Before getting started, it is important to note one thing: investors are people too! Their decisions are not programmed and their feelings often matter the most, as with all people. Though every investor shares the same ultimate goal - garnering a return on their investment - each one may have a very different set of values, preferences, and ways to achieve that.
The seed stage is the earliest stage of capital investment in a startup company. At this stage of the company’s formation, capital is required to perform a variety of early operations such as market research, product development, or prototype production. Seed capital stage investment is the most risky, but because of the early stage of investment, it can have very substantial rewards and favorable terms for investors. So what do these investors look for?
Early stage investing is largely about investing in the founders. Revenue streams are still nonexistent, projections are unreliable and ideas are still maturing and will probably pivot greatly. A traditional valuation of the company does not apply as strictly at this stage, and so investors are blind with few concrete measures to rely on. They turn instead to other factors such as trust, management and social skills, and most importantly the biography of key team members. These investors do not usually know you, so be sure to highlight your achievements and experience. Having some record of success in your career or in a prior business venture will do some talking for you. Focus on your managements skills; for many investors, they will often make or break a company. Bottom line is: it takes a miracle to get investment dollars out of any investor if they’re not impressed with the team.You could have the best product in the world, but without the right, trustworthy team to push it through, no investor will write you a check.
"Since we do seed and early stage investments, the answer is very simple: People first and foremost. Ideas come next, and the potential market comes third. I think seed investors who are in for the long haul need to love the entrepreneur [enough to] have a fair and honest and constant communication while building the company. "— Om Malik, Partner at True Ventures & Founder of Gigaom.
Idea and Passion
When it comes to entrepreneurship, passion counts and investors realize that more than most. Passion for an idea on both the entrepreneur and the investor’s side is often a deal maker. That passion projects commitment and the will to pursue an idea till the end. It is a form of abstract guarantee. Seed investors will often work years alongside founders to gradually develop the company and will therefore have to share and build on that passion.
Of course, groundless passion is of no use. The idea must first and foremost solve a relevant problem. The intensity of the problem and the effectiveness of the solution are often the first key metrics that attract an investor. But seed investors know, without proper execution, commitment, passion and management skills, a great idea will only ever be a great idea.
Investors won't be excited about your vision if you're not pursuing an opportunistic market. Massive returns come from massive market shares. Since the seed investors’ primary objective is return on investment, they prioritize opportunities that promise the largest returns. However, just because you are targeting a market with a large opportunity doesn't necessarily mean your target within it will be successful.
Thus, when determining market viability, seed investors assess a variety of metrics including:
- Total Available Market - The total revenue of the market that your startup is operating in.
- Market Share - Your potential market share, or sales measured as a percentage of an industry's total revenue.
- Industry Growth - Are you in a "hot segment" that has the potential for tremendous growth?
- International Expansion - Opportunities available for future expansion.
The easiest and most foolproof way to get investors excited is to prove traction. How much momentum and validation has your startup gained to date? You may insist there is a huge demand for your product, but without numbers and supporting stats you have nothing. Investors want to know your claims are realistic and at this stage, growth rates are of great importance. Try to show a growing need for your proposed solution in terms of a growing number of active or registered users, partnerships and clients gathered, as well as the amount of traffic generated.
As you know, growing a brand takes significant time and effort. Show the investors your alpha product; they will be much more impressed and enthusiastic when you can demonstrate how much organic growth you have experienced within a specific time interval and a stripped down version of your product.
No matter how many times you’ve done it, pitching to seed investors is intense. As previously mentioned, different investors have different criteria for evaluating opportunities.
While there are factors you can't always predict, always showcase a great founding team that share a passion for an idea that solves a grand problem as well as the complementary skills to bring it to life. Show evidence of market opportunity and demonstrate that you’re already picking up great traction along the way. The more convincing you are, the more enthusiastic investors will be to get onboard. And remember, when it comes to pitching, it’s as the saying goes, “practice makes perfect.”
A Closer Look Into Seed Investing In Lebanon
Flat6Labs Beirut announced the launch of Lebanon Seed Fund in 2017, a $20 Million early stage fund aiming to support 100+ Lebanese startups over the next five years. Approved under Circular 331, this endeavor is aimed at boosting the growth of seed and early stage Lebanese startups since it targets companies from idea stage all the way to early growth. Startups taking part in the seed stage program will receive an investment of up to $50,000 along with a 16-week mentorship-driven seed program.
The program focuses on innovation-based and knowledge-driven industries including information and communications technology, electronics, manufacturing solutions, green technologies and extends to the use of technology in health, education, energy, transport and financial services.
Many other programs supporting seed stage growth are surfacing. The Tripoli Entrepreneurs Club has just released its Startup Seeds Program and IM Capital is offering Seeders Masterclass for Business Angels (MBA), a one-year program that will take novice individual investors through a “learn & earn” methodology consisting of an education and investment track in SMEs in Lebanon.
The local entrepreneurial ecosystem is surely evolving into one of the fastest growing in the region. With an environment that fosters and nourishes entrepreneurial activity, Lebanon is definitely the go-to place for the entrepreneurs of the region. So choose an idea you’re passionate about, pursue it with a passionate team, and start looking for those investors!