Aidi — Investor-Readiness: Is Your Startup Ready for Investment?

Errr…maybe or maybe not, and I’ll tell you why in the latter part of this article.

If you ask 70% of founders today for a sign or validation of a successful startup, they will tell you it’s a startup that has many investors. As a result, many founders put more effort into looking for investors than they do building a great startup.

White having investment backing can be great, the hard truth is that not every startup is ready for investment, and approaching investors too soon can do more harm than good. Before concluding that your startup will need investors to survive, you should really ask yourself “Is my startup ready for investment?” 

Here are some boxes to check to know if your startup is actually ready for investment? 

1. You are Solving a Big Problem that Reoccurs Regularly: The first thing to find out before approaching any investor is if your startup is solving a problem that is big enough, affects a large market, and happens frequently enough to justify a long-term business. Investors are not just looking for ‘interesting ideas’ that solve temporary problems; they are looking for startups that have long-term value, solving recurring issues that people are willing to pay for, because the bigger the potential customer base, the bigger the opportunity for revenue and scale. If customers only need your solution once, it might be difficult to build a scalable company. But if your solution addresses an ongoing or frequent pain point like payments, logistics, etc., then you have a business that can generate revenue repeatedly.
2. You Have a Validated Business Model: Before seeking investment, you need to be sure that your business model works. Have you validated your market demand with real customers, proving that your product is solving a real and painful problem, and people want the solution you’re offering? Do you have actual customers who are paying for your product or service? Do you have a solid customer acquisition strategy? Investors are not looking for ideas, they are looking for businesses with traction. If your startup is still in the “idea phase,” and has not been tested with real users, then it is not ready for investment.
3. Your Startup is Scalable: Don’t lie to yourself, does your startup have a clear path to growth? If you’re struggling to get your first few customers or don’t know how to scale beyond them, that’s a red flag. Investors put their money where they see a clear growth path. If your startup doesn’t have a clear go-to-market strategy and realistic projections for revenue growth, which can be expanding to new markets, leveraging technology to scale beyond its current market, or increase in sales, then your startup certainly is not ready for investment; you still have work to do.
4. You Have Explored Other Funding Options First: Investment is not the only way to fund your startup. There are other funding options you can consider for your startup, depending on the stage where it is at. You can explore options like grants, revenue financing, crowdfunding, or even bootstrapping, and they will meet the financial needs of your startup at the stage where it is. Just because everyone you know is going through angel investors or other investors does not mean you should too. In fact, you should ask yourself these questions before jumping into the investment pool- “Have I maximised revenue opportunities before seeking investment?”, “Am I prepared for trade-offs or giving up equity?” If you can sincerely answer these questions, you will have more direction on what to do. If you’re rushing to investors because you’re running out of money, that’s a bad sign.
5. Your Financials Make Sense: Your financials do not have to be perfect, but they need to make sense before approaching any investor. Investors don’t expect early-stage startups to be highly profitable, but they do expect financial clarity. If you don’t have a good knowledge of your financials (your revenue, costs, burn rate, and runway), investors won’t take you seriously. You should understand how fast you spend money monthly, how long you can keep operating at your current burn rate before you run out of cash, and if you’re making enough money to sustain the business. If you don’t know these, how can you convince them that their money is safe with you?
6. You Know Your Competitor(s) and Market Position: No matter how unique you think your idea is, you have competition– whether direct or indirect. Investors need to see that you’ve done your homework: you know who your competitors are and can clearly state what sets your startup apart. You should be able to identify your unique value proposition (UVP) and also have a strategy for staying ahead of the competition. Competition is inevitable and if you don’t have any now, it doesn’t mean you should settle; one (and more) will spring up in later years. If you don’t have any strategy for staying competitive, it means your startup can die at the sight of any competition and that is not a good sign!
7. You Have a Clear Investment Ask: Investors hate vague pitches. If you don’t know how much money you need, what you’ll use it for, and how it will help your startup grow, then you’re clearly not ready. Before approaching investors, you should be able to answer: “How much funding do we need and why?”, “What will the funds be used for? (hiring, marketing, product development, etc.)”, “What will the investors get in return?” If you can’t answer any of these questions, don’t even bother approaching any investor; you’ll be wasting your time. If you’re not bold to ask for what your business needs and defend it then you still have some work to do.

So, to answer your question “Is your startup ready for investment?” I’ll ask you the same, “Is It?” If you check most of the boxes above, you’re likely in a strong position to seek investment. And if not, take the time to build a more solid foundation before approaching investors. 

Investment should fuel growth, not fix fundamental business problems. Get your house in order first, and when the time is right, the right investors will take notice.