To attract venture investment, it’s not enough to have a skilled team and MVP. Here are 5 less obvious (but still quite significant!) things that will help make your project attractive to investors.
The Advisory Board Is What You Definitely Need for Your Startup
For startups that are engaged in creating complex technological products, creating an advisory board is a mandatory process before going to a venture capital investor. If your meanalized or software processing app for the development of geological fields is created without consulting specialized scientists (preferably from Stanford or Berkeley), you will simply not be seriously perceived.
There is also the opinion that the advisory board makes sense to collect even before creating a startup (especially this is relevant for high-tech business). Suppose you want to make a product at the junction of medicine and biotechnology, and in your team, there are economists, marketers, and programmers. Then on the zero stage, you will need external advisers. If the team has at least one biologist or medic, then prominent scientists can be connected to the project later - when there is already MVP on your hands or a set of ready-made hypotheses for testing.
Some startups underestimate the need for the advisory board because they do not see any need for such advice. And they are deeply mistaken. Scientists and marketing experts are a huge help for its rapid growth and development. With the advisory board, you will receive valuable expertise. So you will save money and can grow faster. And for a potential investor, the advisory board will be a good sign that you are all serious - and the risks of investment are reduced.
Where can you find advisers? Startup can offer the most top scientists to become part of its advisory board - this is a common and well-developed practice.
Start Testing the Hypotheses With Money
For your hypothesis, your potential customers must vote with money - otherwise it does not stand for anything. Startup owners like to poll a hundred or even a thousand people, asking the question: “Do you buy our goods?” Having received a lot of affirmative answers, they joyfully run to the investor for money - and receive a refusal. Why? Because an investor has read the book by Rob Fitzpatrick called “The Mom Test: How to Talk to Customers and Learn If Your Business is a Good Idea when Everyone is Lying to You.” He knows that these potential customers overestimate their readiness to buy a product. When it comes to a real purchase and money, we will get completely different numbers.
Practice shows that the starter can overestimate the demand up to 10 times. So, it is better to test your hypothesis with sales. Otherwise, it will be like you are testing your luck and playing Roulette online game, but not launching a new business. If the product is paid, it means there is a market and demand, you will have something to show the investor. Everything else is nothing more than fantasy.
Test Value Proposition Before the Product Appears
It seems, all startup owners have learned that it is unnecessary to finish the product to perfection before market sales are even harmful. It is enough to make MVP and proceed to testing demand. But you can go even further: start checking the hypotheses about the Value Proposition before the product is created. So you will save on the development of MVP, which, in case of an erroneous idea of the value of the product for users, can go to the garbage immediately after entering the market.
Here are two examples. The first is an application in the field of mental health. The team had a hypothesis that people need comfortable video consultations with a therapist. So, the startup was going to create an expensive and time-consuming platform. But the team still decided to test their hypothesis and find out what format would be more convenient. They launched advertising, which led people to the appropriate survey. It turned out that people want to communicate with a psychotherapist mainly in the messengers. As a result, the Value Proposition has completely changed - the project now offers clients an anonymous and inexpensive opportunity to communicate with a psychologist at any convenient time.
The service has become cheaper than full-time meetings with a psychologist and even the options for competitors because there was no investment in the video platform. Now the product has its own niche.
The second example is a project producing electric motorcycles. Startups had no MVP - they just came up with the site and made the “Pre-ordered for $1000” button (the product itself, of course, will cost more). As a result, they collected orders for $18 million! With such a powerful confirmation of demand, they must go to investors, ask for another $50 million, buy batteries, and start production. This startup plans to release the first batch of motorcycles already in 2022, and if it does not work, it will return the money to those who issued pre-ordered, or will offer them to wait. After all, there is no task to steal money from the users - only the desire to demonstrate to the investor that there is a demand and it is worthwhile to be in creating a large production.
Make a Financial Model
Some funds ask to provide them with P&L in a particular format. So their analysts will be more convenient to work with the data. Find out if there are such demands from the funds to which you are going to go, and make P&L in the right format. It immediately adds to your points. But most often startup founders can create their financial model themselves. They can fully uncover their creative potential.
If there is not a single economist or financier in the team, it is worth drawing to the preparation or verification of the P&L expert on venture capital financing. If you are going to work in the international market, be sure to attract an experienced expert.
Constantly Look for a Better Business Model
Beginners sometimes confuse the financial and business model. Of course, these are interrelated, but still fundamentally different things. The financial model is the flow of income and expenses. How much will you sell in the first month? How much will an armchair for your accountant cost? In general, a financial model is a business in numbers. And the business model is how you will make money using the Value Proposition.
For example, an app in the field of mental health gets a feel for connecting customers and psychologists, and also provides them with the opportunity to communicate according to the developed methodology, which is the business model of this startup. Your main task is to change your business model to understand, in what form it is most stable and scalable.