Our team is made up of founders and investors, so when the topic of 'fundable startups' arose at our last monthly meeting, some interesting takes were shared. 98% of the total funding market is made up of companies operating with less than 20 employees, yet this group has the most challenging time raising capital. This fact begs the questions "what makes a startup fundable?" And "how can more startups cross into the realm of fundability?" Below we break down the best insights from our meeting and let you know exactly what investors look for.
Startups are companies designed to grow fast.
Millions of companies are started every year, yet only a small portion of these can be considered startups. Startups are companies designed to grow fast. The benefit of achieving growth is that everything else tends to fall into place, and you can use growth like a compass to make almost every decision you face. In order for a startup to grow, it must: (1) make something lots of people want, and (2) reach and serve all of those people. This usually begins with an idea that is fairly novel. Corl uses a data-driven analytic approach to identify startups in high-growth positions. The following four qualities are the dimensions we monitor.
Financials allow your company to be evaluated efficiently.
The first element we look into is company financials. It is important to provide useful financial information that is relevant, reliable, comparable, and understandable so that investors can efficiently evaluate the company’s performance and compare it with either other businesses or previous periods’ results. Corl analyzes company financials and business model to measure sustainability, scalability, dependency, reliability, activity, liquidity, and leverage.
Only build the best. If you can't do that, you're not ready.
After financials, Corl analyzes the company’s product. During this step, it is important you are able to provide quantitative information about your product, including factors such as product-market fit, maturity and quality, supply and demand, and risk of future technology. Competition is always to be expected, so if your product involves tackling something that is hard and requires specific knowledge, that can help you get an edge.
Since Corl uses a data-driven analytic approach, numbers will do more of the talking over you sharing your “vision” for the product. Lastly, before you even apply for funding, make sure you have built only the best. If you can't do that, you're not ready for funding.
Investors are trying to find exceptional outcomes, so they are looking for something exceptional about the company ... As a startup, you have to be exceptional in at least one regard." - Naval Ravikant, CEO & Co-founder of AngelList
Don’t predict traction in advance of traction.
The company market is the next important aspect of a fundable startup. The main indicator used by investors is traction, which is quantitative evidence of market demand. You should aim to increase your core metric by roughly 20% each month. However, it is very important not to predict traction in advance of traction. Markets are efficient, and no one can predict traction. It will also be important to look at elements such as your target demographics, digital marketing and traffic, and customer acquisition channels to prove the case that your product has the opportunity to fit and thrive in the market.
Be quantitative and precise when describing you and your team.
A startup is only as good as the team behind it, so investors pay a lot of attention to who the members are. Instead of presenting yourself with qualitative and vague statements like, "a visionary with 12+ years experience in...," be quantitative and precise. Show what you have done, what you have accomplished, and your credentials.
In terms of how you recruit team members, it is important to hire the best of the best, even from the start. This doesn't mean you should acquiesce to top billable hours, but it does mean you should look at what you need and who can deliver in the best and quickest way. If you can't do that, you're probably not ready for funding.
Are you building an exceptional startup? Additional funding can help with validation, team building, product and growth.