Being “investment-ready” sounds rather vague.
What does it really mean? How do you generalize? Isn’t each company unique in its own way?
Over the past months and years, we’ve collected feedback from startups and investors in order to identify distinct trends and patterns when it comes to becoming ready for investors. While it is true that each startup follows their individual journey, questions of VCs and Business Angels largely remain the same. One of the simplest yet trickiest questions in pre-seed: “What’s your traction? …oh, you’re too early”. Sounds familiar? So what do you do if your revenues are still at zero?
We believe there is more to traction than revenues, actually, a lot more. We have defined six dimensions of investment-readiness and encourage our founders to work on each individual level until they can convincingly answer any question thrown their way. Our assumption: if you are able to demonstrate traction, or better, positive momentum in each of these six dimensions, your startup is well-prepared and has a good chance of raising follow-on funding.
Dimension 1: Vision to Product
What’s your long-term vision and how “big” can this idea become? Is this really a billion-dollar company? Show to investors that you are offering a real opportunity to them. If you limit yourself from the very beginning, investors won’t be attracted. You simply cannot know that your assumptions will become true, however, investors don’t know, either. It is about coming up with qualified, smart assumptions that allow you to turn a dream into reality. In the meanwhile, prove that your first product to roll out is the first step in the right direction.
Dimension 2: Product Plan & Roadmap
How does your infrastructure, backend, UX/UI look like? What are the next steps? What milestones do you want to hit? Talking about the past and the status quo is easy, yet, knowing what you need to do in the future makes you special. Prove to investors that you are the right team to understand what feature to add next or how to prioritize the development of your product.
Dimension 3: Users & Customers
Demonstrate growth and engagement. You can show value through knowledge and utility, not only through revenues. Be able to talk about website traffic, session length, user numbers, downloads, churn and retention. What measures have you taken to improve your metrics? What assumptions have you validated? Know your customer. Conducted interviews can count as traction, too.
Dimension 4: Sales & Marketing
How do you reach your users and customers? Do you have data to back it up? Be prepared to explain your marketing launch plan, discuss channels and identify multipliers. Investors will want to understand whether you can turn a lead into a customer (a.k.a. funnel conversion). And, of course, be as precise as possible when it comes to customer acquisition costs as every investor loves talking about it.
Dimension 5: Financial Model
How will this make money? Be sure to include unit economics and explain how you can improve these over time. Have you already generated learnings that led you to adjust your assumptions? Investors want to understand your financial projections, (monthly) burn rate and growth drivers. Derived from your model, you should also be able to roughly forecast your future financing needs. If you can, create FOMO among the investors.
Dimension 6: Team
Last but not least, the team. Every investor argues that they mostly invest in the founders of a company. Be able to explain why you are a complementary team and why you are the right team to execute this business idea. What are your hiring goals and the organizational structure of your startup? What key skills are still lacking? Where do you find your next key hire? Having strong hypotheses and making progress in building a team are crucial signs of good leadership.