Bullet Points:
- Key Criteria for Investors When Considering Startup Investments
- Detailed Future Plans and Estimations in Startup Investments
- Timing of Equity Funding for Startups
- Key Factors for Convincing Angel Investors
In a landscape where investor preferences may vary, Jennifer Lin, CEO of Choice Accelerator, accentuates the pivotal role of two crucial factors: the competence of the management team and a well-defined growth strategy.
A strong team's capabilities can significantly impact investor decisions, particularly when managing multiple investments simultaneously.
Key Criteria for Investors When Considering Startup Investments
In an interview on startup investments, Lin found the key criteria that venture Capital and angel investors consider when deciding whether to invest in a startup.
She added while acknowledging that each investor may have their own preferences and criteria, Lin emphasized the importance of two crucial factors: the capability of the management team and a clear growth plan.
Lin stated, "Every investor is different, so it is hard to say what all angel investors look for in a startup because they have different criteria and preferences.”
As an experienced investor, Lin highlighted the significance of the management team's capabilities, particularly when managing multiple investments simultaneously.
As an angel investor, she explained, based on her opinion, that the most important thing is the capability of the management team. With numerous investments, it becomes challenging for her to monitor the operations of every single company.
Therefore, if she cannot trust the founders or team members to efficiently run and scale their businesses, she will not consider investing.
Lin stressed that assessing the capability of the founders and founding team members is crucial in the decision-making process. To determine this, she expects transparency and a clear understanding of their plans for business growth.
"When founders or team members share with me their precise strategies and how they plan to expand their business, it helps me evaluate their capabilities," she added.
Lin further highlighted the significance of founders having a clear idea of their company's direction and future prospects. When investors inquire about a company's plans, estimations, and strategies, it helps investor judge if the founders have a comprehensive understanding of where their business is heading.
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Detailed Future Plans and Estimations in Startup Investments
Lin stated the significance of comprehensive future plans and estimations when evaluating startup investments.
"When investors ask questions about a company's plans, estimations, and strategies, it helps us judge if the founders or the founding team members have a clear idea about the opportunity their business holds in the market, how they can seize it, and how big they can grow their business."
Lin emphasized the need for founders to provide detailed answers regarding their future plans and estimations. She explained that even if founders are not implementing these plans at present, they must demonstrate a thorough understanding of their business's situation, weaknesses, advantages, potential competitors, and resource requirements.
"In order to succeed in the future, founders must know exactly where they stand and what they need to achieve," Lin noted. "They need to have a clear vision of their strengths and weaknesses. With the right capital injection, they can turn their plans into reality."
When discussing future plans and estimations, Lin expressed the importance of founders providing precise and detailed answers. She remarked, "I want to hear the capability of analyzing things with details.”
As an investor, she needs the founders to describe their business model in detail and highlight the team's capacities to generate revenue in the future.
Lin further emphasized the significance of logical estimations and assumptions when presenting future projections. While some numbers may be estimates, founders need to provide the logic behind their estimations.
She explained, "They should explain how they arrived at these numbers, the formulas they used, and the assumptions made. It is crucial to assess the reasonableness of these assumptions and explore how they plan to achieve them."
Lin's focus on detailed future plans, logical estimations, and clear business models highlights the importance of a well-thought-out strategy for attracting investment.
Startups seeking funding should ensure they can provide comprehensive answers to questions regarding their future plans, estimations, and assumptions.
Timing of Equity Funding for Startups
Lin said the benefits of equity investment, highlighting the strategic resources that investors can provide to support the growth of a startup.
"One of the good things about equity funding is that if your investor has other resources, such as mentorship abilities, connections with other companies, or experience in doing business in overseas countries, they can potentially introduce these resources to help your startup," she explained.
Since equity investors become shareholders, they are motivated to assist the founder teams in various ways, including sharing their own resources. By securing equity investors, the founder teams gain access to their strategic resources as well.
Lin also noted that equity investment is a long-term commitment, which makes it particularly suitable for startups in the early stages.
"If your business is still in its infancy and lacks stable cash flow and personnel, you may not be able to pay back interest rates on loans," she said.
Lin added that in such cases, equity investment is advantageous because entrepreneurs do not need to pay interest on the funds. “However, it is important to consider the specific circumstances of the company, as there is no one-size-fits-all solution. Sometimes it may be more appropriate to seek a loan instead of equity funding."
When asked about the right time for founders to approach potential investors, Lin suggested that founders should have already committed significant resources to their company.
She explained that while some founders may have the support of wealthy families or friends for early-stage funding, others may need to rely on personal savings or loans. Lin emphasized that approaching investors becomes easier when founders have demonstrated their own commitment to the venture.
"It is better to have already invested a substantial amount in your own company before approaching investors," Lin stated, regarding when founders have invested heavily in their own companies and have exhausted their personal resources.
“It shows investors that they have done everything they can. Investors understand that founders may not be able to invest further due to limited resources, which is why they seek external funding,” she added.
Founders need to demonstrate commitment when approaching investors. Startups should carefully consider their specific circumstances and weigh the advantages and disadvantages of equity investment before making funding decisions.
Key Factors for Convincing Angel Investors
Lin shared valuable insights into the factors that can influence the decision of angel investors to fund startups. According to Lin, if founders have not invested in their own company and only have an idea, it can be challenging to convince angel investors to provide funding.
"If the founders haven't taken any risks and are treating their startup as a side project while maintaining a full-time job, it will be comparatively harder to persuade angel investors to invest in your venture," she said.
Lin explained investors want to see the alignment of interests. They expect founders to take on risks and be fully committed to their early-stage startup. When founders take risks and we, as investors, risk our own money to support them, it creates an alignment of interests.
Lin further suggested that having a basic Minimum Viable Product (MVP) or a trial version of the product or service is beneficial when approaching angel investors.
"If you have already developed a product, service, or platform that represents your business offering and you are seeking additional resources for marketing and promotion, it is a much better time to approach angel investors," Lin stated.
She added that without a tangible product, it becomes difficult for angel investors to envision the kind of products they will be able to provide. They need to know if the founder can turn their vision into reality.
“The level of risk is too high if you haven't yet demonstrated the viability of your product. However, if you can showcase a basic version of your product and highlight its potential for improvement and market promotion, angel investors will perceive a more acceptable level of risk," she explained.
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