By Eoin O'Hara
For startups with an ambition for considerable growth, there are few words that carry the level of significance that 'investment' does. It represents much more than a welcome cash injection. It can also validate your fledgling business and bolster your confidence in its ability to deliver the results worthy of such substantial outside attention.
Every day we are privy to a seemingly endless stream of investment success stories. The media delights in bringing us tales of '£X raised in seed funding round' and 'Startup X smashes crowdfunding target'. Wonderful news. But watch out. What the ambitious and impressionable startup founder should avoid at all costs is a premature, and poorly considered, dash to secure investment.
The other side of the coin
What we don't usually see in the business headlines is the substantially higher number of startups who fail in their attempts to attract investment. Those stories don't pull in the punters.
There will be many reasons why a startup is unsuccessful in its endeavour, but they mainly stem from failing to be 'investment ready'.
Of course, it's impossible to say with confidence that a particular startup has reached the stage at which its chances are maximised, and with so many different forms of investment available the battle lines are certainly not uniformly drawn. There are, however, a few simple questions you can ask yourself, which are useful in deciding: 'Is my startup ready for investment?'
1. Can I produce evidence of prior business success?
While an investor is, of course, considering the merits of your idea and its potential for growth, they are also considering you and how 'investable' you are as a person. Many startup founders are surprised to find how comprehensively their own credentials are probed during the investment-seeking process, discovering too late how unprepared they are to field the inquiries that come their way.
If your startup represents a first step into the world of business, it is important that you have gleaned solid business acumen from your time so far.
Before going after investment you must be able to demonstrate how you specifically add value to the proposition, calling on past successes as an indicator of your ability to captain the venture into growth and profitability.
However, if your startup represents a first step into the world of business, it is important that you have gleaned solid business acumen from your time so far. You should be able to readily call upon specific successes as evidence of a robust potential that will convince would-be investors of your aptitude, skill and abilities.
2. Is my team as good as I would like?
Following on from the previous point, this question addresses another key aspect of your business which will come under heavy scrutiny from potential investors: the talent, worth and ability of your team.
Your team is your business, and unless you can demonstrate a certain level of competency and, crucially, the ability to grow the business in accordance with your ambitions, your chances of securing investment can be seriously reduced.
In many cases startups may not yet have a team in place at the point of seeking investment; this is common and won't put off an investor. They will, however, have the realistic expectation that you are able to put forward a strategy by which you will build the business team, once investment has been offered. It is simply not enough to know the skills and experiences that you want your team to have, you must be able to prove that these are achievable within your location, budget and the time frame that you have.
3. Do I have a robust and discernable advantage over competitors?
This question is as much about being totally in-tune with your industry as it is about knowing your own business. Failure to have a 360-degree awareness of your position in relation to your competitors puts you at risk of coming up short when asked to contextualise your startup's unique value.
It is also paramount that you can forecast how dangers to your business will change over time, and show that you are prepared to meet each challenge when necessary.
In crowded marketplaces it can take considerable time for a startup’s advantages over its rivals to become fully apparent. Indeed, the 'unique selling point' of a business is often one of the aspects that is most prone to flexes and alterations during the crucial early days of trading. Can you say with confidence that the advantages you have over your competitors are as robust, developed and fixed as you would like? Consider also whether these advantages add significant value to your clients or customers, and if this results in a marked differentiation between you and your competitors.
4. What are the biggest threats to my business?
Or to pose this question in a less aggressive manner:
5. 'What is my business most sensitive to?'
Knowing and understanding the sensitivities that your business has or will have is one of the key indicators of your level of engagement with the business model, and demonstrates your appreciation of the difficulties that may lie ahead.
Remember that being able to identify these threats does not diminish the validity of your startup. Indeed, being aware of your business’s sensitivities is key in developing pragmatic strategies with which to limit their impact. An investor will want their concerns to be allayed, which can only be achieved through keeping a firm handle on the specifics of each threat. It is also paramount that you can forecast how dangers to your business will change over time, and show that you are prepared to meet each challenge when necessary.
6. Have I added as much value as possible pre-investment?
Timing is everything when making the pivotal decision of opening up the business you have built to investors. High on your list of priorities must be an assessment of whether you have reached a satisfactory level of value on your own and can negotiate a deal that reflects the work you have put in.
Be realistic in asking yourself the question:
7. 'Is now the optimum time to go after investment, or can I reasonably build in further value?’
It's an incredibly difficult assessment to make, especially if your startup is based around an innovation which is 'of the moment'. The danger is that if you seek investment prematurely, you may end up short-changing yourself when it comes to the terms of the funding.
Consider carefully whether a little extra independent growth could add significant value, and use this information in making your decision.
Eoin O'Hara is a business developer at Startacus.net. Make sure you follow them on Twitter.