3 Things Investors Look For Before Putting Money Behind Your Idea

The world of startups is as diverse as the world itself.

There are small businesses, typically family owned and run. There are Silicon Valley-type startups, which are designed to be scalable. There are startups designed to be quickly sold and flipped, large startups creating disruptive innovation, and charitable startups designed to make the world a better place.

But there’s one thing these all have in common, and that’s needing funding.

First-time entrepreneurs often shy away from figuring out a funding strategy at the get-go because they’re confused about how funding works. This is a terrible reason for not raising capital. You need to be prepared for the necessary conversations to turn an idea into a company ready for an IPO. You should know what each funding round typically raises, what types of investors get involved in each round, and factors venture capitalists consider in each round before saying yes — it’s their money after all. And they’re approached all the time.

Running my own venture capital and brand development company, M13, puts me in a unique position to know exactly what investors are looking for before they take the plunge. I’ve seen enthusiastic founders falter during the investment conversation, and it usually has pretty severe results down the line.

Here’s how to nail the funding stage by appealing to what all investors are looking for:

1. A perfect pitch.

You have to convince potential investors that you know your stuff and that you are the person who will execute the idea best.

The best way to do this is with a well-executed pitch.

First, you need a catchy elevator pitch, or a pithy summary of what makes your company a great investment opportunity. Then, you need a stellar pitch deck, or a PowerPoint or Keynote presentation to provide your audience with a quick overview of your business plan. Consider using images and chart on a slide show presentation to bring your pitch to life in an engaging way.

Your total presentation length should be less than 30 minutes long, and you should plan to spend approximately two to three minutes on each slide. Some investors may interrupt you frequently to ask questions. Don’t let this rattle you. You should know your material well enough that you can speak confidently and answer questions without reciting a memorized speech. Keep the entire the meeting structured and professional. Your investors are judging every aspect of the presentation, from the moment you walk in the door to when you leave for your car.

For inspiration, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash, so he’s worth listening to.

Most importantly, project confidence and do your homework. If you haven’t invested the effort it takes to present your idea clearly and articulately, why on earth would they consider investing in you?

2. Passion or bust.

Entrepreneurs always say they’re passionate about their idea — it’s something investors hear every day.

And there’s no doubt that passion is one of the key qualities that define an entrepreneur. Without it, you’d never be able to weather the challenges that the startup life throws your way. But instead of just telling would-be investors about how passionate you are, show them you mean it. Explain why you believe your concept so much. Sell your dream and reach their hearts.

To do that, you have to tell a compelling story.

Remember that the investor is putting money in you and your team as much as they are investing in the company. They should be able to clearly understand why you feel so passionately about your products or services. Your investment request should obviously make sense from a financial perspective, but you also need to appeal to your investors on an emotional level. Focus on selling your passion as well as the opportunity to your investors.

Investors know that you’ll face major obstacles as an early startup. If you don’t truly love what you’re doing, investors will sense it — and may worry that you’ll throw in the towel when the going inevitably gets tough.

On the flipside, if you can make an investor feel that you will do anything it takes to succeed, then your chances of attracting investment are much higher. In fact, passion directly affects how much capital a startup receives.

3. The fine print.

Entrepreneurs tend to be big-picture thinkers. They follow their intuition, brainstorm innovative ideas, and come up with creative ways to market them.

But many entrepreneurs — especially newcomers — are so busy talking about the grand ideas that they neglect the smaller details necessary to run a business.

When you’re meeting with a potential investor, you should be able to:

• Articulate your strategy with specifics.
• Identify meaningful milestones.
• Leverage your unfair advantages.
• Determine what you plan to partner on and what you plan to outsource.

Demonstrating precise organization and planning from the get-go will help you differentiate yourself from the bunch.

Think of your business like building a house. Yes, you may have some design features that you’re super excited about, but you must lay the foundation before you install the roof. Be disciplined about your plan and be accountable to your milestones.

For example, my friend, the founder of a four-person tech startup, set the milestone of signing 1,000 customers before funding would be triggered. After some careful research, he decided this meant acquiring at least twenty customers per day. He set himself up in the conference room with a script and an assistant to send follow-up emails. He created two thirty-minute “open-office” times, during which employees could come in and ask questions about other aspects of the business. Otherwise, he was on the phone. He guessed it would take him sixty days, but it ended up taking him thirty.

That’s the type of detailed-oriented discipline you need to cultivate in order to show investors you have what it takes.

When you can demonstrate business know-how and genuine passion, all packaged in a well-thought-out pitch, you’ve got a much better shot at walking out with full pockets.