How to prepare your startup for investor scrutiny
As a startup owner, you think it is the right time for you to go out and seek funding for scaling up. It is a bit tough to reach out to the investors. You might have crossed that stage and would have done the pitch. The investors would have liked your story and would have given you a thumbs up. However, the biggest hurdle is to get the money in the bank. The money comes in after the due diligence is done. The due diligence activity can make or break the process. We will discuss a few things you have to prepare at your end for this stage.
- Key Personnel review
The investors would like to talk to the key stakeholders in the organization. This will include the founding team and also the other heads of the departments. The investors would like to retain the people post the acquisition and would like to see if they are investing in the right people. Hence, this review is important as the investor will gain the confidence that they can scale and build a larger business with the key personnel involved.
- Product Market Fit
You will have to ensure that the product you are building has a bigger product market fit. This means that you have identified your ideal buyer persona. It also means that you have identified their business pain points and have built a product to solve those. The identified market should also be large enough to justify the business to scale.
- Existing customer satisfaction
Your initial sets of customers are the ones who validated your assumptions on the product you have built. They have given you the initial sets of business. The investors would like to see if those customers are satisfied with your solution. They would like to talk to them and find out how they have used your solutions and how they have benefitted. They would also understand the practical issues your customers faced while using the solution. This will give them a good understanding of the scalability
- Differentiation and Scalability
The next important evaluation will be on the product itself. Every product should have at least one differentiator. Investors won’t be comfortable with a product that has no differentiation. The investors would evaluate multiple other products in the market and would like to know how unique this differentiation is. They would also like to know the market in terms of size and would like to figure out how large the market is.
- Traction in the market place
It is a bit alright if there is no profit. However, the investors would like to see the customer traction that has happened. They would like to see the constant customer acquisition that increases with time. Net new customers as a metric is also important in addition to the existing customers increasing share of wallet. This gives them the confidence that there is a demand for the product as new customers keep buying.
To conclude, I hope the blog gives you an overall understanding of how the investors will do the due diligence. you will have to prepare your organization. You will be able to favorably win over the investor’s due diligence team. You will then move positively towards getting the money in the bank;