I recently moved temporarily to Bangalore and got in touch with a lot of startups who were all looking for some kind of funding and a lot of startups have come up to me to ask what is it that an investor look in a company to invest in a company or a startup.

I have recently made my first investment in Hustle Cowork and am on the path of learning the investment ecosystem myself.

Here are few of the things that I have learned over the year about business and people and look for in a company when they ask for investment:

  1. Value Proposition: Is there any real value in the product or services that the company is offering to the consumers. Is there any need for it? Is there a real problem that the product is solving for the people? It this is not true then you are out on the first ball.
  2. Switching cost: What is the switching cost for the consumer who wishes to change from using your product to another product. Similarly, what is the switching cost for the consumer when they are switching from other people’s product to your product.
  3. Recurring Revenue: Are all the transactions in your business one time transactions or the customers once acquired will stay with you for a long time paying you regularly and in a recurring manner.
  4. Game Changing Cost Structure: Are you offering up 30% less cost of 30% more tangible benefits to the consumer which can be seen as a game changing cost structure by the consumer.
  5. Unpaid Value: Do you have any structure in your business where you are not paying for the value that consumer is getting, instead someone else is paying for the value you are getting and can pass on to the consumer as a packaged value.
  6. Scalability: Does your business require substantial resources in terms of time, money, manpower, harnessing of investors connection in a very aggressive way to scale or is your business the type where you will require very less resources and virtually has no limits.
  7. Protection form competition: Does your business or product has anything proprietary. This means that do you have any patent on any technology or any trademark that even when publically known cannot be used by any of your competition.
  8. Present sales / Revenue: The future is want investors are betting on there is no doubt about that but they are betting on the future looking and taking risk as per the present scenario of the business. Therefore present revenue and sales play a important role in assessing the company.Also understand that present sales and revenue is also a measure of your effort in the business. If you are not selling the product before asking for money, you might not have put in any effort to know the market feedback. You might not be a hustler investor is looking for and this make the investor feels that you will remain the same even after he or she has invested in you and your company.
  9. Your initial investment / How much of your own money have you put in?: This is the money that you have either put in form your own savings or asked for from you friends and family. Why is this important is the fact that the investor wants to know if you even care for the product and the company enough the before coming for a formal investment giving away your equity are you even serious enough to put in your own money. If not, investors eye you are not that serious.
  10. Profit Margins: The investors are looking to make 10X returns in a 3 – 5 years of time frame. This is the maximum time frame. If you are profit margins are very low, then the investor will not be able to make their money back and so they are not interested.
  11. How many have you sold yet in units: This question is target towards your diver, assessing the market demand, your marketing effort and your distribution channel.
  12. Why do you need the funds? What will you do with these funds: Again investors want to make money from the investments. They want to know what will you do with these funds so that they know there are you in the business lifecycle and they can understand how much time will it take for you to reach the peak and how much time will it take for them to get back their money.
  13. Individual: The passion of the person, the learnability, the business acumen, the talk ability, the match in wavelength, the vision.
  14. PR Nightmare / Legal Smoothness: Is your product or business accredited by some authority? or it looks like a scam and the company will fall trap of public litigations. No investor wants to be a part of it and not investor want to see their money being spend and wasted in useless litigations.
  15. How much does it cost you to acquire customers?
  16. Are you making any money form while in the business: Are you drawing any salary, what is you back up for money, are you asking money for your salary or for company growth. Will you be even able to sustain yourself even if you are given money for company growth.