Key factors that make startups stand out — opinion by NV3
In the competitive world of startup investments, attracting the attention of investors requires more than just a promising idea. Investors carefully scrutinize various factors to determine which startups have the potential to thrive and deliver substantial returns.
AIN shares the list of these key factors that investors prioritize when evaluating startups for investment written by Yordan Zarev, Partner at New Vision 3 Fund. You can read the insights into what makes a startup truly stand out in the eyes of investors in the original publication here.
1. Unique Value Proposition:
Startups with a unique value proposition that solves a real problem for customers and offers a clear competitive advantage are more likely to attract investment. According to a study by CB Insights, 42% of startups fail due to a lack of market need. Investors look for startups with innovative products or services that differentiate them from competitors.
2. Strong Team & Founder Commitment:
Investors often prioritize startups with a talented and experienced team capable of executing the business plan. According to research by Harvard Business Review, 23% of startup failures can be attributed to team-related issues. A strong and resilient team with a track record of success, relevant industry expertise, and complementary skills is a positive sign for investors. Investors evaluate the commitment and vision of the founders or founding team. Startups with passionate founders who are fully committed to the success of the venture and have a clear vision for the future are more appealing to investors. Founders with a clear mentality of scaling teams by hiring top talents at key positions and delegating key processes to them (instead of micro-managing their business) are also critically assessed by VCs.
3. Market Opportunity and Demand:
Investors are interested in startups addressing large and growing markets with significant potential for disruption or innovation. According to Statista, global venture capital investment reached $300 billion in 2020, with a significant portion allocated to startups in high-growth sectors. Startups that can demonstrate a deep understanding of their target market and a clear strategy for capturing market share are more attractive to investors. Scalability is a factor too, meaning the ability to expand into new markets, serve a large customer base, and increase revenue without proportional increases in costs.
4. Business Model & Traction:
Investors assess the viability and sustainability of the startup’s business model, including revenue streams, pricing strategy, and customer acquisition and retention strategies. According to PitchBook, startups that successfully raise Series A funding typically have an average revenue run rate of $1.5 million. Investors want to see evidence of traction and progress, such as user growth, revenue generation, partnerships, or product development milestones. Startups that have achieved meaningful milestones demonstrate validation of their business model and potential for future success.
5. Intellectual Property:
Startups with proprietary technology, patents, or other forms of intellectual property protection may have a competitive advantage and be more attractive to investors. According to WIPO, global patent applications reached 3.3 million in 2018, highlighting the importance of intellectual property in today’s innovation-driven economy. Investors look for startups with defensible intellectual property rights that provide a barrier to entry for competitors.
6. Fit with Investor’s Portfolio:
Finally, investors consider how well the startup fits with the VC model, their investment thesis, portfolio strategy, and risk appetite. Startups that align with an investor’s areas of interest, expertise, and investment criteria are more likely to receive funding.
Securing investment is a critical milestone for startups looking to scale and succeed in today’s dynamic business landscape. By understanding and emphasizing these key factors—ranging from a compelling value proposition to a strong team and strategic market positioning—startups can enhance their attractiveness to investors and pave the way for long-term growth and success. With the right combination of innovation, execution, and alignment with investor preferences, startups can unlock the support they need to realize their vision and make a lasting impact in the market.
About New Vision 3
New Vision 3 is one of the most active VC funds across the CEE region, particularly in Bulgaria. NV3 invests in early-stage technology companies in fintech, AI, blockchain, shared economy, e-commerce tech, green energy, frontier tech. The fund’s commitments amount to €22.3 million. Throughout 2023, the fund managed to secure several big deals in the market. You can read the details in our interview with Zlatolina Mukova, Managing Partner at New Vision 3, here.