A few weeks ago, I had the pleasure of speaking to a group of female entrepreneurs / CEOs participating in LaunchPad 2X, on the topic of “Assessing Companies: What Makes A Company Fundable?” I tried to convey the concept of the business as being evaluated as a total package, wherein investors in early-stage companies are looking at the opportunity’s market (size), customers (who pays and will they pay), technology (IP, “secret sauce” and or barriers-to-entry), competitors (today and potential), and team (experience and related experience are sometimes two very different things). Nothing probably most hadn’t read or heard before: a fundable company needs to have multiple strengths across multiple areas for an investor to get excited. Certainly in an early-stage company, rarely are all the areas fully developed – so that makes it sometimes all the more challenging for the company to address and the investor to evaluate. From the investor perspective, there’s always somewhat of a leap of faith based when making an early-stage investment, as many times the company is typically raising capital to address the areas yet to be proven. The background of the Founder/CEO, and moreover their ability to connect with the investor by articulating their plan, passion and ability to build their business lies at the heart of what I’ve seen gets investors to write checks. When founders/CEOs are trying to transition to this next stage from “doing it all” to scaling their company, leadership is sometimes shown when the founder/CEO is clear that they know what they don’t know – and they know what they need help with. The better the investor can grasp not only what the company’s strengths, but what the company is missing and whether those risks are addressable, the better chance the company has for funding. For the audience I was speaking to, especially for those contemplating going out and raising capital from traditional angel investors, this point might have been one of the most important points.
What do you consider to be the most important factor in evaluating an early-stage company? Will the factors different for early-stage investors investing via crowdfunding vs. traditional angel investment?
Written by Melanie B. Leeth, Angel Investor & Board Member.