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What Do Investors Really Want From a Business?

Candice Landau

9 min. read

Updated December 18, 2024

Question: Should I send out market research surveys prior to approaching an investor? Also, how safe is it to pitch my business idea to an investor?

Underlying these two questions is another question, and the crux of what this person is asking: “What do investors want?” Are they looking for new ideas so that they can create businesses of their own? Or are they looking for you to prove your idea will work? And what do you have to show them to get them to invest?

Here’s what investors are really looking for when they meet with entrepreneurs, and how you can ensure that you’re aligned with a potential investor for your business.

Getting into the mind of an investor

Hundreds of episodes of Shark Tank and Dragon’s Den have taught us that if you do not know your business inside out and if you don’t come across as capable of running your business without the ongoing guidance of your backers, you’re not going to stand much of a chance.

Investors are just as the title suggests – investors. They’re the deep pockets with the connections that we turn to when we want help launching and growing our business. They’re the PR and the security. They’re the step ladder. They are not there to run your business unless that’s part of the agreement.

That’s what you’re supposed to be doing and what your partners and employees are supposed to help with.

While every investor will have their own requirements and be looking for something that aligns with their personal interests and pursuits, there are a number of things you should consider if you want to stand a chance at getting funded.

1. The right industry

According to investor relations expert Karl Mahler, investors and venture capitalists are looking to invest in businesses and industries that they can understand. For this reason it’s best to target your pitch and to build relationships with those people that are interested in your industry.

Often, investors will advise or sit on a number of boards. As such, they have little time to learn a new industry and to make contacts within that industry. A simple online search should reveal your investors’ interests as well as the portfolio of companies that he or she has invested in.

2. You and your team

Take the story of Reddit, launched in 2004 by Alexis Ohanian and Steve Huffman. The pair was rejected when they pitched their first idea — a restaurant takeout app called MyMobileMenu — to Y Combinator investors. But a day after the pitch, Alexis got a call from one of the investors.

He said, “We made a mistake. We don’t like your idea, but we like you guys.” He told Alexis that they needed to build the front page of the internet. Three weeks later Reddit was born, and a year later it sold for millions to Condé Nast.

If you’re the type of person an investor can see themselves working with, you’ve won half the battle.

And it’s not just the individual; the entire management team is part of the equation here.

3. Market share and a competitive advantage

Investors are always going to have market size at the top of their mind. If your idea is only worth a million dollars to them, they won’t feel bad about turning it down. However, if you have the potential to make tens or hundreds of millions (even billions), passing on your idea would be foolish.

However, a large market is not enough. You’ve also got to have a competitive advantage within that market. What will make it hard for others to rise above you? What do you have that no one can compete with? At the very least, you will need to show in your business plan that you understand where you’re positioned in relation to your competitors.

4. Traction

If investors see that you’ve had some success on your own, they may wonder what you’re capable of with more money at your disposal to grow your operations.

The important takeaway is that traction reduces risk for investors. 

Related Reading: How to get initial traction with a marketing budget of zero

5. Cash flow and a financial plan

If you’re a startup or a business in its early stages, the most important part of your financial plan is arguably your cash flows — how much money is coming into your business and how much money is going out. You will need to show that you can cover your own expenses without having to turn to the investor for a bailout (this is where creating your forecasts and comparing your actual numbers to those forecasts over time really comes in handy).

Seeing a good return on their investment is key. The financial projections in your business plan are there to give investors an idea of how long it will take for you to make a profit — and for them to recoup their investment.

This is where a good “exit strategy” comes in, especially in the arena of fast-growth startups. An exit strategy is your strategy for returning money to investors. This often means planning for your business to be acquired, whether by an outside company or by your management team. And while this is extremely rare and largely reserved for the biggest venture capital-backed startups, some may seek an exit strategy of taking their company public through an IPO, or Initial Public Offering of stock. 

In summary, investors are looking for these five things:

1. 1.An industry they are familiar with
2. 2.A management team they believe in
3. 3.An idea with a large market and a competitive advantage
4. 4.A company with momentum or traction
5. 5.An idea that will generate cash flow

Should I do market research before pitching?

It’s not breaking any new ground to say that you’ll need to have a good understanding of your customers, industry and competitors to run a successful business. Investigating the data behind the products or services that are on the market will help you reduce business risks, identify new opportunities and trends, and spot any areas where you might have problems. All of which is best to work on before you approach an investor, not after.

Will I see eye to eye with my investors?

When seeking an investment, most business owners focus on straightforward parts of their pitch, like highlighting their opportunity and explaining their financial projections.

But another important aspect of getting the right investment is about the alignment between yourself and your potential funder, which can have just as much of an impact on their decision to invest in you.

What do I mean by alignment?

Alignment between the business owner and those looking to invest in your business is all about seeing eye to eye on some of the most critical areas of your business. This could include agreement about the right direction to move the business in and where to focus key resources.

You can expect any investor to want to be involved, to varying degrees, around key decisions that would shape the future of their interest. They want to ensure that their investment is being managed responsibly, after all. So discussing the role that both parties will play once the investment has been made is critical to ensuring alignment.

Being aligned with an investor not only helps you secure funding easier, but also ensures you secure funding from the right partner. It doesn’t necessarily mean agreeing exactly on the course of action to take. Instead, it’s about having a similar point of view — or at least understanding where they’re coming from.

Will investors steal my idea?

Based on what you’ve read above, you should now have an accurate picture of what a typical investor is looking for. As you can see, ideas can be less important than the will to execute on them and the team to do it.

In fact, if you are planning on pitching an investor or handing over your business plan, you’re not actually going to be able to hide your idea. Naturally, if you’ve got an idea with patent potential, you don’t have to give the exact details, but you do have to make clear what the product or offering does.

Investors are busy people and don’t have time to play games. If you’re going to require them to sign a confidentiality agreement before they can even get your plan, they’ll probably move on to someone else. And even if you do manage to skirt around the issue of exactly what you’re offering, you’re unlikely to get funding anyway.

Related Reading: 10 reasons not to get investor funding

If you’re still worried about theft, there are a few things you can do to minimize your risk:

• •If possible, get to know the investor you’re interested in. Do you trust them? It may be best to opt to work with someone you know if you are really worried about theft.
• •Send only a portion of your business plan. Exclude any patents that you have filed for and let the emphasis be on your executive summary.
• •Investigate your investor’s portfolio. Are they involved in similar projects that share the same market/technologies as you? If this is the case, you may want to think about approaching another investor.
• •Include a confidentiality notice on the cover of your business plan (don’t require they sign an agreement before getting the plan)

Crafting Your Winning Pitch

Understanding what investors want and how to convince them to invest in you requires a deep understanding of your business, your market, and what funders are looking for. Focusing on your team, market opportunity, traction and financial plan will put you in a good position for success. 

If you’ve researched the investment landscape and feel like you’re ready to take the next step by pitching your business, you’ll need a compelling pitch deck. Download our free investor pitch deck template to help you create a persuasive pitch that captures investors’ attention and gets you funded.

Candice Landau

Candice is a freelance writer, jeweler, and digital marketing hybrid. You can learn more about her by reaching out on Twitter @candylandau.