Venture capital funding broke records across the board in 2021, according to Crunchbase’s January 2022 report. Last year, global venture investment totaled $643 billion. That’s up 92% from $335 billion in 2020.
This enabling investment environment is sprouting new startups’ emergence. And while these numbers make the competition tougher for investors, they also provide more opportunities for startups to succeed, especially when they partner with tech specialists. Let’s go over the important points a startup founder should consider looking for investors, and how software development companies support startups at every stage of their journey to getting funded.
8 Key Points for a Startup to Consider Before Seeking Investment
- Expert team. Typically, startups have very few employees – that seems reasonable if the goal is to cut costs. But for investors, it’s important to see that you have at least one expert in the area where you want to launch your product. For example, if you are working on a product in AI and Big Data, you should have at least one expert in AI and Big Data on board.
- Business Plan & Unit Economics. Entrepreneurs with a comprehensive business plan and an understanding of unit economics will always be more attractive to investors. Even in a relatively favorable economic environment, the people giving you money want to know that you know where you are going and that you are measuring the right economic indicators.
- Executive Summary. In a nutshell, the executive summary is a brief review of your business and marketing plan. Make sure it is well-structured and clearly describes a problem, solution, market potential, and includes a unique selling proposition. The executive summary is the first thing your potential investors will read when they review your business plan, therefore, it is crucial to make it engaging yet clear and understandable.
- Pitch deck. The pitch deck should present your vision to potential investors and convince them of your idea so make sure your pitch deck is visually appealing, comprehensive, and informative. A pitch deck is usually a presentation consisting of 15-20 slides showing that the startup has everything needed to turn the idea into reality – the expert team, the technologies, understanding of their market, etc.
- Proof of Concept. Potential investors want to make sure they are putting their money into something that will actually work. A summary of the project is not enough – to increase the chances of success, you should present them with a comprehensive and well-researched study that proves the idea is viable.
- Investors’ Benefits. There are two important financial questions about your project that potential investors will ask you – how much they need to invest and how much they will get back. You can answer both questions with a thorough financial projection – a full description of the model, a set of pro forma financials, a return on investment analysis using sensitivity analysis for key variables, sources of cash, and a usage report. This information will clearly show investors what return they can expect.
- Passion for your idea. Passion and confidence are contagious. If you believe strongly in the product or service you want to offer and are convinced that it has a competitive advantage over existing solutions, your investors will believe in it too.
- Discovery phase. The last but not the least point for a startup seeking investment. McKinsey estimates that 45% of software development projects cross the set budget. A thorough discovery phase helps get a project off on the right foot by validating assumptions, defining the scope of work and the product roadmap, and estimating development time and costs. In addition, a thorough discovery phase helps prove your startup is reliable in the eyes of a potential investor.
Discovery Phase as One of the Key Steps for a Startup to Get Funded
Discovery is what any successful software development project starts from. It allows the majority of the risk out of the way and fully prepare for the development phase.
In a nutshell, the discovery phase is the process of gathering and evaluating details about the project and its target audience. It provides a comprehensive and in-depth understanding of the goals, scope, and constraints. Usually, startups do not have experts on board who are capable of conducting a thorough discovery phase so the best solution is to hire a software development company.
What Specialists Are Involved in the Discovery Phase?
During this phase, the project team works hand-in-hand to ensure that the project will come under budget, be delivered on time, and succeed after the release. Typically, the team needed for a discovery consists of a PM (Project Manager), BA (Business Analyst), UI /UX Specialist, and a Technical Expert.
- The PM is the primary point of contact between the project team and the customer. The PM is responsible for project execution and weekly reporting, organizing team efforts, and delivering artifacts to the client on time and with appropriate quality.
- BA clarifies details about the project and turns the client’s business objectives into functional and non-functional requirements.
- UI/UX Specialist creates a design concept for the future solution to ensure it will deliver the best user experience.
- Technical Expert analyzes deliverables of the discovery phase and offers the most efficient technical solution based on the customer’s needs and company best practices and expertise.
Why is the Discovery Phase Essential for Startups?
• Explore the subject area and highlight the user
To win over the target audience, it is important to thoroughly understand their goals, needs, and painpoints. The discovery phase helps startups focus on their customers and better understand them so they can tailor their products and services entirely to their needs.
• Define the strategy for the project
The discovery phase results in a strategic plan with well-defined goals. It allows for prioritization and proper coordination at each milestone, contributing to efficient management of time, budgets, and human resources.
• Reduce development costs
The careful gathering and formalization of requirements are critical to the successful execution of a project, as it helps ensure that the project is completed on time and within budget. In this regard, the discovery phase helps mitigate the risks of overruns.
• Identify possible bottlenecks
An experienced software development partner will alert you to vulnerabilities in your infrastructure, potential incompatibilities, and technical limitations. It is important that you address all of these issues before you begin the development phase because mistakes become more costly as the project progresses.
How Do Software Development Companies Help Startups Find Investors?
It may not be obvious at first glance, but you can attract investment with the help of a custom software development company. If you work with a trusted development partner during the discovery phase, the company may share a network of investors with you. The point here is how do you find that trusted partner who can provide investment opportunities for your startup among thousands of companies? Well, these are the things you should look out for when choosing a company for running a discovery phase:
- Network of other software companies that can be considered as investors
- Partnership with venture capital funds
- Discovery phase as a service
- Hands-on experience in building solutions in your domain
- References from client startups
Wrapping It All Up
When it comes to launching a startup, the most important success factors are certainly the viability and innovation of a new product or service. However, a thorough discovery phase and networking are also effective tools that should not be underestimated as they considerably increase the chances of getting investments. This is what an experienced technology partner will help you with.