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Five Questions Investors Ask Before Investing In Tech Startups

Someone once said that money is the reward for solving problems; to get more money, solve more problems. The world responds to solution providers and people willing to give and serve rather than take from what is in their hand. This implies that in order to earn $1 million, you have to solve a problem worth $1 million and that cannot be only a roadside pure water business. Many startups have big ideas on what could work or what kind of problem they hope to solve and may require funding at some point in other to deliver to the market or expand the reach, and so look out for investors to invest in their business. Before any tech startup starts looking for an angel investor, they must be able to answer these questions satisfactorily as this is just one stage in what the investors will consider before choosing to fund a startup. Here are five of them:

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Do you have a clear business model?

What problem are you solving? What experiments have you carried out to validate the market and receive important feedback from the potential users on the product? This means you must be able to show in a clear and concise manner the market potential, team capability, exit strategy, revenue model, competitor analysis and the Minimum Viable Product that proves you have a good business model that is worth investing in.

What are the risks and returns?

Investors are first humans and like everyone else, they have varying levels of risk appetite; usually, they are open to taking calculated risks in which they would not lose too much after investing. Starting a business is a risk and so is funding one. As a tech startup founder, it is not enough to have a beautiful website or app and nice product but to ensure that you are well aware of the risks involved in the business through the market, customer, and product. Develop a risk mitigation strategy that addresses the risks such that it ends up being a win eventually.

Do you have skin in the game?

Unfortunately, some investors have had bad experiences like few months after investing in a startup, the founders move on to another big idea and compete for funding for that idea. As such, some investors look at how much you have invested in the idea you are currently working on, they would want proof of your confidence in your idea which is shown in your speech, dedication, financial records etc. Investors are more comfortable with funding a startup when they have started and fleshed out their idea to a certain level – this shows commitment to the idea.

What kind of team are you?

Good investors invest in people and not merely ideas. There is a famous saying that if you give a good man a bad idea, he will make it work but if you give a very good idea to someone incapable, it will still not work. Ideas are worth a dime ordinarily but with the right perspective and approach, it can be the deal-breaker. A passionate team willing to learn and grow with a track record of commitment but with a bad idea will always win an investor over compared to a competitor with a great idea but arrogance.

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How does the books look like?

A bad startup never to invest in is one that does not keep record and as such cannot track down the profit obtained from the startup expenditure and revenue obtained from other sources of funding or sales. What this means is that there is no financial structure in place to help the business thrive and having board members may not be enough to solve personal issues of that nature.

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Aanuoluwapo Olajide is a freelance writer who believes that words are fundamental blocks and are the force of life and death. She is a tech enthusiast, fashion designer and a lover of words.

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