Creating a startup investment proposal is daunting. In order to stand out and catch the attention of potential investors, you need to clearly articulate why your company deserves their time and money.
Investors are constantly on the lookout for a great startup investment proposal that have a great chance of becoming profitable in the near future. You can do this with a viable business plan and by incorporating solid metrics into your financials.
Before sending your startup investment proposal to investors, the first step is to understand what an investment analyst looks for when evaluating companies for funding.
Keep reading to learn more about the key elements of a successful investment proposal, how to structure your pitch, and examples from real startups that successfully raised capital.
What do investors look for in startup investment proposals?
Investors are looking for many things when evaluating startups for potential funding. Some of the most important things that investors try to look for are:
– Strong financial metrics: This is probably the most important aspect of a proposal. Can the company successfully grow its revenue and reach profitability? How many customers are they serving? What are the costs associated with operating the business? What is the cash flow?
– Product market fit: Does the company have a market they are servicing? Is this a real need in the industry or are they solving a niche problem that no one has? It is crucial that the startup shows in the proposal enough validation and evidence for the product-market fit.
– Business model: What will the company make, and how? What are their sources of revenue? How much have they been able to achieve so far? A great tool for the proposal is the business model canvas (or recently the lean canvas) where all the main elements of a business model is included.
– Team fit: Who are the key people who will manage the company? Is the management team diverse enough? Do they have relevant experience? Are there any major red flags that investors need to be aware of? You need to sufficiently these critical questions in the investment proposal.
– Company vision and culture: What is your vision and how does it link you to the investor? Is the company culture one that investors can get behind? Is it one that investors feel they can benefit from working at? Make sure you answer these questions within the investment proposal and in your pitch.
Research the investor you are approaching
Next, you will want to research the investor you are pitching to. As we explain in this post extensively for the case of angel investors, learning about your investors and what they prioritize can give you an edge what you should emphasize in the proposal.
The more you know about who they are and what they look for in investment proposals, the better your proposal will be.
This is particularly important when the investor you are pitching to is a high-profile individual. Doing research on these investors are not so difficult because you can find tons of info about their vision and characteristics.
Doing research on investors can positively surprise them and help your proposal to stand our because they perhaps do not expect a comprehensive research on your side and get the impression that you are determined and serious about your proposal.
Define how much you need and how long you want to hold it
You will want to clearly define how much you need and how long you want to hold it for. Investors are interested in funding startups, but they are also very cautious and aware of risk.
They will generally try to avoid funding investments where the risk outweighs the reward (which makes sense). This is why you will generally see a pre-money valuation attached to investment deals.
The lower the valuation at which you are getting invested, the less the investor is risking. However, the investment will also be smaller, and the return will be much lower. Additionally, small investments mean less resources that might be otherwise needed to build up a successful venture.
Based on our experience, many investors prefer to invest in startups in two main phases: 1) The preparation phase where startups prepare all conditions and needed resources to produce or launch a service such as product design, suppliers, payment gateways, etc. 2) The production phase where the money is directly invested in producing more or gaining traction for a service such as growth marketing, etc.
How to structure a successful startup proposal
Now that you have defined your investment concept, the next step is to structure your proposal. There are different ways to structure your investment proposal, depending on the type of investor you are pitching to.
– Venture Capital: Venture capitalists are typically interested in funding early-stage companies. Therefore, you will want to focus on the company’s traction and growth over the short term. You will also want to highlight the team members and their experience. In some cases, investors will want to see a detailed business plan. These deals can be very lucrative, but they also require a significant amount of up-front work.
– Hedge Funds: Hedge funds are typically looking to invest in profitable companies that are ready for an exit. Therefore, the investment proposal will focus on the company’s financials and its growth potential. You will likely have a shorter investment period (a few months) as well as a lower valuation.
– Private Equity: Private equity firms are typically looking for larger investments in companies that have proven track records and have significant growth potential. Therefore, your primary focus will be on the company’s profitability and cash flow.
A sample investment proposal
You can find samples of good startup investment proposals here and here. We suggest you carefully browse several proposals in these webpages to learn about how you can structure the proposal.
Tips and Tricks for writing a good investment proposal
In addition to what we have suggested so far, you can consider the following points:
– Keep your proposal concise: Investors are busy people, and it can be easy to get lost in research or reading through lengthy business plans. Keep your presentation short, to the point and sweet so that investors can get right down to the business of making a decision on your company.
– Highlight the founder(s): This is a basic rule of thumb, but it is also an important part of your investment proposal. Investors want to get to know the people behind the company, and they will want to see your founder pitch in the proposal.
– Use graphs and charts: When possible, incorporate graphs and charts into your investment proposal to further illustrate your key metrics. They can help investors visualize your metrics and ease their decision-making process.
Conclusion
Creating a startup investment proposal is a big undertaking, but it does not have to be overwhelming. By keeping the following guidelines in mind, you can successfully navigate the process and obtain the funding you need.
Bon courage!
