Welcome. In this post, we examine one of the most fascinating species in the world, startups. Nowhere is life more brutal and unforgiving than the co-working spaces and networking events that are the common habitat of the startup.
If a startup wants to survive to maturity it must successfully form a symbiotic relationship with an investor. But a startup needs to prepare in advance to look attractive to interested investors. What are investors looking for?
We have isolated several key traits that investors are likely to find attractive in a startup:
- Management team has a proven track record
- Startup is in a hot sector
- Functioning product
- Traction (usually this means customers or collaborators)
- Legal documentation is complete, up-to-date, and organized
- Startup is able to demonstrate how their company will reach 10X valuation in five years
The union between a startup and an investor is a careful dance. If not carefully addressed, one wrong signal can ruin a potential pairing. It is crucial for the fledgling startup to show its potential investor how they plan to overcome these pitfalls.
Startups may have a harder time finding an investor if they display the following characteristics:
- Sector is heavily developed and has a large set of competitors
- Team is missing key people or has little experience
- Product is in a very early design stage and/or has no prototype
- No customer validation
- Financial forecasts are incomplete
- Corporate documents are missing or incomplete
- Addressable market size is unclear or too small
The startup must remain prepared in case a desirable investor appears. A start up should always has their investor materials up-to-date and ready.
The most successful suitors are prepared with:
- A good short deck that describes the market opportunity, your approach, and why your team is the one to do it (and what progress you've made so far)
- Current and accurate cap table (Psst, Fidelity can help you with this!)
- Market size analysis
- Financial model
- List of milestones achieved (and to be achieved)
- Potential revenue forecasts
Competition for investors is fierce. As it is a matter of life or death for the startup, they must be prepared. Being prepared with the documents mentioned above sends a strong message of professionalism to investors. It also demonstrates transparency and commitment. Getting the investor courtship dance right may seem like an elaborate ritual, but it is crucial the survival of the noble wild startup.
Next week we will explore the relationship that some startups have formed with Fidelity. Fidelity can generate cap tables, legal documentation, and other necessities for startups, allowing the startup to focus on other vital activities.
Whenever you're ready for investors, Fidelity is ready to help you with the details.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
