When attempting to secure startup funding, many entrepreneurs assume that investors are primarily interested in their profits. Despite this logic, the truth is that startup investors are often less interested in profits and more interested in potential.
Let’s take a look at why investors shy away from the profits in startups and why they are more interested in potential when making the decision to invest.
Potential is more attractive to investors than profits
While it is understandable to assume that investors would be most interested in profits, the reality is that potential is often much more attractive. Potential is based on a company’s capacity to grow and gaining investors on a chance at capitalising on this growth will help to facilitate further investment.
Investors often think of investments as long-term plays and not necessarily a way to make fast money. As such, they are likely to focus more on potential than the immediate revenue promised.
Risk is another major factor
Startup investments can be risky. As such, investors usually look for ways to manage this risk. For them, potential is an excellent way to guard against risk as it can act as an insurance policy for the future of their investments.
By taking a chance on a company and investing in its future growth, investors can reduce their overall risk and better manage their funds.
Size matters
When entering into a startup investment, size matters. Investors strive to find companies that have the potential to become large enough to become profitable. In the highly competitive startup world, the larger the company is the better its chance of success.
As such, startups with the potential to grow large and profitable are more appealing to investors than those seemingly stuck in a cycle of just breaking even.
Access to resources
Finally, investors look for opportunities that provide access to resources, as this can also affect their long-term profits. Investors want to know that their money is going towards a company that can leverage resources or acquire smaller companies to help them reach their promised growth and profits.
These resources might include technology, people or other companies. With access to these resources, startups are more likely to be able to achieve their long-term goals.
Startup investors may not be as interested in profits as entrepreneurs would like to think. Instead, they are more interested in potential, risk management, size and resources. This helps them to increase their chances of finding a successful and profitable investment. By understanding these motivations, entrepreneurs can better prepare themselves when seeking investment and be better equipped to succeed in the startup world.
