Startup investing is a risky business, even for seasoned investors; because 90% of startups do not make to IPO. This uncertainty in the startup world, though it may confuses investors, is always exciting for them at the same time.
Experienced investors may not need to explore these areas in too much details, but as a new investor you must know the traits of successful startups, because these are the highly investable businesses that have higher chances of OUTSIZED RETURN!
Here’s a list of most important characteristics of a startup that can make an investor want to invest in it.
1- The Idea (Product/Service):
This is probably the first and foremost characteristic of a successful startup, i.e. if the product is something that is definitely 10 times better than the available alternatives, it’s surely going to be a big hit. In case, if you do not have a unique business idea, product innovation is the way to go.
2- Market Traction:
If the product/service is something that is attracting a massive number of users and the user base is growing at a faster pace, this is another sign of a next big thing. For instance, WhatsApp was not a unique idea, but it grew like wildfire! You may be interested in knowing how to acquire users faster in an emerging market and lessons to learn from digital transformation in growing economies.
3- The Team:
Well, this is something that you must look for when investing in very early stage startups, i.e. when you’re investing in an idea that has not yet hatched into an actual product. If it’s a fairly technical team that comes from an industry where they have delivered their investors at least 10x+ on average, it’s a sign that these people can deliver the next big thing.
4- Social Signals:
Sometimes, the startup may not have a highly valuable idea or market traction, or even a high profile founder at the backend, but it’s much talked about. A startup with higher social signals, i.e. much of media hype is very likely to get attention of big investors and can become huge in short period of time. It’s actually safe to invest in such a startup!
5- The Pitch:
According to most of the founders, this is the most important factor. Yes, the pitch is very important factor, but sadly, it’s not the only important factor. A killer pitch may lure you, but you need to check the four other characteristics discussed above to verify the dazzling story of the pitch. For this reasons, you must work on an effective PR strategy for your startup.
The Bottom Line:
Well, as an investor, there can be tons of other important items to look in a startup when it comes to do due diligence, depending upon the idea, the market, and the amount of money you intend to invest, and above ones are just most important of all.
It’s the awesome idea, the team, proven monetization strategy, reliable business plan and the competition that you need to focus more in order to plan your exit with a good return.