What is the most important factor in an investor's decision whether to invest?
I know there are several things to get across in an investor pitch, including problem, solution, size of market and team, but what is the most critical thing to emphasize? Is it the team or the market or something else?
What counts the most is "confidence" - confidence that there's a chance to make a return on the investment. That's simple, but then things get fuzzy rapidly. First, there's "return." Most investors want a financial return, especially for larger investments, but some are looking more broadly (i.e., "to change the world"). You need to tailor your pitch to this. Further, there is a time value to returns and you need to fit the investor's timeframe. (For many VCs, the fund expires at a certain point and they need an exit before then.)
Then you get to "confidence there's a chance." There are many aspects here: market, value of problem solved, value capture (business model), intellectual property... and team. The first set can be summarized by effectively answering two questions: "Where's the money?" and "Who's going to make it?" (These I got from my strategy professor, Rebecca Henderson.)
Finally, there's the team. Investors evaluate a number of things here, all of which impact their assessment of what chances you have. First, do you have all the people you need to execute the current phase of the business? (Experience matters: investors prefer people who have made mistakes and learned to ones who will make mistakes on their dime.) Second, can you attract great people as you grow? And, last but perhaps most, is the team credible, smart, charismatic/evangelical, and committed enough?
It's that last thing that you can't plan to pitch - you either (know how to) click with the right investors or you don't. Therefore, it's always best if you've established the relationship... that you'll click... well ahead of the pitch.
The most important factor in their decision will vary depending upon several factors including the type of investment and the stage of the company.
However, don't expect them to make a "buy" decision in your pitch. The goal should be to generate enough interest that they will want to take the next step.
From our work with clients, we've determined that for early stage companies- two conditions always exist before the check is written.
I spent a few years covering startups as a business reporter. One question I always asked VCs was this: What really was the deciding factor for investing in a particular company?
The answer was always the same: An entrepreneur who was determined to succeed. (Most also agreed the majority of business plans they saw weren't worth the paper they were printed on.)
Investors need to answer one question, "Do I believe this person/team can accomplish the goals needed for me to make a profit in the timeframe I want?"
Right, isn't that what we're talking a about. So, everything the investors are told, showed, etc all goes to answering that question.
Yes, there are subordinate questions investors are asking:
Are these people open minded and teachable?
Will they take feedback and make needed adjustments?
Are they confident or arrogant?
Do I trust the people?
Do I believe their numbers?
Do I see a big enough market to support the numbers?
Do I see people spending their hard earned money on this product?
Do I see a problem that the market place is already looking to solve?
Do I think their systems and processes will handle growth?
Can this team create the systems and processes to handle the speed of growth?
Do I trust these people with my money?
So, the most important task is to ask these questions until you can truthfully answer them from the investors point-of-view.
Good luck, make it happen
Keep Business Simple, To Keep Taking Action
Investors are going to look to at the "whole package" when deciding if your business idea is worth the risk to invest. It is impossible for investors to make their decision on just one factor, but there are areas of the business you can focus on that are more important than the rest. The Business.com guide, Is Your Startup Ready for an Angel Investor? lists the 6 areas most important to investors.
1. A disruptive innovation
2. Shared risk
3. A business that can scale
4. A realistic business plan
5. Signs of success
6. A strong team of founders
If your business has addressed each area, then it is ready to take on an investor.
If your business is unprepared in one of the six areas, it is important not to rush to fix it. Finding the right investor to approach takes time and so should the preparation.
#1 - How long before the investors money will be returned/regained (projected). Then the long term estimated financial growth/profit of the company.
#2 - Risk estimate. How risky is the venture. Is there a high likelihood the invested money wont be returned? What is competition like?
Simple really : three things.
1. The people : their background and can you trust them with your money.
2. The product : does it improve the lives of your target end-user.
3. The protection : ip protection and can you build a deep enough moat around the product/service to make it impregnable by the competition.
GOOD LUCK, you'll need a lot!
The most important thing I promote to my real estate investor partners are systems. All the things you mentioned are important and critical parts of a good system or business model.
Although my experience is varied, all of those items are very important, as well as timing and certainty of exit. If I had to pick one factor above all others, I feel that management is key. A mediocre idea or technology can still result in an outstanding company if really great management is involved, while a great idea or technology coupled with poor management almost always ends in disappointment.