If your brand is actively raising capital, or even just starting to think about fundraising, you may wonder – what do investors really care about? How do they decide to invest in a company out of the ocean of companies they evaluate? And how can you strengthen your brand and pitch so that they’re irresistible to investors?
We’ve gone directly to the source to answer those very questions. We asked four early-stage investors what strengths they look for in companies, and how, specifically, consumer research can help investors as they do their due diligence on a brand. These are their answers.
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Moonshot: What primary attributes or strengths do you look for in a company as you consider investing in it?
Two leading attributes emerged from investors’ answers to this question: the strength of the founding team and having a large, addressable market. A team’s strength is particularly impactful to investors, as they place immense value on the ability of the team to use their experience, skills, perseverance, and network to make a company successful.
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“Strong management/leadership team, large addressable market, product/market fit.”
– Johnny Ream, Stray Dog Capital
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“The primary strength I look for is unquestionably the strength of the founding team. At the early stage, having a good product is not enough. Instead, the team will be the ultimate determining factor of success, as the appropriate mix of individuals with complementary backgrounds, skillsets, relationships, etc. will be better suited to overcome inevitable obstacles at the early stage that cannot be overcome by simply having a great product.
Beyond team, it is important that the company is focusing on addressing an unmet need in a large, growing target market. While it is possible for multiple companies to be successful in any given space, it is much harder for investors to feel comfortable supporting a company that simply replicates an existing product/offering versus one that is differentiated and defensible.”
– Steve Molino, Clear Current Capital
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“As an impact-driven investor we are looking for mission-aligned and experienced / fit-for-purpose management teams. I then go on to look [at and] consider the more classical aspects of an investment starting with the (actual) addressable market, the market position / potential market position, the value creation plan as well as the transaction considerations such as purchase price, structuring and exit. Even if all that checks out, I still want to make sure that we are the right owner / investor for the company to achieve its future goals and potential.”
– Matteo Parenti, Blue Horizon
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From Macy Marriott, GlassWall Syndicate and Stray Dog Capital:
- Team – VCs invest in people and want to see a team with exceptional grit, coachability, character, and business savvy that will drive superior performance. Stellar teams strike the right balance between hard and soft skills. The starting team is the face of the company, and their personalities and interactions will create the company culture.
- Traction – We review a lot of very early-stage companies with limited sales, but we still want to see data that supports the business is a viable one.
- Market Size – While market size helps us understand the potential financial outlook, it is also a key metric in relation to our impact expectations – will this significantly displace the use of animals in the supply chain?
- Investment Thesis Fit – Choosing investments that fit into our investment philosophy and concentrating our mentorship in a way that we can best add strategic value.
- Product/Service Differentiation – We’re seeking companies with a sustainable competitive advantage and that continue developing strong differentiators. This could be product, process, and/or price point differentiation.
- SMART KPIs – (Specific, Measurable, Attainable, Relevant, Time-Bound) milestones that allow investors to see how the startup will know if their ideas are being implemented successfully.
- Data – Any claims to market size, category growth, consumer demands, etc. are backed by reliable supporting evidence.
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Moonshot: How and to what extent does or would consumer research aid in your due diligence for a company?
Investors agree that consumer research on a brand aids in their assessment of it — specifically for brands that are pre-revenue or recently launched. In the absence of sales data (or for companies who haven’t been in the market for very long), consumer research can be key in helping investors gauge a product’s and brand’s potential.
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“We spend several weeks, occasionally months, in active due diligence with a startup. Access to consumer insights is invaluable in any industry, but the plant-based market is growing and evolving rapidly and understanding consumer’s behavioral motivations and decision-making process is exceptionally critical.”
– Macy Marriott, GlassWall Syndicate and Stray Dog Capital
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“Consumer research would be most valuable for companies that are pre-revenue or those who have recently launched and have limited revenue. For companies who have multiple years of growing revenue, it is much easier to prove there is a true consumer demand for their product(s) and traction in the marketplace. For those that are earlier in their lifecycle without revenue to point to, it is much more difficult to prove to investors that you are addressing an unmet consumer need in the space, and it is not enough to say that a product tastes great or you believe consumers will want your product over existing offerings.
