Catching the Eyes of Investors

Key Takeaways

• The best way businesses can make themselves attractive to investors is by knowing their numbers and competition as well as being in a growing industry.
• Investors are most likely to seek businesses with profitability, high potential ROI, and strong leadership.
• Despite economic concerns, nearly two-thirds of investors believe now is a good time to invest.
• Industry investors are most interested in funding technology, AI, and medical/health care in 2023, while over half plan to avoid cryptocurrency investments.

Attracting Capital to Your Business

The entrepreneurial spirit has been high among Americans in recent years. Over 4.4 million businesses were started in 2020, the highest number ever recorded in the U.S. until 2021, when 5.4 million startups were founded. In support of that spirit and in search of the science behind business success, we recently talked to over 250 modern investors.

What are the telltale signs of an investable company today, and where are investors looking to put their dollars in 2023? What are the most common red flags that discount a business from receiving a potential investment? Experienced investors answered all these questions and more. If you’re looking to start your own business or begin attracting capital to an existing one, you’re in the right place — just keep scrolling.

What Investors Look for in Businesses Today

The study begins with a dive into what investors want. Which business development stage is the ripest for investments? What advice do investors have for small-to-medium businesses, and what do they perceive as the most common personality traits of successful business leaders? Let’s find out.

Part of understanding how an investor thinks is knowing the types and stages of investing. Angel and seed investors are the earliest investors in a company, often coming in at the startup phase. They are equity investors as the businesses are too new to take on debt. They take on the most risk but have the highest potential ROI. Venture capital investors usually invest during the early pre-profitability stage and can include equity and convertible debt. Private equity funding happens later in the business lifecycle once the company has established cash flow.

Though venture capital investors can invest at any stage, the ones we spoke to reported that their primary interest lies within the earlier funding stages. These funds typically go toward manufacturing and production, sales, and marketing. Earlier investments are certainly not the only ways to be profitable, but they can generate a “first-mover advantage” and often lead to higher profits.

Regardless of funding stages, investors were most likely to recommend that business owners know their numbers. Studying your business and being able to communicate important details can make or break an investor’s impression. Knowing your competition was nearly as important, with 27% of investors including it in their advice to business owners.

However, knowing your numbers and competition may not be enough to overcome an industry that isn’t thriving: 26% of investors agreed that businesses in a growing industry were attractive investments as well. As one respondent put it, you should “demonstrate the potential for growth, backing up the business heavily with sound financials and analytics.” Another shared that it’s also important to be open to pivoting your business model or product offerings as needed, especially if market feedback and data show that you should.

Many personal qualities can make for a good business leader, but perhaps most important to investors is that they are hard-working. This ranked higher than intelligence, passion, and even honesty. But interestingly, female investors were 35% more likely than male investors to value honesty in a successful business leader. One respondent shared this advice: “Be honest with your plans and don’t cover up past mistakes.” Transparency is important; it’s how investors learn to trust you and your business plan.

Assets and Drawbacks for Investments

Apart from an entrepreneur’s personality and business model, there are some clear-cut green and red flags that investors will immediately notice when assessing a potential investment. We’ve ranked them for you below.

Investors said that, above all, they want to know two things when deciding whether to invest: Is the company profitable, and what is the possible return on investment (ROI)? These considerations ranked first, each being the top choice for 44% of investors, respectively. The next most important “green flag” was strong business leadership. Since investors want to make money, they need to know they trust those in charge to keep the company profitable.

A major “red flag,” or investment barrier, was a pitch that seemed too good to be true. Investors aren’t interested in supporting an entrepreneur’s dream when it’s not anchored in reality. They were also often wary of vague business plans (22%). For those who need help perfecting theirs, the Small Business Association offers free resources on what it should include, like a market analysis and financial projections (especially important if you’re looking for investors).

As far as future investments are concerned, most investors are looking towards the tech, AI, and health care sectors. A combined 71% of investors said they’re interested in tech and AI investments, likely due to the recent excitement around the newest development in generative AI, ChatGPT. Investors appear eager to get in on the latest tech that could lead to high ROIs if they get in during the early stages of funding.

Cryptocurrency, on the other hand, was far less appealing to investors: 52% said they plan to avoid these types of digital investments in 2023. The FTX fiasco has certainly impacted this type of investing, and experts are still unearthing examples of its ripple effect.

Securing Investments

Entrepreneurs clearly face an uphill battle in securing investments, but since most investors reported intentions to invest in 2023, it’s within reach for those who play their cards right. You just need to know what investors are looking for in order to meet their expectations. Having a clear and concrete business plan that covers all bases is a must, as is knowing your numbers. And as important as it is to dream big, the ask and potential returns need to be realistic.

In spite of the hardships of COVID-19, it has left a story of optimism in its wake. The pandemic sparked a massive influx in entrepreneurial spirit, and more Americans than ever before have started their own businesses. It’s not a far stretch to say that a new world of honest and integrity-driven businesses may just be right around the corner and ready to meet their next investor.

Methodology

We surveyed 254 investors to determine how to catch the eyes of investors in 2023.

About Clarify Capital

Clarify Capital helps business owners secure the flexible and expedient financing that backs up their ambition, so they can be more than just owners — they can be entrepreneurs, visionaries, and innovators.

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