What do investors look for in startups?

By Phillip Shim, On 30th March 2021, Under Jobs and Carrer
The Market
Investors want to have a deeper look at your market. They want to see the potential of growth in the existing market and if your startup has the resources to accommodate a new growing market. “Market size matters because most investors want to know that you've got a big business. Bigger is generally better.”

Keeping this in view, how do I find startup companies to invest in?

Identify Your Niche Market
As an investor, it's important to narrow down your search to a market niche. A niche targets a distinct industry segment in which investors are much more likely to find startups and businesses that solve specific, little-serviced problems.

Furthermore, what questions should you ask before investing in a company?

Questions to ask before you invest in a startup company
  • Is the team well-balanced, dedicated, and focused on the problem?
  • Do the founders know their business, competitors, and industry?
  • Is the valuation in line with the industry and the region?
  • Why are they solving this problem?
  • Is the money machine working?

What are the best startups to invest in?

What are the 100 Best Startup Companies to Work for in 2020?
AngelList (not in ranking order) Forbes (in ranking order) LinkedIn (in ranking order)
1. AirGarage 1. Allbirds 1. Snowflake
2. Airtable 2. Chime 2. dosist
3. Bloomscape 3. Petal 3. Samsara
4. Calm 4. Verkada 4. DoorDash

What are 4 types of investments?

There are four main investment types, or asset classes, that you can choose from, each with distinct characteristics, risks and benefits.
  • Growth investments.
  • Shares.
  • Property.
  • Defensive investments.
  • Cash.
  • Fixed interest.
Angel investors typically want from 20 to 25 percent return on the money they invest in your company. Venture capitalists may take even more; if the product is still in development, for example, an investor may want 40 percent of the business to compensate for the high risk it is taking.
Of course there's no exact number of VCs you should meet — these are simply guidelines. For simplicity I'll assume you've raised some money from angels or seed investors and you're either raising an A round or a B round of venture capital. I like to start with a list of approximately 40 qualified investors.
Investors want to feel good and safe to maximize their emotional well being. Our desire for that feel good feeling drives us to buy stocks in up markets, only to panic in down markets and sell in an effort to feel safe. We also feel good thinking we are smarter than the person on the other side of any trade.
Expect investors to evaluate your revenue streams, acquisition cost and turnover rates.
  • Background and experience in the industry. Investors don't want entrepreneurs to make mistakes on their dime.
  • Company uniqueness. Your product or services need to be unique.
  • Effective business model.
  • Large market size.
Unlike essentially any other type of investment, startup investing provides the opportunity to invest in innovation and to feel real ownership in the companies that you invest in. First time investors need to consider that backing startups can be extremely risky and is very different from investing in public stocks.
An angel investor operates inside a different framework. They'll offer you the capital needed to get the ball rolling, and in exchange, they receive an ownership stake in your company. If your company falls flat, on the other hand, an angel investor won't expect you to pay back the offered funds.
Specific financial documents investors are expecting to examine at this stage include:
  • Income statement.
  • Balance sheet.
  • Statement of stockholders' equity.
  • Capital requirements.
Gains from investing in startups may be realized in several ways:
  • The startup is acquired by another company (think Instagram and Facebook)
  • The startup goes IPO.
  • The company begins paying dividends.
  • Investors sell their shares to other investors.
In general, angel investors are searching for teams that blend professionalism with a deep personal commitment to the product itself. No two investments are exactly the same and angles will demand a business plan, time to do their own research, and a worthwhile stake in the businesses in which they risk their money.
Pro: An Angel Investor is willing to take a Risk
On the other hand, angel investors usually do not balk at making a bigger investment if they believe in the organization's potential. An angel investor can usually, "smell," a good idea and a good deal.
As well, you don't really get a direct say in daily government operations (although you do vote on the people that do). With this class of shares, investors forfeit their right to have a say in the direction of the company for what is often an incremental stock price advantage over voting shares.
It is a good idea to invest in startups when one has the appetite and the capacity for the high risk involved.An investor with a mission to give first, help founders, and build business will win this game.
When making investment decisions, investors can use a bottom-up investment analysis approach or a top-down approach. Bottom-up investment analysis entails analyzing individual stocks for their merits, such as their valuation, management competence, pricing power, and other unique characteristics.
Best Value Stocks
Price ($) Market Cap ($B)
NRG Energy Inc. (NRG) 28.85 7.1
ViacomCBS Inc. (VIAC) 16.40 10.1
Norwegian Cruise Line Holdings Ltd. (NCLH) 11.10 2.4
Positive returns: Angel investing can be risky business. Most prior studies posit that 5-10 percent of investments will be economically profitable. In The American Angel, investors said on average, 11 percent of their total portfolio yielded a positive exit.
The best investments in 2020 are:
  • CD's.
  • Money Market Accounts.
  • REITs.
  • Real Estate.
  • Treasury Securities.
  • Municipal Bond Funds.
  • Government Bond Funds.
  • Growth Stocks & Growth Funds.
View the full top 50 list here, or see our roundup of the top tech startups here.
  1. Snowflake — computer software.
  2. Dosist — health, wellness, and fitness.
  3. Samsara — information technology and services.
  4. DoorDash — internet.
  5. Brex — financial services.
  6. Good American — fashion.
  7. Robinhood — financial services.
Leads and Investors will be required to meet the minimum threshold of investing INR 25 Lakhs over a period of 5 years from the time of making their first investment with AngelList India. This can be in a single investment or over multiple investments.
SeedInvest offers equity funding for dozens of startups, though some are limited to wealthier investors (officially known as “accredited investors”— investors with net worths exceeding $1 million or annual incomes of $200,000). They charge a 2% non-refundable processing fee (up to $300) per investment.
How You Can Invest in Startups (with $50)
  1. Step 1: Transfer $50 into your checking account. You can do this without a broker.
  2. Step 2: Find a startup that excites you! Next, it's time to figure out where you'd like to invest that $50.
  3. Step 3: The Fun Part… Once you've got your $50 ready — and once you've identified what kind of startup you want to begin with…
How can I invest in TikTok? Since it's not possible to buy TikTok stock from the stock market, there might be other possibilities for investors to invest in ByteDance pre-IPO. Some platforms like EquityZen provide a secondary market for pre-IPO equity.
It is possible by the way of syndication. You can create your own syndicate of Angel investors or you can join a syndicate of angel investors. If you wish then you may also join my syndicate. A syndicate is a group of angel investors who collectively invest in a startup by creating a pool of investment.
“A startup is a company that's searching for product/market fit: trying to identify its ideal customers, which products and services those ideal customers purchase, at what price points, and how frequently they make those purchases,” Joshua says.