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Factors used by investors to rate startups

Factors used by investors to rate startups

Friday 18, 10 2019
As you start establishing your own business, you need to care about a few factors which investors tend to consider before investing in what you have to offer.
Nowadays, startup businesses have become more popular than ever, with a total of 11,177 newly-established companies in Vietnam by August 2019 with a capital of 151.3 thousand billion VND, which is an impressive number. However, it is not always easy for startups to run their fresh business on their own with their budget only, therefore, they are constantly looking for potential investors to invest money in their business. For this process to be effective, perhaps startup owners should consider the following criteria which can be used by investors to rate their possible investees.

1. The feasibility of the idea

Running a startup, it is common for you to come up with ideas which, to you, may seem bold with a high possibility of success. After all, it is your project, so of course, you will have trust in them and want the potential investors to do the same. However, since you are looking at the ideas subjectively, you may not be able to realize the true possibility of it, resulting in you being overconfident.

This is not the case for the investor, however, as they always look at them objectively to make careful judgments and consideration about their financial feasibility before they come to an investment decision. They must make sure that your ideas are reasonable and profitable, thus providing them with the benefits suitable for what they have invested. Should they deem the chance of success of your ideas low, it will be less likely that they will pour their money in your business.

Therefore, the rational method here is to reevaluate your ideas, maybe you could even ask for the assistance of the professionals to help you get to know the feasibility of your ideas better, thus making the right adjustments timely to increase the likelihood of their success and better attract the investors.

2. Good price for true value

Running a business, especially a startup, the owner must learn the true value of their products, that is to say, they must know how much their products worth, as well as how to price their products in accordance to their targeted customers and the locations in which they are sold. Knowing these factors, you will be able to adjust the prices of your products so that they can bring you, and your investors, profits. This is why having a reasonable price for the products is also an important factor that investors pay attention to in deciding whether to invest. In our article regarding the factors that owners of startups should care about when establishing their business, we also mentioned the importance of knowing your customers. 

On Shark Tank Vietnam, a TV shows in which startup owners try to persuade investors to put their money into their projects, there have been multiple cases in which the offers were turned down due to mispricing, proving that this is a crucial factor when it comes to capital mobilization.

3. The consciousness of the situation of the industry

In the business world, a project can't progress if they only focus on doing their business activities without careful consideration of the state that the industry is in. For example, you cannot expect to run a business that requires specialized skills in a region with low-level labor, or you cannot expect to carry out your business activities without competitiveness in fields that have already had a large number of businesses providing the same products and services as you. Therefore, it is important to investors that you are cautious about the situation of the industry to choose the most profitable markets.

If you are uncertain about your ability to do research on the market, or if you simply don’t have the time, the resources, as well as don’t know where to start, you could ask for the help of the professionals whose experience and skills will provide you with in-depth analysis of the industry economically and timely, such as the Industry Report of Vietnam Credit.

4. It’s the thought that counts

Launching a startup, it is crucial for you to aware that doing business in a popular field will result in you having tons of competitors, who are also trying their best to outgrow you and gain profits. In this case, you have two options. Either you must start your business in whole other sectors, which can be quite time consuming and troubling, or you must use your creativeness to think of something unique to your business, which may be of interest to your customers. For example, you may come up with a new payment method, new ways to present your products, or even new ways to promote your business, etc.

Investors tend to pay close attention to the creativeness of your ideas used in your project to make sure that it can compete in the market, thus earning both you and them the profit you deserve.

5. How far your vision goes

Last but not least, when evaluating your startup ideas and whether to invest, investors tend to see how far your vision goes. Some people tend to dream big, while others don’t. Some aim to reach the international market and compete in the big league, while others are satisfied with making progress in the regional one.

There is one thing that startup owners must remember, which is to always dream big; however, their dream must suit the capability, the possibility and the true value of their dream. A business with high potential competing in a low-level market will share the same result with a business with low potential trying to operate in a high-level market, which is the limitation to their progress.
Compiled by Kit - Vietnam Credit 

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