What the heck are investors looking for?

You may have the best idea in the world but if you can't sell it, you're not going to get very far. To sell it, you have to understand your target audience - investors. Now without going into huge reams of psychological detail, if I suggested they want to make huge amounts of money off your hard work then could we agree on that?

Investors see plenty of opportunities and are trying to find the perfect company with no risk and big cheques at the end. The perfect company is very tricky to find, and different investors will have different views on risk....but you need to consider what they are looking for.

In no particular order - here are the top four.

Management team. Investors want to see a complete management team (all critical roles filled) with people they judge can get the job done. In larger companies this may be a CEO that has done a flotation before but industry experience and contacts always seem to figure large in the concerns of investors.

High growth market. Developing the greatest steam tram is going to impress no-one. Investors like high growth markets because the penetration of the start up is also helped by the general rising of the market. High growth markets need more working capital than flat ones but that's for another time.

An unfair advantage. This is a great phrase and it's great when it's true. Does the company have some market access, proprietary technology or whatever that will make it much harder for people to compete with them. I see a lot of software companies where people are working like dogs but can't get funded because their idea can be copied by a larger company in months and they cannot achieve a significant market position before being swallowed up by the larger competition.

Intellectual property. If the company has some patent protection for their technology then it helps reduce the perceived risk for an investor. The 'threat of entry' by competitors is reduced
and patents can be worth their weight in gold in terms of attracting investment. However, again software companies can struggle here. In the UK, and Europe to some extent, it is very hard to get a significant patent for software.

Now the simple final thing you should be able to explain - because I'll ask when we meet. What is the selfish benefit to a user/purchaser of your product/technology? In other words, are you solving a real problem that people have and want solved or just hallucinating that they will love your new gizmo because it's cool. I used to work for Philips and I can assure you that technology-push is not a sustainable strategy for a startup.

Copyright Richard A D Jones 2005