Five things this VC looks for in every startup investment

Having been involved in capital raising for private and public companies for many years as an investor, investment banker, and founder, I know that raising capital for your business is all-consuming. If you are a startup founder and are considering raising money or seeking funding, you have to be prepared to pursue a variety of different options and will meet investors with different criteria. 

However, no matter who you meet, you can’t go wrong if you can clearly articulate responses to the following five questions.

1. What is your story and what is your “why”?

I am always excited to meet founders with passion for and long-term experience in their industry. With lived experience comes a more thorough understanding of the challenges which, combined with a commitment to finding a solution that benefits customers and the wider ecosystem, means you bring to your business a level of awareness and appreciation others may not. 

Clearly articulating your motivation, your experience and capabilities, and your commitment to ride through the inevitable challenges is something most investors will be looking for.

2. Does your product/service solve real-world problems?

It’s almost a cliché but people don’t buy products, they buy solutions to their problems. Investors will want to have validation that you are solving a real problem. Sometimes it is easy to demonstrate, especially if you have a fast-growing customer base. Other times you may want to show strategic relationships with your market that could lead to revenue. 

If you get lucky, your potential investors are well aware of the problem. It took little for our first portfolio company, LifeBid, to demonstrate to me that taking out life insurance is complex and frustrating. I had just finished renewing my own policy at the time they approached us for funding. It was clear that the founders didn’t just understand the problem but had a differentiated solution for the benefit of the entire ecosystem.

3. Who are your customers and are they prepared to pay your price?

Market fit is one of the most difficult areas to get right. Other than running out of money, it is the second most common reason for business failure. 

This is because, even if you solve a real problem, you need to demonstrate that people are willing to pay you for the solution. But how do you know if you have mispriced your solution? As seasoned FMCG specialists tell you, pricing a new product is as much art as science. Market research and focus groups are helpful, but they don’t always provide an accurate reflection of the real world. 

I have painful memories of spending a significant marketing budget launching a hair loss collection that not only worked, it solved a real problem and had plenty of customers on the waiting list. Unfortunately, irrespective of market research and focus groups, it was overpriced and became a niche product.

Engaging early with your market is one way to overcome this issue. Bringing in key potential customers as advisers at the time of product development and pricing, testing the market with a pilot launch of your minimum viable product (MVP), and diligently responding to data are three ways you can mitigate the risk of market failure. 

4. Is your business scalable?

Most early-stage investors are looking for 20x style returns which can only be achieved if a business is scalable either through verticals or geographies. It is not always necessary for a company to be global to be investible, but it certainly helps. 

Whilst the potential for scalability is important, you need to have a vision and a roadmap to get there. Do you know where you want to take the business in three, five, or ten years? The reality will almost certainly be different but you have to see it to create it.

5. Are you genuinely trying to make the world a better place?

Even if investors are not specialists or ESG-focused, they are increasingly looking for companies with a social and environmental conscience. At a minimum, you have to demonstrate that your company doesn’t damage the environment and causes no social harm. 

We are not looking for clichés or buzzwords here, but a genuine desire to deliver a better world. It is great if you are focused on environmental or social issues, but it is not necessary. What is important is that your business’ product or service improves outcomes for all involved, beyond the dollar.

You may operate in an area with specialist investors, in which case you will be asked those questions relevant to your industry only. Even so, preparing for your investor pitch with clear responses to the five questions above will elevate you no matter which industry you are operating in.

Maria Halasz is the CEO and co-founder of Stride Equity.