The world is on the cusp of a revolution unlike anything we’ve seen in centuries. Technology is breaking down barriers, negating the tyranny of distance and the moat of incumbency. A handful of people with the right idea and business model can take on the world.
One of the biggest barriers that has come down is funding. You just don’t need as much money to launch a startup as you used to. Cloud computing has negated the need for costly servers. More powerful devices and collaboration tools like Slack have also reduced the necessity of office space and allowed for flexible and distributed teams. The likes of app stores, drop shipping, and Stripe Atlas have reduced the resources needed to get to market.
But there are plenty of instances where a startup will still need to take money. You may need to build some infrastructure, or suffer some losses while you wait for revenue and unit-economics to catch up.
So here are some things that investors commonly look for in businesses they invest in.
Make a proof of concept
There are some investors who will back a good idea. Called pre-seed or seed investors, a sketch on a napkin is sufficient to win them over. More often than not these investors take the shape of friends and family, maybe a startup accelerator or incubator. There are some professional investors who do this though, splashing out for a good idea alone.
Most investors, however, need some evidence that your idea is viable, that it’s workable and solving a problem that people face and understand. This doesn’t necessitate building the entire product or service upfront — why would you need the investment then? Instead, try creating something that illustrates your solution and can harvest interest and feedback — a fake website or app, for example.
Going global fast
Next on the investor wishlist is the ability to go global fast. As we’ve noted, technology has shrunk the world and reduced the barriers to going to market. Noted Australian entrepreneur and mentor Mick Liubinskas is famous for pushing businesses to think globally.
“Australia is this mid-sized country, big geographically but small market-wise. A lot of our really big successes that employ lots of people, like ResMed, Cochlear, Atlassian, BigCommerce, Freelancer, were born global companies – whether that’s into China, USA or Europe. I think another big thing we’ve added to the ecosystem is, How can you go global, and can we go global faster, bigger, better?” Liubinskas told Fairfax media.
But not all ideas are made to go global fast. If you’re targeting a highly regulated sector, or your solution requires a local presence, scaling can be trickier and take longer. Those that are best at scaling often have purely digital offerings, or use commoditised labour pools — think Uber drivers.
While it has become common to slap the “Uber of x” label on anything with an app, the reason investors have handed Uber billions of dollars is not cause they have pretty software. Uber is valuable to investors because of the gigantic market it is going after — the global transport industry. This includes the $6 billion revenue that Aussie taxis bring in each year, but Uber’s model can potentially poach revenue from freight, logistics, mass transit and even carmakers. Further, it’s replicable everywhere with a flick of the switch. And all this becomes even more compelling as Uber continues to experiment with driverless cars.
The economics and reach of the internet makes this kind of ambition not only possible, but mandatory. Competition and possibilities abound, the potential to scale incredible. Investors don’t dream of a portfolio of lifestyle businesses, making steady but meagre returns. Investing is risky with many of the bets failing which means investors are looking for moonshots. If they succeed, they need to do it spectacularly.
A good team
Bringing all these factors together is complex, requiring a good mix of talent, experience and determination. It takes a good team to build a successful company and that’s why investors often put great teams at the top of their wishlists. You can see the way this has played out in the big companies of today, often partnering technical with business genius – Zuckerberg and Sandberg, Gates and Allen, Eric Schmidt with Page and Brin.
Having people who can watch your back, who can pick up the slack in tough times is part of it. But so is having a variety of experiences and knowledge — to bring different ideas and perspectives to issues. Experience, especially domain experience, is incredibly valuable when starting a business — hence the Silicon Valley love of founders who have tried and failed.
“We’re looking for someone who has thought through the issues and can clearly articulate their vision,” says Benjamin Chong, the founder of investment firm Right Click Capital.
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