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What do investors look for in companies they invest in? This is a common question being asked by entrepreneurs I speak to, and as always the answer is not as straight forward as they would like. Entrepreneurs are keen to ensure that they include the right information and focus in their business plan. That the focus of the business plan is what the investor will be looking for. In order for us to understand this the results below comes in very handy indeed. Most commonly investors will look for viability, positive marketing research results and market with strong potential. But this of course may not always be the case and it will vary from one investor to the next.

In a recent survey amongst some of the countries most active investors the survey results were not to surprising. What was interesting and perhaps not what many entrepreneurs were expecting the the importance of the entrepreneur or team itself. Its really brings us back to the old adage that people invest in people and even in the modern day, investors still prefer to invest in the people behind the business.

From the survey results it was clear that Superior Management, A Large Market, and Unique Products Create Value for most investors. The results where as follows:

  • Quality of management: 4.5
  • Size of the market: 3.8
  • Product qualities:(uniqueness, brand strength, patent protection) 3.7
  • Rate of market growth: 3.5
  • Competition: 3.5
  • Barriers to entry: 3.4
  • Stage of development of the company: 3.2
  • Industry the company is in: 3.0

Quality of management was emphasized by the VCs to the extent that 7 out of 10 gave it a rating of "5", and nearly 9 out of 10 gave it at a 4 or 5. There were a few mavericks among those surveyed, however: 7% gave management quality an importance rating of only 1 or 2.

No other factor came close in importance. The next most important, size of the market, was given a rating of 5 by only 30% of the respondents, followed by product qualities, which received a 5 from about one out of four respondents.

Note that all of the factors received an average score of 3 or higher. All of these factors were viewed as significant, and entrepreneurs should take care to clearly articulate each of them to investors.

From a business planning perspective this clarifies where the emphasis needs to be if you are aiming the business plan at an investor. These requirements may well be very different for banks, considering the modern day reliance on automated processes by many banks to make business finance decisions for them.

For entrepreneur this will in a sense be good news as we are after all, if anything, people orientated, but it tells us that we also need to ensure the research is done, the product / service quality needs to be solid, market information needs to be considered, competitors can not be underestimated and the people we have in the business must be of the highest caliber possible.

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