What Do Investors Look for in a Company Before Deciding to Invest?
When investment professionals weigh the potential of a company or project, they apply a discerning eye to a variety of key characteristics. From a real estate investor who prioritizes rental square footage to those who consider the strength of strategic partnerships, we've gathered insights from industry experts alongside additional answers that round out the investment picture. Here's a glimpse into the critical factors that guide seasoned investors in their decision-making process.
- Prioritize Square Footage for Rentals
- Seek Strong Leadership Teams
- Assess Company's Market Moat
- Look for Scalable Business Models
- Invest in Disruptive Innovations
- Value High Customer Retention
- Evaluate Positive Cash Flow
- Consider Strategic Partnerships
Prioritize Square Footage for Rentals
As a real estate investor, one characteristic I look for is square footage. The bigger the house, the better. Here's why: Since I rent out my properties to students on a per-room basis (rather than renting an entire property to one person), I earn more for every bedroom I add.
Seek Strong Leadership Teams
A very important characteristic I look for is a strong leadership team that has industry experience and understands the market they are in. Founder trust and transparency are the first keys to a strong partnership, so I find that most important before diving into due diligence.
Assess Company's Market Moat
One of the most important factors, besides the company's financial statements, is whether it has a moat that will protect it from other companies that decide to enter the same market. Otherwise, even if the company is currently successful, other companies will enter its market once they see the opportunity.
Look for Scalable Business Models
Investors often seek out companies that have crafted a strong, scalable business model which signals that the company is not only well positioned in its current market but also has the capacity to grow and expand. Scalability is a key factor, as it suggests that the business can increase its revenue without a corresponding rise in costs. The potential for growth is critical because it indicates the possibility of a significant return on their investment.
A company with a scalable business model is more attractive as it could mean that the company is capable of capturing a larger market share over time. If you're seeking investment, focus on demonstrating the scalability and growth potential of your business model.
Invest in Disruptive Innovations
In a rapidly changing market, investors are on the lookout for companies with innovative products that have the power to disrupt current trends. Innovation is synonymous with competitive advantage, and products that challenge the status quo can create lucrative new markets or transform existing ones. Investors see such innovation as a sign that a company is forward-thinking and poised to capture or lead a market trend.
A company with disruptive products may be able to outmaneuver competitors and achieve faster growth. If your product is innovative, ensure you're clearly conveying its disruptive capabilities to potential investors.
Value High Customer Retention
One of the cornerstones of a successful company is a robust customer base, which is not only large but also shows high retention rates. High customer retention signifies that the company's products or services are well-received and that it has a loyal following. This loyalty indicates that the company is likely to have a steady revenue stream over time.
An investor understanding this might see a strong, stable customer base as a safer investment with lower risks. Work on building and maintaining strong customer relationships to catch the eye of potential investors.
Evaluate Positive Cash Flow
Solid financial performance, especially evidence of positive cash flow, is a bright beacon to investors. Positive cash flow means that the company is generating more money than it spends, affording it the resources to reinvest in its operations and reduce the need for external financing. It can also provide investors with a sense of security, knowing that the company has the financial means to survive challenging periods.
A company that stands on firm financial ground may offer investors more assurance of stability and longevity. Make sure your company's financial health is transparent and strong to inspire investor confidence.
Consider Strategic Partnerships
Companies that establish strategic partnerships to enhance their business operations are often more attractive to investors. Such collaborations can provide access to new markets, technologies, and additional resources. They also show that the company is resourceful and recognizes the value of leveraging external expertise to accelerate development and growth.
Strategic partnerships can be particularly telling of management's acumen and the company's potential to scale effectively. If your company has formed strategic alliances, highlight these relationships to potential investors as they can be indicative of future success.