Different investors use different criteria to judge an investment. The importance of these factors would wary depending on the stage of investment, sector of startup, management team etc. Listed below are typical investment criteria used by investors:
1. Market Landscape: Refers to the addressable market which the startup is catering to.
Factors: Market size, obtainable market-share, adoption rate, historical and forecasted growth rates, macroeconomic drivers, demand supply
2. Scalability and Sustainability: Startups should showcase the potential upscale in the near future, a sustainable and stable business plan.
Factors: Barriers to entry, imitation costs, growth rate, expansion plans
3. Objective and Problem Solving: The offering of the startup should be differentiated to solve a unique customer problem or to meet customer need. Ideas or products that are patented showcase deemed potential in the startups.
4. Customers & Suppliers: Laying out your customers and suppliers, helps investors understand your business better.
Factors: Customer relationships, stickiness to the product, vendor terms, existing vendors
5. Competitive Analysis: A true picture of competition and other players in the market working on similar things should be highlighted. There can never be an apple to apple comparison, but highlighting the service or product offerings of similar players in the industry is important
Factors: Number of players in the market, market share, obtainable share in the near future, product mapping to highlight similarities or differences between competitor offerings
6. Sales and Marketing: No matter how good your product or service maybe, but if does not find any end use, there is no good.
Factors: Sales forecast, targeted audiences, marketing plan for the target, conversion and retention ratio etc.
7. Financial Assessment: A detailed business model that showcases the cash inflows over the years, investments required, key milestones, break-even point and growth rates should be made out well. Assumptions used at this stage should also be reasonable and clearly mentioned.
See sample valuation template here (to be sourced under templates section)
8. Exit Avenues: A startup showcasing potential future acquirers or alliance partners becomes a valuable decision parameter for the investor
9. Management and Team: The execution and passion of founder and the management team to drive the company are equally crucial in addition to the all the factors mentioned above