Don't just invest in an idea, invest in the team’s ability to successfully execute the business plan
Execution is the key for both the start-up as well as investors. For the start-up, execution is crucial because you might have an extraordinary idea along with perfect market conditions but still come up short. And for investors, you might have funds to invest but finding a perfect start-up idea to invest in is back-breaking.
Funding a start-up is indeed a major decision because you have to identify the risk, assess the opportunity, and select the most deserving idea out of many. Also, every start-up eventually aims to become an established brand and works consistently hard to achieve this goal. Therefore, narrowing down to a decision is critical from the venture capitalist’s point of view.
There are various aspects of a start-up that an investor must evaluate to ensure long-term success. Let's explore some of these aspects:
Extensive Market Research
Finding an innovative idea isn't as difficult as the one which is unique as well as well researched considering the market conditions. Extensive market research and knowledge about market growth statistics are key to the success of any start-up and therefore, a crucial aspect of your investment decision. Before executing the decision make sure that the start-up knows some key insights such as the number of competitors, market share, financial margins, consumer personas, etc.
If the market the start-up intends to enter is monopolized, saturated, or relatively unprofitable then it’s better to quickly dismiss the option. It is always a great idea to invest in a start-up that presents a robust understanding of the intended market and plans to penetrate an opportunistic market with well-captured user data, engagement, and interest.
To summarise, evaluate the start-ups for barriers and price of entry, if the market is at maturity or in decline, and who are the direct competitors? Complete market competency is one of the most valuable assets a start-up can leverage to gain funding.
A Strategic Business Plan
As an investor, you should be keen on identifying unpreparedness. Fund an idea which has a masterful business plan and exhibits the founder's knowledge about scalability and foresight into business operations. The business plan should be thorough, show a level of commitment and moving forward, reveal organisational goals & objectives, and exhibit operating plans. Thus, a data-driven, well-structured and profitable business plan is what an investor should yearn for in pitch meetings.
Further, the business plan should be unique as well as follow a structured template. It should be comprised of the business concept, financial information, and market insight.
Experienced and Passionate Founders
While the start-up idea and business concept are significant, it is also important for the venture capitalists to evaluate the character and drive of the founder(s). Investors should have a vested interest in the management team as they are the ones who will be bringing the concept on paper to reality.
Naturally, there is a high probability that accomplished founders will elevate the organisation that they represent and better manage the funds. A founder who is devoted to the prosperity of their organization and truly dedicated to accomplishing their organisational goals should be good to go.
Traction
As an investor, you should not only interpret the financial feasibility of the start-up but also, the growth potential. The key component of momentum or traction is to exhibit some degree of progress - revenue growth, month-over-month organic growth, increased user numbers, technology development, staffing expansion, etc. all constitute progression. It is a wise idea to invest in a start-up that has an upward trajectory instead of stagnant organisations.
At the end of the day, if you want to fund an idea, go for the one where you see drive, passion, and experience to create a sustainable as well as a profitable business. Don't just invest in an idea or concept, invest in the management team’s ability to successfully execute the business plan.
If a start-up can effectively prove the comprehension and understanding of the market, influence your goals of funding, and presents a robust and feasible business plan, it is a great idea to fund the same.
The author is the Chief Revenue Officer of Kaleyra
DISCLAIMER: Views expressed are the author's own. Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.