable Products or Services with Competitive Advantages and Barriers to Entry.

The first two elements (MO+PPS) make a business possible.

The last two elements (CA+BE) make it a good and enduring business; without these, competitors enter to drive your costs up and your prices down.

All of that must be demonstrated within a credible Business Plan and managed by a credible (and ideally  experienced) management team

Neha Agrawal Research and Evaluation Manager at KreativeDigit

October 8th, 2016

Please guys do share your expert advice on this topic. I have an idea for which answers of this question are rich source of information. Kind of answer that can help me is like @Hamzah Kattan

@Bryan Brewer my idea is quite near to your MFCtest.