Most important criterias startup investors look for

The two most important criteria startup investors look for

Investors look for business ideas larger than life and a great founding team.

Each investment needs to have great potential since investors know that most investments fail to meet their targets.

A few great investments need to cover also for failed investments. The problem is: No one knows from the start which those investments are.

Business ideas larger than life is what investors look for

Startup investors look for business ideas larger than life because return requirements are high, and most investments will fail. A few great investments will have to cover also for many failed investments.

You need to have a business idea larger than life if you have modest revenue in the early year. With 30 – 40% annual return requirement quickly accumulate to large expectations.

YearAnnual req.ValueConsequence
0 10 
130%13 (10 x 1,3)Sales needs to start
230%17 (13 x 1,3)Sales really needs to pick up
330%22 (17 x 1,3)Massive growth opportunity necessary

The sad true is that most ventures fail to meet investors tough milestone requirements. A few successful investments need to pay also for failed investments.

Not knowing which investments will outsmart all other investments, means that all business ideas need to be larger than life. That is what investors look for.

Read more on how to grow sales with early adopters.

Investors look for great founding teams

Execution is everything and investors therefor look for great founding teams. Teams that can make a real difference.

Investors look for 5 skills in great founding teams:

  • Energy – building a business I tough.
  • Execution skills – how to skills and the ability to get things done are important.
  • Complementary experience and knowhow – make a business grow faster.
  • Leadership qualities – to
  • Endurance.

All of these 5 skills are skills that a venture needs to become successful.

So, which are the 3 reasons why investors look for great founding teams and not for a great founder?

  1. A founding team can do more than one founder.
  2. Single person dependency is something that quickly becomes a bottleneck growing a business.
  3. A single founder often tends to hire cheaper, junior staff, which makes a business grow slower compared with a more seasoned and senior team.

Why investors look at the business idea and the team

It’s quite obvious that investors look for great business idea and great teams, since these two criterias determines potential.

“A great business idea with a great team is unbeatable even if market conditions are weak. A strong market does not help with a poorly executed poor business idea.”

It may seem that most business ideas are already invented, but details and execution is what often makes a difference.

Investors look for business ideas larger than life because that indicates the potential. Of course, the relevant market needs to be identified but that mega large business idea is most important.

Investors look for great founding teams because time and execution are of the essence. There is really hard to build investor value unless sales and delivery start to grow, fast.

When does other critierias become important to investor’s

Other criterias become important to investors once sales and delivery generate revenue and starts to give proof of concept.

There are 2 reasons why investors like to see a minimum viable product, but not much product development, until sales grow:

  1. Startups need to focus on generating revenue, as real proof of concept to investors.
  2. Startups will learn from its customers what product features that are truly appreciated.

Investors look for other criterias than the business idea and the team once sales has taken off.

What to do if your business has other investor qualities

If you are the sole founder with a yet to be proven product you need to focus on early sales. As a sole founder you shall also consider inviting co-founders, or at least recruit as many senior colleagues as possible.

You shall strive to develop your business idea and your team if your business has other investor qualities.

How to strengthen important criterias startup investors look for

Focus on strengthening your team and to develop your grand vision business idea. Try to remember that professional investors need to believe that each investment has unicorn potential.

  • Develop why your business idea is ground-breaking with mega potential. Make a relevant market analysis to support your thesis.
  • Find senior colleagues with complementary skills to yourself.

Investors look for business ideas larger than life and great founding teams. Investors simply do not know for sure which of their investments that will succeed and which that will fail.

Summary: Why investors look for great business ideas and teams

Are there any exceptions to these two most important criterias startup investors look for? Yes, of course. Many angel investors or less established venture capital investors may have other requirements.

“Few investors look for ordinary mam and pop type businesses with ordinary business ideas and founders.”

Investors know that most investments will fail to meet return requirement. All investments need to have great potential from the start, or the investor will see a poor investment return himself.

A common startup investor theme is to look for the unusual. Some investors look for ideas larger than life, others look for manic control freaks, all look for great teams.

Read more about product market fit.

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