How do Investors
By Yohan Albo
For an early-stage company, raising money is no easy task. Competition is fierce. Capital is finite. And good ideas are ubiquitous. So with so many challenges to overcome, it’s helpful to tap into the investors mind, see the world of startup fundraising through their eyes, and walk through evaluation processes in their shoes.
Angel investors play an important role in supporting Israeli entrepreneurs, investing in hundreds of companies every year. Venture capitalists, by contrast, tend to be more selective; albeit when they do invest, their capital injections tend to be much larger.
Investors, in venture capital and angel groups alike, tend to decide which firms to invest in based on the following criteria (or the four M’s):
Management Team, Momentum, Market Opportunity and Money.
Management teams are a key component of an early-stage company. They control decision-making and core strategy; in other words, they are responsible for trying to steer their company around potential obstacles and to eventual prosperity. These executives’ ability to make the right decisions, even under immense pressure, is therefore of paramount importance to angel investors and venture capitalists, who highly value the competence and experience of a young company’s internal team.
Investors also consider the momentum of a company. Momentum refers to the relationship between users/customers and revenue traction, signifying the potential of a given product to be successful. The momentum of a company is determined by myriad factors. Positive press, strategic partnerships, product developments and changes in a company’s team are just a few examples of things that can propel a company into the investment spotlight.
While momentum represents a company’s current pace of expansion, market opportunity reflects the potential for a company to start growing, based on trends in the market. Through relevant research and data collection, investors can calculate the expected growth of an industry. Market developments undergirds this process. If the price of oil suddenly spikes, for example, then companies specializing in alternative energy are now in a position to capitalize on the energy demands that can no longer be fulfilled by petroleum companies. In this scenario–and in any other involving consequential changes in market dynamics–companies on the receiving end of the positive change will have an easier time capturing outside investment.
Last but certainly not least, investors care about profit. They need to know how much a given startup is making and how much they are projected to make in the near future. While it’s true, the aforementioned factors can all lead to a more profitable company, it is not guaranteed. No matter how great a product is, how smart a management team might be and how propitious the market might look, money may never flow in. And if investors don’t believe that they will see a meaningful rate of return on their investment, they will not put their cash on the line.
In summation, the four M’s–management team, momentum, market opportunity and money–frame how investors view and judge an early-stage company. By checking these boxes, entrepreneurs instantly put themselves in a better position to attract investment and cultivate a healthy, prosperous business.
At DataToCapital, we believe in the importance of leaving no stone unturned. That’s why our team offers a three-prong approach to maximizing startup growth, centered on market intelligence, strategy and execution. So whether it’s orchestrating dynamic roadmaps or operationalizing product visions, our team works with our clients shoulder-to-shoulder, every step of the way.
In addition to business optimization, our team specializes in assisting entrepreneurs in fundraising. Our connections with Israel-friendly (and sometimes Israel-first) private investors, VC funds and family offices provides clients with unparalleled access to a full range of early stage financing opportunities.
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DataToCapital is a boutique management consulting firm that supports global tier-1 firms and start-up companies operating in Israel in their route to excellence and market dominance. Our core services, designed for CEOs, Executives (VP-level and above) and Entrepreneurs, can be divided into three areas: Market Intelligence, Corporate and Product Strategy, and Execution Support on top-down strategic initiatives.
The quality of the work we deliver in the three areas mentioned above is equivalent to what your company may already get from the top-3 consulting firms that operate in the Israeli market, BUT here’s the twist and why our tier-1 clients think we are superior.
We don’t only provide smart recommendations, we work closely with the management team and can also support driving the execution of their strategic initiatives behind the scenes or as a proxy.
We are at the strategic intersection of Business and Technology. Thanks to our rich background, we know how to connect the dots between the two worlds, and how to be very creative when it comes to disrupting business models or addressing sub-optimized processes with the help of advanced technological solutions (Machine Learning, Big Data, Data Visualization, Enterprise Software Solutions, and many other tools present in our toolbox).
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