Last year, one of the most well-attended events I took part in was a funding workshop. Many entrepreneurs attended. They wanted to understand the funding process and how they could secure investment to further their business. Many entrepreneurs, myself included, feel many of their problems will be solved with funding, but being fundable is very different from being in need of funding.
All start-ups need some kind of funding to survive but not all are considered fundable. Being fundable is all about your start-up’s potential to attract financing so you can grow your business. What are the qualities investors look for in a start-up to consider it fundable? (Not all fundable companies seek funding, they may prefer bootstrapping).
1. Are you solving a real problem?
The world is full of great business ideas, but ideas that solve real problems are far more valuable. Last week, I was presented with an idea for a personal electronic device that could help when paying for items at the cash register. While it was an interesting idea, I couldn’t see a real problem that the device was solving. It felt like a solution looking for a problem!
Start-ups that fill a void in the market have a much better chance of getting funded. That’s why you need to ask yourself: what is the problem your start-up is trying to solve? Is it a real problem or a perceived one? Have potential customers confirmed you’re solving a real problem? What’s the market size of the problem?
2. Do you have a killer team?
Investors take a leap of faith when investing in start-ups. Stakes are high and anything can go wrong. That’s why investors will place their bets on the people who get stuff done rather than the idea itself.
A great way to gain experience is by joining a start-up and contributing to the success of a fledgling business. I’ve previously employed “future entrepreneurs” who’ve added immense value to our businesses. At the same time, they’ve gained an understanding of the frenetic pace of an early-stage business and developed skills from financial modelling to phone sales to graphic design.
Start-ups whose co-founding team has a combination of deep technical know-how, business acumen and industry experience will most likely pique the interest of investors. Of course, if you’re fortunate to have previously succeeded with multiple exits, you’ll easily attract the attention of VCs!
3. Are you gaining traction?
Investors will need to see traction to determine if your start-up is viable. Traction is the proof that there is a demand for your product or service. Do you have users or customers? Is the rate of user growth increasing? Have you been able to charge customers for your product or service?
A start-up with little traction or have no results to show will not get funded.
Raising capital is just the start of a long and challenging journey. Solving a real problem, having a winning team, and demonstrating traction will make it easier for you to get an audience with an investor.