Lately there have been a lot of similar discussions here about fundraising: When (or if) to seek investment? Am I ready for investment? What makes the investors invest?
All these are basically the same question, and, no doubt, a hugely important one. So, after reading all the discussions, I've summed them up in the following list (adding anything else I could think of as well). Can you think of any other factor?
Now, I submit that if, after going through this list, you manage to get a total of 10 points or more (the more, the better), then you have a good chance of finding an investor. If you get less than 10, then keep working on your startup - you're not ready for an investment. For those who have ever done fundraising (successfully or not), try testing this hypothesis - calculate your score (at the time you were fundraising) and see if your score matches the actual outcome. Did you get 10+ points but you fundraising failed, or vice versa? In either case let me know.
Strong factors (+10 points each):
- "Shark founder" - founder who've made an 8-9-figure exit recently, and/or well connected on the highest levels, and/or a teenage progeny
- "Hockey stick" - huge and exponentially growing number of users (or, better yet, revenues)
- "Personal pain" - your startup can make something that certain investors sorely need, e.g. a cure from illness (for private investor), vital technology (for industry-based VC)
- "Personal favor" - the investor is a very close friend / family member
Medium factors (+4 points each):
- "Dream team" - your team is the right size (2-4 founders + advisers), with all the talent and experience you need to go to market (technical+business), and great interpersonal dynamics
- "Endorsement" - a reputable person/organization has vouched for you (including accelerators and incubators)
- "Strong business plan" - big and growing market + competitive advantage + validated business model + marketing strategy + exit strategy
- "Strong traction" - significant and growing user base, even if not exponential, preferably including paying customers (even if few)
- "Strong IP" - you have patents (or at least patent pending)
- "Copycatting opportunity" - your startup is based on (inspired by) a big recent success in another niche, segment, or location (e.g. Tinder for employers&employees, Uber for boats, Netflix in China... just some random examples)
Weak factors (+1 point each):
- Exceptionally brilliant idea (can't imagine one, but sure, why not)
- Having a working prototype (at least you got proof of concept)
- "TMM" (Too Much Money) - the investor doesn't care about money, in fact tries to get rid of it (e.g. so those rotten spoiled kids won't get it)
- "Jedi mind trick" - your power of persuasion is extraordinary, you could sell snow to Inuits
Negative factors (-5 points each):
- You are a "solopreneur" (a sole founder with no team)
- You've been fundraising in vane for more than 6 months, with no real progress on the startup
- There are some (though not critical) legal issues with your product/business (e.g. possible patent violation, disgruntled former co-founder, etc.)