At Spark Crowdfunding, we have analysed the behaviour of over 11,000 private investors in Ireland across 40 fundraising campaigns and thousands of individual investments from €100 to €100,000.
These investors carefully evaluate numerous factors before deciding how to invest their capital. If you are a private individual who is considering investing in early-stage companies you may be interested to know how other private investors assess investment opportunities.
Alternatively, if you're an entrepreneur seeking funding, it's essential to understand what private investors prioritise when considering an investment.
Here are the seven most important things that private investors look for in a start-up:
1. Strong and Committed Team:
A start-up's success hinges on the capabilities and dedication of its team. Private investors look for founders and team members who possess relevant skills, experience, and a deep commitment to the company's mission. A diverse team with complementary strengths is viewed positively and is generally considered the single most important factor in an investment decision.
2. Market Potential:
Investors want to see a sizable and growing market for the product or service the start-up offers. Thorough market research and a clear understanding of the target audience's needs and preferences are crucial. Investors need to be convinced that there is a genuine demand for what the start-up is offering.
3. Unique Value Proposition:
What sets the start-up apart from competitors? Investors seek businesses with a unique value proposition or a competitive advantage. This could be in the form of innovative technology, a patented product, a disruptive business model, or a superior customer experience.
4. Traction and Milestones:
Demonstrating that the start-up has made progress is vital. Investors want to see evidence of customer acquisition, revenue generation, or partnerships that validate the business concept. Achieving milestones and hitting key performance indicators (KPIs) instill confidence as they are evidence of the delivery capability of the founding team.
5. Clear Business Plan and Strategy:
Investors need to understand how the start-up plans to reach its goals. A well-thought-out business plan and a clear growth strategy are essential. This should encompass marketing, sales, distribution, and financial projections. If a start-up cannot clearly articulate its plans when raising funds, it is unlikely to be able to properly articulate the benefits of its products to its customers.
6. Scalability:
Private investors are often looking for opportunities to achieve a significant return on their investment. Scalability is crucial. Investors want to know that the start-up can grow rapidly without proportionally increasing costs. Scalable businesses have the potential to deliver substantial returns.
7. Exit Strategy:
Investors eventually want to see a return on their investment, and they look for an exit strategy. This could involve an acquisition by a larger company, an initial public offering (IPO), or other means of liquidity. A clear and viable exit plan is essential for investors' confidence.
If you would like to see evidence of a company that scored highly on all of the above and raised over €1 million from almost 200 private investors on the Spark Crowdfunding platform, we would recommend the AuriGen medical campaign, a Galway-based medical devices company: https://www.sparkcrowdfunding.com/campaign.php/aurigenmedical2
In addition to these seven factors, private investors also consider the industry landscape, the competitive landscape, and the overall economic climate. It's important for entrepreneurs seeking investment to not only have a compelling business proposition but also to be prepared to communicate their vision, achievements, and plans effectively.
In conclusion, private investors are on the lookout for start-ups that exhibit a combination of a strong team, market potential, uniqueness, traction, strategic planning, scalability, and a clear exit strategy. By selecting companies that demonstrate these key criteria, private investors can increase their chances of identifying investment opportunities that have potential to deliver high returns.
Spark Crowdfunding offers private investors 10-12 investment opportunities per annum in carefully selected companies that typically demonstrate the 7 factors above. Most of these investment opportunities are in EIIS qualifying companies, which means private investors can recover 40% of the value of their investment in the form of a tax rebate. Investors pay no commission on the Spark Crowdfunding platform and it is free to join.
But remember, investing in early-stage companies is high-risk. Only invest with money you can afford to lose.