Iden Azzopardi, Chief Financial Officer at VentureMax Group, explains how start-ups can make themselves attractive to investors.
Launching a start-up business is no easy task.
You need a great concept, a strong product, a talented team, customers and the ability to scale at pace. Bringing all this together requires strong leadership and experience, but that can be lacking in a new, founder-led organisation.
Cash is also mission-critical. The business needs funding to get off the ground and either needs to generate revenue quickly or take on additional financing to keep it on track.
This is why most start-ups ultimately turn to investors. Not only does this inject more cash at a crucial time, but it also brings expertise and experience that can be just as – if not more – important for long-term success.
But start-ups are incredibly risky from an investment perspective and while the potential rewards are great, investors have strict criteria for where they put their money.
So, how can start-ups set themselves up for long-term success while making themselves attractive to investors?
These are some key factors we consider at VentureMax before we invest.
Be Disruptive
The business must have or do something that is truly disruptive in the space it operates.
In most cases, this means having a cutting-edge technology, platform or product, but it can be a unique business model, new service or never-seen-before experience.
The point is that it must be disruptive and give the business a strong USP in what is now an incredibly crowded and competitive market.
This is important because it allows the business to stand out, differentiate, scale and ultimately have an asset or value its rivals do not. So, you must disrupt if you want to succeed.
Have Strong Foundations
Founders are just as important to the business as the service it offers.
These are the visionaries behind the organisation and the driving force behind its progress, especially in the early days.
This is often the most challenging time for the business – demands are high, resources (including cash) are scarce and there’s often a feeling of fighting fires on many fronts. Some people just aren’t cut out for it but to ensure success – and attract investment – the team needs to be rock solid.
The team also needs to be able to work with any investment partners that come on board. This can often change the dynamic of the business because the founders would previously have had total control but some of that is relinquished when taking on investment.
Good founders understand this, so they need to demonstrate they can work closely with investors to benefit from their expertise and experience.
Show Your Growth
To be attractive to investors, the business must demonstrate it is riding an upward growth trajectory, and the steeper, the better.
Market opportunities need to be scalable, but they also need to be defensible. Again, this is why proprietary tech/solutions/experiences are a must.
Scalable and defensible applies to several areas, from the product itself to the markets the products are in. The business might have a strong position in the UK, for example, but a competitor in North America would make its presence in that market much weaker.
To defend market positions, the business must have a clear roadmap for development, allowing it to keep ahead of rivals. Any business that brings something new to the market will find itself in the sights of competitors who often deploy significant resources to catch up.
Investors need to see that the business has an advantage from the get-go and a plan in place to ensure it not only maintains but builds on that advantage over time.
Make the Numbers Work
The numbers must add up for your business. A comprehensive financial plan, including projections, keeps the business focused and agile, especially when in start-up mode and resources are limited.
A financial plan will also help investors understand the business and where it is heading, how their investment will be spent and ultimately the potential return on that investment.
From my perspective, I like to see that careful consideration has been given to costs and budgets and that the business is realistic about what can be achieved with the resources available prior to investment, and then what investment is required to get it where it wants to be.
Of course, the onus is on the VentureMax team to carry out our due diligence, but a start-up working to a carefully crafted and detailed financial plan – and is sticking to the plan – will be a very attractive one to investors.