What Investors are Looking For in Startup Companies

If you are interested in creating your own startup business, it is highly likely that you will need investors to finance your new company. Unless you are fortunate enough (and bold enough) to be able to fund your venture alone, tracking down and securing investment capital for your startup will take as much of your time, if not more, than actually forming and operating your business. Knowing what investors are looking for when they compare different startup opportunities is critical in finding the funds you need to enable your company to go to the next level.

Talent on the Team

Young companies are made or broken on their talent and experience. Savvy investors want to see teams with impressive resumes and a record of past successes. Accordingly, retaining the appropriate executives and advisors is extremely important in startup success. Of course, this will usually require some form of compensation. Since most startups lack the ability to pay the requisite cash compensation, you will need to create an appropriate equity incentive plan (aka stock option plan) and incentivize your team with equity in your company. Equity incentive plans can be structured in a variety of ways and have a lot of rules and regulations associated with them. It is imperative that you start off with an appropriate structure and comply with the legal requirements of stock options, restricted stock, and other forms of equity compensation to avoid serious issues later on.

Solid Business Plan and Market Potential

You cannot start a business without a business plan, and no investor is going to put money into a business lacking a solid, well thought-out outline of how the business will operate and where it intends to go. While many VCs seek small businesses with niche markets, many others seek businesses that can grow exponentially. You will need to conduct a thorough and solid SWOT analysis of your business: Strengths, Weaknesses, Opportunities, and Threats. Opportunities include an accurate assessment of the potential market size for your business, which is one of the most important elements of any new business. At the same time, you need to provide full disclosure as to Threats – which may include competition and government regulation – and how you intend to address such issues.

Legal Competency

Startup businesses need to have certain legal aspects of their business settled before seeking investment capital. If an investor has questions about your business plan, entity structure, capitalization, regulations, or legislation, you need to be ready to answer accordingly. It is essential that you work with an experienced startup attorney to make sure everything is in order.
Launching a startup is not just about finding an investor to put money into your business. It’s about finding the right investor for your particular business. With a strong foundation, a thorough business plan, and legal help from your trusted startup attorney – to assist you in navigating the capital investment process – you should be on your way to finding the investment capital you need.
For further information or to schedule an appointment with an experienced and reputable startup attorney in Los Angeles at Hakim Law Group please contact us at 310.993.2203 or visit www.HakimLawGroup.com.