So, you’ve finally started your business. You want to make a difference. Heal the world. Feed the poor. Clothe the destitute. And hopefully, make a shit ton of money while doing it.
If you’re like any of the entrepreneurs I’ve come across in my professional life; it’s very likely you’re so excited about starting your business that you haven’t taken the time out to decide what your exit strategy would be.
Heck, it’s even possible you don’t know what an exit strategy is in the first place.
Anyways, that’s beyond the scope of this piece. My objective is to explore the question: Why do Investors buy a startup and not the other?
However, before we chow down on this, it’s essential to remember that Investors, VCs, Funds, and Big corporations don’t care about your big do-goody dreams. They are out to make money.
They don’t care that you’ve spent incredible long-hours hunched over your computer slaving away to get your business off the ground. They don’t care if you’ve never taken a penny out of the company.
I know this sounds cold. It’s a reality. It’s cruel, yes I know. To survive in this shark-infested waters, you must understand the why behind every move investors make. And here’s how:
Investors buy scalable startups
Sure, positive upward trend figures are great to have. Investors look at them plus more when evaluating your business.
They also want to be sure your business model can scale too. The more people the business has the potential to reach, the higher the chances of receiving an offer from investors.
Is your niche too narrow? Can you expand into other verticals? Great examples of scalable business models include SaaS (10x multiple), Subscription based model (12x) and Digital Media (6x).
Investors buy startups when it cost more to copy them
The acquisition of InstaShop by Souq and WeCashAnyCar by Dubizzle are two examples that hit home this point.
The thing is, once a big company wants to add a new feature or service to their offerings – they are often faced with two options: either build the solution from scratch or look for a smaller company already doing what they want to do and buy it out.
Now, the option a company chooses depends on a number of factors. For instance, if they are in a highly competitive market – they are more likely to go for acquisition.
The reason is developing a solution from the ground up will cost them more both in monetary terms and time.
If you’re threatening their market share
Big corporations like to dominate their space – that’s why they are big in the first place. And, once they realize your business is chipping away at their market share – they would swoon in for the kill.
It’s either they run you out of business or the swallow your startup.
In some instance though, they go for the buy because they are competing with another big brand.
So, keep these points in mind when you begin to woo investors for your business. Above all be mentally strong. Keep an open mind. And try to look at things from their perspective while also looking out for yourself.