SmartBite, a Malaysian startup, recently received funding from Marna Capital, Rhombus Food Holdings, and Noodles Delivery, and an anonymous angel investor. Launched in early 2016 to serve a market in Kuala Lumpur, SmartBite offers lunch delivery to busy working professionals, from a selected group of restaurants that are in close proximity. Customers receive daily menus via SMS and then respond with selections before 11:00 a.m., so that lunch can be delivered sometime between 12 and 1 p.m. The company plans to scale by offering breakfast and take-home dinners and by expanding into other Southeast Asian markets over the next five years.

Obviously, between its launch and the end of August, investors saw something promising. They determined that the opportunity for great reward far outweighed the risks involved. And that really is the key to getting both seed and scaling investments – prove to investors that the reward opportunity outweighs the risks.

First the Risks

Investors, whether institutional or angel, always weigh the risks of an investment in a startup. Here are the risks potential investors consider:

1. The Market Risk: How big is the market for the product or service that the startup provides? Before going for major funding, not only must a startup have a track record of decent market share but a plan for capturing a large market share in comparison to its competitors. What unique value does the product/service provide that others do not?
2. The Business Model Risk: What is the business model of similar companies that are successful? Is this business adopting a similar model or a new model? If this new model is not “tried and tested,” there is greater risk, of course.
3. The Risk of Execution: Is there a team in place to execute the model and the plan? What are the plans to add necessary expertise as the business scales? And, as the business moves forward, will it run into regulatory or other hurdles? If so, what is the plan to get over those hurdles?

Investors invest in people, not just products or services. Yes, the product or service is important, but investors want to see people who have the ability and the skill to move that product or service and grab a large market share. The founders of SmartBite proved their worth to four investors, to be sure.

Proving Viability and Investment Worth

Proving viability and worth obviously comes from looking at the risks that investors see and demonstrating that the reward is indeed greater. Here are the basics of what any startup must meet in order to obtain acceleration investors.

The Product or Service

The value proposition must be clear and easily understood by any potential investor. Generally, this is contained in a business plan, and it must demonstrate that the product or service meets a true need in a marketplace. This is one of the reasons that fintech startups are so popular in Asia and attract investors. This is a region in which traditional banking has never had the foothold that it has had in the western world. Online banking is of huge value because people who have never had a bank account or a landline telephone now have smartphones with which they can engage in banking activities. The same goes for IoT – with apps and wearable devices for a variety of activities. Do you have a product or service that solves a problem, provides value, is sustainable over time, and has a potentially huge market base? Prove this to investors and you will have the money you need.

The Founding Team

Of course, sometimes there is a single founder who has acted upon his/her great idea alone. More often, however, there is a team of a few people who have launched an idea into a startup. Investors want to see a team with the following:

• One member has experience in the business niche of the startup. If, for example, it is a technology startup, who among the team members is a techie? There must be at least one. If the startup is in the food service industry, such as SmartBite above, who among the founding team has experience in food/delivery services?
• Has the original founding team worked together? Do they know each other well? Have they endured stress and remained together through those stressful periods? Good “chemistry” among team members is critical.

Mentors/Advisors

Startups that are accelerating usually need mentors and advisors who are helping and guiding them. Fintech startups need advisors from the banking and financial industries; software startups need guidance from other software experts, marketing experts, etc. Investors want to see that founders have courted such mentors and advisors and are taking their advice.

Milestones/Marketing

Has the startup reached its early milestones that it set for itself? What are the sales figures to date? How has the company been marketing itself to its target audience? Investors want to see a top websites page, for example, that is engaging and has great content and user experience, as well as heavy traffic. Founders need to be certain that they produce content and other marketing materials that excite and engage. If traffic is heavy and sales are moving upward, investors have interest. Does it look like the business is gaining traction? Will investment capital at this point create an environment for major expansion?

Partnership or Payback?

Some investors want a partnership with the founders – a rather permanent relationship during which the investor becomes an active member of the team. Other investors want a percentage or a payback time period without being an active team member. Startups must be certain of the type of investors they want before they seek any funding, and must have a clear picture of the investors’ roles in the company going forward.

Passion

Most things investors look at can be measured quantitatively. Sales figures are sales figures; background and expertise of founders is easily checked. What cannot be measured by numbers or factual information is passion on the part of the founders. And yet, that passion has to be communicated to potential investors, if they are to believe that the company will make it in the long haul – passion that gets founders through the rough times and over the inevitable hurdles.

Moving an idea into a business and then growing that business is never easy. And there is tough competition out there for the investment dollars that are available. There is no one-size-fits-all recipe for successfully attracting investors, of course, but at least knowing what they want to see will be an important “leg-up.”