5 Things Investors Think About Before Funding a Company

Earlier this month I wrote a post about 5 things to think about before starting a company.  Soon after, I began to consider the other side of company development; raising money.  I thought it only appropriate to provide some thoughts on this piece of the puzzle as well.

1.) Product – What stage is your product/company in? Nobody funds concepts anymore. There was a day (before my day) where you could take a business plan and a great presentation to an investor and walk out with a term sheet. Not any more. Investors want to see functioning technology, a live site link instead of a business plan. If you can’t get that far (and probably further), then you’re going  to have a hard time raising money.

Fortunately, with outsourced labor and web-based tools today, getting a product to market is entirely possible. In short: Spend some time thinking about where the company is in terms of the product and overall development before walking down the path of fundraising. You may still be early.

2.) Market Size – How big is the size of the market you are going to tackle? This is something that took a while for me to understand conceptually. Foursquare is a perfect example. Here’s how Ben Horowitz of Andressen-Horowitz explained the market size concept and why they invested in the mobile/social application Foursquare:

“At a macro level, over 4.6B people have mobile phones and there are 1.7B people on the Internet. Already, over 200M people worldwide have smart phones and that number is headed north fast.”

Now that’s a market to work within. Mint.com? Same thing. Sure they had 1.5M users, but that was just a drop in the bucket compared to the amount of people that use online banking everyday.  These are the concepts that get venture backed, because they can make a play in a large market.

3.) Ambition – How are you going to take this (hopefully huge) market over? Investors are not interested in playing small ball. They want to know that your investment has potential for a large return, and they want an entrepreneur that thinks this way too.  How can you become the next Google in your industry? Failure to spark an investors imagination in this area will make for a much tougher path to money.

4.) Founding Team – A person or team that has already flipped a company stands a significantly higher chance of getting funded. OK, so you haven’t. Where does that put you? Well, it means that everything else you are bringing to the table (idea, product, traction) better be pretty damn good.  Still, the best way to do this is begin building relationships with investors immediately.  Earning people’s respect in the community is important, but having the relationships to get warm intros to the investors is vital. Most wont even consider an investment without a referral.

5.) Traction & Social Proof – What has been accomplished so far? How many customers do you have? How much revenue do you have? Who has invested in your company already? Any “well known” individuals? That can help. Having the buy-in of respected investors can be the difference, and is why social proof is very important.

Bonus: Known Obstacles – If you can add a slide about obstacles and how you plan to approach them, you may get some bonus points for thinking ahead and showing the vision to see how this may play out.

So, if you’re counting that’s a 6 slide presentation to the investor. Why? Less is more. Well, actually it’s not more, it’s less; and that’s better when it comes to this stuff. A crisp presentation is a sign of clear thinking. Let the investors imagination run wild about the rest, and hope he sees what you see. If not, then its probably better he didn’t invest anyway.