Have you ever tried raising funds for a business or project? How was the process like? Raising capital for business is not only a difficult task because of the limited or inaccessible sources available but it is also a problem because of unpreparedness or little knowledge on investor requirements on the part of business owners or entrepreneurs seeking startup capital.
Recently, there has been a huge pool of investment and business growth opportunities ranging from grants to equity and debt financing opened for businesses in different stages of growth and industry. However, many businesses are disqualified from accessing these funds because they do not meet certain criteria. We have taken the time to list some of the common requirements investors look out for before funding a business.
- For startup funding especially for idea stage businesses, investors from the Y-Combinator, one of the biggest technology startup accelerator programs stated that they fund business ideas that
- have the potential of growing at a 20% rate yearly,
- can acquire millions of users and have a sizeable Total Addressable Market (TAM) and
- have at least one unfair advantage they can ride on to beat competition; examples being monopoly or an expertise possessed by a founder that cannot be replicated easily.
- The problem the startup is trying to solve should also be popular (encountered by many), growing, urgent, frequent and expensive to solve.
Although these requirements may seem a little far-fetched, having quite a number of these requirements as an idea stage startup position the business to attract a sizeable investment for take-off.
2. For early and growth stage businesses, investors mostly look out for
- a scalable business model,
- a reasonable number of existing customers or product users,
- good financial performance which includes several indicators used for measurements and
- a good return on investment.
In other words, if a business owner can demonstrate to the investor that money invested can be recouped, the business will be on the way to securing investment funding.
Generally, investors will conduct due diligence using a company’s financial records including bank accounts, compliance and regulatory documents, the management team and their skills and expertise among others. A business that does not have a good credit score cannot attract investment. However, that seems to be the case with several businesses as owners do not keep proper book of accounts (click here to learn more about this service) and do not fulfill their loan repayment obligations most of the time.
It is imperative that business owners check out investor requirements in order to build and position their businesses for financing whenever the need arises.