A startup should treat investors as a sceptic who is looking for hard evidence that the money they are going to spend on your business is worthwhile
Jun 19, 2017-Ask any entrepreneur in Nepal what their major concern is, and the answer will most likely be money. Although, it sounds too straightforward, everyone starting their business are in it for the money.
Contextually, it can be seen that most entrepreneurs in Nepal are constantly on the lookout for an investor.
However, the investment sector in Nepal is only just starting to develop, and there are few investors to choose from.
Knowing what the investors are looking for will most definitely increase your chances of getting investment.
Since there are so few investors, knowing what they are looking for also assures that you make good use of this limited resource.
Every investor is different—some are data driven and make their decisions based purely on the facts, while others go with their gut feeling about the entrepreneur running the company.
Despite these differences, the truth of the matter is that there are several boxes that every investor in Nepal likes to tick off before they invest in a business.
Groundwork and progress
Every investor at first glance does a run of the mill test of preparedness of a startup, where they look at how much work has been put into the business, and how much progress has been made.
A big misconception is that investors like to take risks. This couldn’t be further from the truth.
Investors want their risk to be as low as possible and bet on sure things. This is even more so the case in Nepal, where investing in startups is new and rare.
The most common concern is whether what you are doing works or not. The operating question to find out if it does, is ‘Do you have a working business model?’
What they indirectly mean to ask you by this is if your company is making money or not.
This depends on whether you have a product or service that can be sold to customers, and if it stands out from the competition.
These two criteria increase the chance of steady flow of revenue for the business, hence making it financially sound.
Reaching a point where you are generating an income is a good indicator that you have put in the work, and made substantial progress through trial and errors.
The founding team
Once the basic background check is done, the next step the investor takes is putting the founding team under scrutiny.
This has become one of the most crucial facet to understand a startup in Nepal. The business sector in the country is facing a major brain drain, with highly-skilled people leaving the country.
This is even more pronounced in startups where most entrepreneurs seem to be using their startups as a stepping stone to go aboard.
Therefore, the first thing the investors wants to make sure is that the founding team is willing to stick with the startup.
Secondly, the investors look at whether the founders and the team put together have all the required skill sets to run the company.
If, for instance, you are running a cybersecurity company, and one of the founder has no experience in this field, then that is a warning sign to the investor about a poorly thought out team.
Similarly, not having people who complement each other’s skills, and contribute in a unique way to the company in the core team isn’t a good sign either.
Around 90 percent of startup success depends on the execution of the idea. The ones who execute it is the team, and if they aren’t strong enough, the company is likely to struggle and fail.
The next big checkbox is whether the business has potential in Nepal. There are many times where the ideas are grand and sound good, but they don’t have enough demand in the market.
An investor is concerned with whether his/her investment will yield in higher returns throughout the operation of the business.
This mostly happens when the market they are operating in is growing. There are very few markets in Nepal that have the potential to go big, such as, agriculture, tourism, tech, education and so on.
Therefore, most investors here will be on the lookout for startups operating in these industries.
The job of the startup is to be able to clearly show their vision to the investor. You should be able to prove to them that the market you are working on is big, and a lot of it is yet to be explored. In addition, if your market requires significant knowledge or skill to enter, then it proves to your investor that others aren’t likely to copy you.
All of this will show that you will be able to make enough money to make the company grow, and in return make their returns grow too.
Probably one of the biggest hurdles for investing in Nepal is the ambiguity of the exit strategy for the investors. Exit strategy is a way for the investors to settle their payments with the company.
Investors aren’t in it to run your business with you, they are there to get their returns.
Therefore, you will need to make a few things clear to them from the beginning. When and how you give them their returns and how the investors will step away should be decided beforehand.
A company that is able to clearly formulate this, will most definitely be able to attract investors as there is a clear end goal for the investors.
There are many ways that companies in Nepal can create that exit strategy, however all of them are hard to do so for a startup.
The viable options are IPOs, merger and acquisition, private offerings, and another round of investment.
In each of these options it needs to be made clear how the investor will benefit. For instance, in an IPO, the company could give dividends to the investor from the money raised from the public offering.
However, keep in mind that IPOs are rare and expensive in Nepal. In the case of merger and acquisition, the startup can assure that they will buy back the shares of the investor with the injected capital.
A startup should treat investors as a sceptic who is looking for hard evidence that the money they are going to spend on your business is worthwhile.
To convince them, you will need to put in a lot of hard work by laying down a strong groundwork of the business, setting up the right team, and showing the investors that your field is profitable and thus, your business will give them great returns.
Original Author: Pranjal Ghimire
Originally Published: https://kathmandupost.ekantipur.com/news/2017-06-19/what-do-investors-in-nepal-look-for.html