When should a start-up go to an investor?

The unfortunate fact is that though being in the business of risk investments, most VC’s and Angel investors in India are highly risk-averse. This is why start-ups in India struggle to get off the ground. Past experience has made investors extremely careful with their investment decisions and despite such extreme caution still end up with a dismal success rate of less than 20%. So I guess that makes them even more cautious.

So what will make an investor take that leap of faith with your venture? Put yourself in the shoes of the investor and critically appraise your venture and decide if you will invest money in the venture. It would help to give you a different perspective and help you plan accordingly.

So when do you know you are ready for investments?

Any investor will want to know if your venture will help him get good returns and in how much time. To be able to give some reasonable answers to these reasonable questions, the venture should be able to clearly demonstrate its ability to help the investor take a considered decision. For example:

1. Is your target segment large enough to ensure sustainable business growth over the next 3-5 years?
2. Have you validated your product with some customer experience? Even if it is not a paying customer, has your product been tested in real time?
3. How has it fared? Does it really address a problem? Please remember, a problem is a problem only if a customer recognizes it as a problem. Not because you think so.
4. Is the customer willing to pay for what he has experienced with your product? This will move your product from a ‘good to have’ to a ‘need to have’ product.
5. Does your product offer a clear ROI? In other words, does your product or solution help to clearly address an existing problem and have you been able to quantify the benefits that the customer will derive from it? This is what will make the customer take that investment decision.
6. Do you know your competition? What competitive barriers have you planned to ensure you stay ahead of competition at all times? How have you planned the longevity of your product and your venture?
7. Have you put in place a credible and actionable business plan?
8. Do you know how much investment you require and for what?
9. If you have reasonably good answers to the above set of typical concerns that any investor would have, then I guess you are ready to go looking for investment with reasonable chances of success. Ofcourse, if you also have a set of paying customers who are willing to stand up and talk for your product, then the chances of success are even better.

Moreover, if you actually have a unique product with a set of USP’s that makes yours a ‘me-only’ product and/or if your product or some part of what your product does is patentable because of its uniqueness, then investors would not mind overlooking some of the factors mentioned above. But please remember, just because your product is me-only or patentable it does not necessarily mean you will have a paying customer. I have seen some of these patentable or patent-pending products remain just ‘good-to-have’ and struggling to find a paying customer. However unique, it still has to demonstrate clear ROI before the customer digs into his pocket.

In most cases, I have found that the entrepreneur does not have answers to most of these concerns and therefore, the difficulty in getting investments. The investor is willing to invest. You only have to give him the confidence that his investment will perform for him the way it is expected to.

The author, Srikanth Vasuraj, is a Business Consultant focused on helping start-ups to grow. He can be reached at +91-98454 78585 or srikanth@nodiva.co.in . For more information please visit www.nodiva.co.in .