Many entrepreneurs look to investors to help grow their business. Instead of taking a loan that they have to pay back, they are willing to give up some ownership of their company (equity) in exchange for cash. But what do investors really look for in a company they want to invest in??
The first gate is uniqueness. If there is nothing different about what you are doing, then investors will not invest in you. End of story. If you are the same as the incumbent (the business that is already in market), they will beat you. Be different! Be better!
Total Addressable Market (TAM)
The second key factor is the Total Addressable Market (TAM). This is the amount of money you would make if everybody who could buy your product, did. Let’s say you are selling car stereos in Ghana. Your TAM = # of cars in Ghana * price of the stereo. Knowing you’ll get a small slice, investors want the TAM to be large enough to be interesting.
The third factor is the team. Many investors will throw out a business plan if there are less than 2 co-founders or more than 4. They want all the key experiences covered. If you are building an app, can someone code? If you are making a medical product, is someone a doctor? Have your worked together before?
Investors like companies where you can inexpensively scale your business across, i.e. Ghana and then across Africa or the world. This is why investors love software but are wary of investing in product companies. But as long as you have a process that is codified to build a team and sell something for more than it costs, you can find an investor.
Investors think about the exit before they enter. If someone buys shares in your business, they only make money if they can sell those shares for more than they bought them for. This means another company needs to buy you or you need to list on a stock exchange. If you have no exit, consider profit sharing.
Lastly, investors like to invest in things they know. Look for investors that have experience in your market and your industry. If you don’t know where to start, check out this list: http://tiny.cc/AfricaTech_View. Just make sure you follow the rules.
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