Startups need more than just a good idea to attract investment

Attracting capital goes far beyond having an innovative idea. Startups seeking funding need to demonstrate concrete metrics, a well-structured business model, and a clear growth plan to convince increasingly selective investors.

According to Marilucia Silva Pertile, co-founder of Start Growth and startup mentor, preparation for investment fundraising begins long before the first meeting with an investor. ‘Venture Capital funds want startups that know where they want to go and how they will use the resources. A well-crafted pitch only works when there is solid planning behind it,’ she explains.

What makes a startup attractive to investors?

To secure financial investments, startups need to demonstrate traction and growth potential. According to a CB Insights survey, 35% of startups fail because they cannot secure investments, often due to a lack of clarity in the business model or execution.

Marilucia highlights some aspects that make a difference when attracting investors:

• Clear market and problem:It is essential to demonstrate a real and relevant problem in the market and how the startup solves this pain better than the competition.
• Sustainable business model:Startups need to prove that their product or service generates predictable revenue and has scalability potential.
• Financial and operational metrics:CAC (Customer Acquisition Cost), LTV (Lifetime Value), MRR (Monthly Recurring Revenue), and churn rate are key indicators to show the company’s performance.
• Prepared and committed team: Investors evaluate not only the product but also the team behind it. Execution capability is a decisive factor when betting on a startup.

The power of a well-structured pitch

The pitch is the first major opportunity to catch investors’ attention and should be direct and impactful. ‘A poorly structured pitch can jeopardize even promising startups,’ warns Marilucia.

To increase the chances of success, an effective pitch should contain:

1. Value proposition: What the startup does and what problem it solves.
2. Market size: Growth opportunity and revenue potential.
3. Business model: How the company makes money.
4. Competitive advantage: What makes the startup unique.
5. Metrics and traction: Results already achieved, customers, and projections.
6. Team: Who the founders are and why they are the best to execute the business.
7. Use of investment: How the money will be applied to generate growth.

Structured financial planning

Lack of financial organization is one of the main reasons startups lose investments. According to CB Insights data, 38% of startups close due to lack of cash control.

To prepare for an investment round, startups should:

• Have a clear projection of revenues and expenses.
• Control the burn rate (cash consumption rate).
• Demonstrate how the investment will be converted into growth.
• Keep documentation organized for due diligence (financial and legal audit conducted by investors before the investment).

‘Investors need to see that the startup knows how to manage resources and has a clear plan for sustainable growth,’ explains Marilucia.

Networking and strategic partnerships

Beyond internal preparation, creating strategic connections is crucial for startups seeking to raise investments. Accelerator programs, industry events, and mentorships are valuable opportunities to expand the network and attract investors’ attention.

‘Investment fundraising begins long before the meeting with a fund. Building a relationship with investors and being present in the ecosystem increases the chances of securing funding at the right time,’ reinforces Marilucia.

Investors seek prepared startups

The Venture Capital market has become increasingly selective. According to the ‘Global State of Venture Capital 2023’ report, investments have declined globally, making investors more discerning. This means that startups that prepare strategically have a much better chance of standing out.

‘It’s not enough to have a promising idea. The market rewards entrepreneurs who can prove their value and demonstrate they are ready to grow,’ concludes Marilucia.

With the right preparation, startups not only increase their chances of securing investments but also ensure that the received resources will be applied efficiently to drive growth and business consolidation.