By that I mean, that the’investor’ is neither an Entrepreneur nor the’target customer’.
Third Part Investors exist purely as financial guys looking to make more money than the stock market. They mostly follow the equity route(that is picking up equity in a company) rather than debt. Since the investment is decidedly riskier than the stock market the investor can afford to demand a premium. This how VCs mostly operate.
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*What an investor looks for*
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- Desired People Qualities:
The Entrepreneur and the team backing him need to be committed to the company. Anyone that comes to me and tries and’diffrentiate’ between himself and his company does not earn brownie points for either. The people behind a company need to be **extremely** committed, patient, stubborn and confident. Half of the time an Entrepreneur is depressed, where only his confidence in himself and belief in the company can keep him going. I would make sure that the people behind the company have the stuff to last them through lean times.
- IP:
Some Intellectual Property(IP) has to exist in the proposition. If its just a service without any kind of lock-in then one shouldn’t invest. In a highly competitive scenario someone or the other is bound to duplicate the process if there is no IP. It is not necessary always to have some’patentable technology’ to exist in a product/service. A lock-in could easily be something like’process being too high-end’ in which case it would not be easy to copy.
- Identifying the need:
This is **very** important. Most of the time people perceive that all a company needs is money to be successful. That is almost **NEVER TRUE**. Money is just one of the things needed. As an investor I would try and identify what value I can add to the investment(client company) besides just money. This value-add could be in numerous ways. It could be in the form of providing infrastructure support, helping in setting up processes, providing help with setting up Marketing/Sales strategy, putting them in touch with intended customers etc.
- Vision:
When an Entrepreneur walks in I want him to tell me that he can capture a customer on the moon. Then I can be atleast assured that he can reach the US markets. Seriously, if someone aims low and achieves it, its not something to be proud of but a huge tragedy. The sights need to be HIGH!
- Meticulous Planning:
Even though NOTHING goes according to plan when one is dealing with startups still Business Plans and other forms of planning documents are very important. Otherwise very soon a person loses his/her orientation.
- Keep Costs Low:
This is perhaps the one thats the **most difficult** for a lot of people. But its also VERY VERY important. Till and until one can manage his costs I would never like to put any money into the venture. You always have people fresh from getting investments, opening offices all over the place. I would rather they put the investments back into product development so that’future revenues’ are assured. Sorry to say but only a handful of people realise the importance of long-term!
Given compliance with the above points, an investor in a startup scenario should have a success ratio of 1:20 which is 5 times the industry average. How can I guarantee that? Well I work with people who have actually stuck to those guidelines and achieved that result! So believe me when I say it can be done!’cos it already has been:-)