What Investors Look For in a Crowdfunding Startup

posted Jan 6, 2014, 10:04 AM by Unknown user   [ updated Jan 6, 2014, 10:04 AM ]

Before launching an equity campaign, entrepreneurs should understand what investors look for in a crowdfunding startup. Thinking like an investor will help project creators stay on track in their business reports. Devising plans in such a way that both properly represents the company and appeals to experienced investors is not an easy task. While full disclosure’s a crowdfunding requirement, projects must go beyond this in order to raise quality capital effectively. So, to answer the original question, there are four general areas of focus when dealing with a startup investment:

#1) Traction

Traction, also referred to as “momentum,” assists investors in when weighing the risks of a particular startup. Startups can attract investors by showing that they have an established customer audience or a functioning product — anything that reveals proof of concept, growth, and future potential. Investors look at the story arc of a startup rather than just the short-term data. With this said, recent numbers and figures are still absolutely essential.

#2) Players

Some investors shy away from first-time entrepreneurs unless they have a solid business model or a well-seasoned management team. Startups that boast their skills are much more likely to lure investors; people want to know that their investments have been placed in capable hands. Building a relationship on mutual respect and trust is important for investors and startups alike.

#3) Financials

Startups need to spend lots of time on their financial projections and track records. A clear link between past spending habits and future ambitions must be drawn in order for investors to pour funds into the business. In the financial report, startups must illustrate their streams of revenue and expense, especially internally (i.e. salaries).  Investors estimate their ROI based on such given data, so the financial details should encompass everything.

# 4) Market

Investors often stick to a specific industry, meaning that they are likely to know the ins-and-outs of a startup’s market audience before even opening the business plan. For this reason, startups must demonstrate their own market expertise. Research on similar products, competition, market history, target demographic, and much more should be evident in the reports. Business plans that rely on focused and refined research are easier for investors to digest.

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