5 Things Investors Look Out For in a Business Before Investing

Investors are not Santa Claus.

They don’t give their money away just for the sake of investing or helping a business survive.

In real terms, investors are opportunists. They scour the market to find the best business opportunities that can give them the most return in the shortest time possible.

There are certain criteria that tick the boxes for most investors when it comes to investing in businesses. If you must attract the right investor with the right capital, then your business should at least have some of those criteria.

In this article, we’ll be looking at 5 things, features or criteria that investors look out for in businesses they invest in.

Let’s take a dive.

Market Size

The market size is the most important indicator for scalability.

Investors love scalable businesses because scalable businesses give them the most returns on investment.

Investors want to invest in businesses with market sizes worth millions if not billions of dollars.

So, no matter how ingenuine or innovative your business is, if the market size is not large enough, most investors would not invest in you.

Team Experience

Team experience is the bread and butter of most venture capitalists.

I’ve seen investors invest in experienced teams that only have a prototype but ignore inexperienced teams that are already in business.

Experience screams one thing: CAN DO.

An experienced team is a team that has built a successful business or successful businesses before.

They have walked the journey, built the network, and showed that they can do that over and over again.

Who wouldn’t invest in that?

One of the fastest ways to attract investors and raise huge capital for your business is to find and convince experienced people to join your team.

The more recognized your experienced team members are in the industry, the easier it would be to raise capital.

Market Situation

When investors find the right opportunity to invest in, they don’t just throw their money in and go to sleep.

They know that markets can be destructive and it doesn’t matter how big an opportunity is. The market can fold due to global crisis, government policies, heavy competition, or change in consumer behavior.

Investors want to know the short-term and long-term trends and behaviors in the market they are investing in.

If the long-term prospect of the market is poor, then few investors would be willing to invest.

Business Model

How will your business make money?

Many entrepreneurs dread this question, but it is a very important one for any investor that is serious about investing in a business.

The business financial is the skeleton and the spine of any business. The more clarity a business gives in terms of how they make money and utilize money, the more investor confidence they can create.

So, when an investor asks, “what is your business model?” They actually want to know where and how a business would be making money.

Giving customers free access to a service is not a business model.

Changing the way the world uses transport is not a business model.

A business model is the way your business collects money from customers and grows it’s revenues. 

Product Scalability

Most investors are “income sharks”. They want to multiply their investment as much as possible in the shortest time. 

It is not unheard of for investors to be looking for returns as high as 100x in under 10 years.

Now, the returns an investor gets would depend on how much the business can grow and generate revenue. Big businesses generate big revenues, while small businesses generate small revenues.

Therefore, investors are looking for businesses with products that are scalable. The general belief is that businesses that have high ceilings can grow exponentially.

If the business proves that its products have high scalability, then most investors would be willing to take the risk in return for long-term gains.

Share: