2 min read Three Important Questions to Ask Before Investing
The startup world is full of big ideas. Entrepreneurs have grand plans to make these big ideas a reality, and in some cases investing in these plans can lead to a hefty ROI for investors. But how do you know if this startup is the one to invest in?
We’ve boiled this down to three main questions to ask before investing in a startup company. If even one of these answers is wishy-washy, you may want to consider saving your investment for a company in steadier waters.
Let’s take a look at what these three questions are.
Do They Have Sufficient Traction?
The first question to ask is if the startup has sufficient traction. You can track them on their sales growth, team changes, product development, and fundraise. As you receive reports, you can start to build out a list of crucial traction points– leads, sales, channels, etc.
As one investor said, “I don’t invest in dots. I invest in lines.” It’s essential to build out a picture of how the business is growing. By watching the deal over time, you can better understand it and hopefully see an upward trajectory, at which point an investment makes sense.
Are They Serious?
Here are a few signs that an entrepreneur may not take the business seriously enough to be successful:
- Job titles are overly vital to them, and they are generally more concerned with receiving titles and credit for the work than they are about the actual work.
- They are not focused on the customer. In fact, they may not even have a clear understanding of who their customer is or what that customer wants.
- They don’t take responsibility for problems the startup may have. They blame others for the issues and may claim there can be nothing to fix the problem.
Know your entrepreneur. An entrepreneur who isn’t committed to the cause will raise funding and ultimately waste it. You do not want to invest money in those who aren’t going to see it through.
Do They Have a Well Thought Out Plan?
They might have a great idea, but they’ll need to do more than just layout a slide deck with goals they hope to achieve. A promising startup must be able to back it up with a well-thought-out plan to accomplish those goals. Here are some questions you can ask to get a better idea of what kind of plan they have in place:
- How will they generate leads, and what does that look like?
- What is their current sales pitch/angle, and how will it work for them?
- Where are their customers coming from, and how do they make the sale?
It shows potential for investment if they’ve done their homework and have clear answers and processes in place.
Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://www.startupfundingespresso.com/calculators/
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: email@example.com