There’s nothing wrong with being pre-revenue and raising venture capital, as this is a common path for many startups, but showing up with detailed consumer research via surveys, taste tests with groups of target customers, etc., that highlight pent up demand and a need/want for your product will help investors feel more comfortable with the lack of proven demand via sales.”
– Steve Molino, Clear Current Capital
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“Bring confidence or conviction level of how a brand/company may perform, particularly in the absence of other data that can be utilized to gauge product/market fit; also, where biggest opportunities for product development exist.”
– Johnny Ream, Stray Dog Capital
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“Consumer research can be particularly critical for earlier stage companies with consumer facing products or services that are coming to market with something new and exciting – it is important to get out of one’s own tunnel view. Consumer research is key in validating or refuting hypotheses and building comfort around the investment theses.”
– Matteo Parenti, Blue Horizon
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Moonshot: Which of the following insights from consumer research would be most impactful as you assess a company for possible investment?
Investors point to different insights as being most impactful in their due diligence, with consumer purchase intent and target consumer identification / validation commanding the most interest. With those insights in particular, investors feel that they can better understand the unmet market need that a product addresses and the strength and viability of a brand’s strategy.
Price sensitivity is seen as insightful for its implications around financials, go-to-market strategy, and consumer behavior. And, finally, investors find product validation useful in providing evidence that there is demand for a product from its target market.
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Price sensitivity
“Key in understanding the robustness of unit economics and for educating the go-to-market strategy.”
– Matteo Parenti, Blue Horizon
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“It is very challenging to identify which one of the four insights from consumer research would be most impactful during deal evaluation because they are all important elements in the deep dive phase of diligence, but one that stands out to me is price sensitivity. We are always striving to see plant-based products reach price parity to animal-based options that sit side-by-side on grocery shelves. Understanding price elasticity and sensitivity by category would be incredibly beneficial.”
– Macy Marriott, GlassWall Syndicate and Stray Dog Capital
Consumer purchase intent
“Most impactful – basic consumer motivation and intent need to be investigated in order to understand if there even is a market for the product or service.”
– Matteo Parenti, Blue Horizon
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“Consumer purchase intent insights are incredibly valuable in that we often see startups that are trying to be all things to all people and if data supports that consumers are displaying the greatest purchase intent toward products that are convenient, this type of information can help startups prioritize and refine.”
– Macy Marriott, GlassWall Syndicate and Stray Dog Capital
Product / packaging / logo validation
“Product validation is key, especially for food startups. As an investor, I’ll always want to try the product before investing, but I care much less about my individual opinion and much more about what the masses/target consumers think. For instance, if I only thought a product was average but product validation through consumer research shows across 1k people of different backgrounds and diets that 90% love the product (for example), then I’ll be inclined to put my opinion to the side.”
– Steve Molino, Clear Current Capital
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“Nice to have but not critical.”
– Matteo Parenti, Blue Horizon
Target consumer identification / validation
“Studies that show [the] degree to which consumers would be compelled by a particular product and their willingness to purchase / not purchase among other products (highlighting differentiation, customer value).”
– Johnny Ream, Stray Dog Capital
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“Important to inform the strategy, positioning and marketing efforts. #3 in this list [of 4].”
– Matteo Parenti, Blue Horizon
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“Truly identifying your customer and validating the appropriate consumer base for your product through a consumer research / data-driven approach would allow investors to feel more confident that the founding team has a strong grasp of exactly what unmet need in the market they are addressing and what it will take to get their product in the right hands. Having a great product is key, but once that’s accomplished, a company can still fail if they try to sell that product to the wrong group of customers.”
– Steve Molino, Clear Current Capital
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Are you ready to strengthen your business & pitch with consumer insights that can help boost investors’ confidence in your brand, products, and long-term viability?
