According to CBinsights.com, running out of cash and the lack of investor interest in a startup are some of the common hurdles that stand in the way of early-stage startups. With Flat6Labs expertise in the startup ecosystem over the past 8 years, Flat6Labs’ CIO, Dina el-Shenoufy, and our Managing Partners and Directors from our offices: Flat6Labs Beirut, Flat6Labs Bahrain, Flat6Labs Cairo, and Flat6Labs Tunis, discussed how startups can maximize their potential and chances with local, regional, and even international investors. They have thoroughly examined, through both experience and knowledge, the conditions and preferences of investors when they are fishing for innovative, scalable, and all-around amazing startups. And, with the number and magnitude of events we hold each cycle for our startups, we’ve demonstrated our ability to give each of our startups multiple chances to meet with and actually secure deals with investors. Mainly through our networking events, pitch nights; our speed-date investor mixers; and through the Demo Days, which always hosts a number of local, regional and international investors and even mentors and government officials.
1. Make the distinction between an institutional and angel investor and what each looks for.
In order to lay ground for what comes next, Flat6Labs’ CIO, Dina el-Shenoufy, highlights that “first, a startup must make the distinction between an institutional investor and an angel investor because each offers different amounts of investments, has different goals, and even sets a different criteria for the startups they decide to fund.” This will enable you as a startup to know how you are going to attract an investor to your startup.
“Institutional investors measure the strength and potential of a startup by its ability to show concrete results, and by having a vivid plan of the future.” — Flat6Labs’ CIO, Dina el-Shenoufy
El-Shenoufy added that institutional investors often look at the idea before anything else. This entails how innovative the technology the startup is adapting or even creating; the scarcity and need of the product/service in the market; the breadth of the market, and the lack of competition. Such investors also look deep into how the team is structured: the passion, harmony, experience, motivation, and commitment, with traction and everything else coming next. “Institutional investors measure the strength and potential of a startup by its ability to show concrete results, and by having a vivid plan of the future,” el-Shenoufy says.
“Angel investors look for companies that they can relate to, believe in, and wholeheartedly support while still understanding the risks” — Flat6Labs’ CIO, Dina el-Shenoufy
Dina further elaborated that angel investors look for companies that they can relate to, startups that they can absolutely believe in and want to support. Such investors don’t necessarily have to be experts in your industry, but being a good storyteller can make the difference if you really want to get their funds. Remember that being capable of selling your idea to an investor who might not know anything about the industry you are targeting is no easy task. Articulate your solution in layman terms, whether it is a service or a product, and it will eventually help the investor understand how it helps solve a major problem. Such investors often understand the risks, but they are willing to fight with you for what you and they believe in.
2. Set a clear and realistic growth plan
Another thing that both kinds of investors look for is clear growth plans. El-Shenoufy said that investors do not want to see unrealistic growth and scalability plans. If you’ll be saying that you’re getting 1000 customers next month, tell them exactly how you will be utilising your resources and funds to do it. Investors want to know how you will be making revenues out of selling your product/service and they dislike ambiguity. They need to see that you will be capable of using their investment to generate revenue and scale your business beyond the trajectory you were already on before the funding.
3. Have all things considered: the industrial, economic and social fit
“Angels typically invest in something they find interesting or something they can help to scale or monetize further. Also, some investors have specific preferences when it comes to the economy they are targeting. For example, they would rather invest in Europe over the middle east or perhaps the USA over Europe. So many times the economic situation where the startup is domiciled can aid or hinder the startup’s plans of scaling and growth if the investor is targeting a different economy. In addition, investing in a startup is like investing in a person. You want to understand what they have been through, and how they’ve been educated before you invest. Angels sometimes invest in the person more than the idea. Ideas are easier to pivot, it’s harder to change a personality.” — Ryaan Sharif, Flat6Labs Bahrain’s Managing Director
Some investors prefer specific markets, industries, economies, and specific types of founder personalities. In order to make sure you don’t waste an investor’s time or even your own, research the investors who will be showing at the event. If you are attending our Demo Day for example, our application (download through Play Store & Apple Store) is a great tool to see the people attending and even chat with them. This way you can know who exactly you want to find and talk to about your startup. Find an investor who is interested or works in the same industry as you; an investor who wants to take your product beyond the borders of your country if your growth plans aligns with his/her goals, and an investor who is willing to invest in you because of what you stand for!
4. Highlight your ability to generate revenue and traction!
“Seed funds review and assess promising businesses, and most likely, they choose one startup out of each 100 startups. They seed to add value and capital to the companies, but in return, they want founders who have brilliant execution, and have already have proven something with their traction and their future plans! Investors finance people who are constantly talking to their real customers and understanding their needs. They invest in hard workers. It’s fundamental. It’s also about cultural and personal fit, shared vision, and trust.” — Walid Triki, Flat6Labs Tunis’s Managing Partner
While often overlooked by idea-stage startups, startups that have gone far and beyond to execute a project must always be diligent and hardworking when it comes to improving their sales. This means, doing proper market research to ensure that the product aligns with the market needs and pivot when needed. Understanding that traction is an important deciding factor when it comes to your startup’s success will accelerate your startup, and help you acquire investments. Always remember to weave in your best figures into everything you say, give the investor something that shows how your product/service is very promising.
5. Your team is your biggest asset, nurture and invest in it.
“Your team is your biggest asset. Like any asset you need to nurture it, grow it and invest in it, so you can monetize it. Your team should be enthusiastic, ambitious and speaks the same language. The harmony of your team is key to capturing investors’ interest” — Marie Therese Fam, Flat6Labs Cairo’s Managing Partner
Besides your team being the catalyst of all good things, crossing milestones, and successfully achieving your growth plans, the investor will be looking for a team of different competencies. The investor wants to see a capable team that is diverse in the areas of expertise, but one that works in harmony to develop products and services.
6. Have an exit strategy in place
“ Investors always think about the exit strategy of the startup, and if it has the potential to be one of their top quartile portfolio companies. In addition when we ask founders about their exit strategy we understand their level of commitment to building the business, their level of flexibility and if they thought about possible exit scenarios.” — Danny Maalouly, Flat6Labs Beirut’s Managing Partner
Investors always look for the potential of an exit strategy and set the criteria for their exits when they are hunting for startups to invest in. In turn, they also measure the startup founders flexibility with exiting if an acquisition deal is on the table.
Being capable of understanding what the investor looks for in a startup will help you form proper strategies for when you approach investors, and will also help you target specific investors who are more likely to support your startup.
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