Startups have always been part of society, yet with the growth of Silicon Valley and now Portland as startup hubs of the west coast, they are becoming more prevalent. In order for a startup to be successful there comes a time when it needs investors; however, finding the right fit and convincing them to invest can be tricky due to startups having a high failure rate and lack of certainty. Silicon Valley Software Group (SVSG) has narrowed down 5 attributes that investors commonly use to value early stage companies:

  • Market
  • Team
  • Product
  • Distribution
  • Traction

Here’s a breakdown of the 5:

Market – investors look for opportunities happening in the “market” that have potential to be massive. They depend on a startup to have a vision. This vision is something that entrepreneurs have to clearly communicate due to the fact it’s usually an unseen future idea.

Team – sometimes a startup raises money without having a product yet, this usually comes from the track record of the founder(s). The track records will only go so far, investors also look for well roundedness. They want to see a mix of people with individual skills and cohesion. Startups are stressful and challenging and if a team can survive the bond will be strong.

Product – the product a team produces shows results. It also represents a demonstration of the team’s ability to execute. Most startups products go through a beta stage and that usually requires modification, which is where the investor money comes in to play.

Distribution – according to SVSG one of the most overlook risks for a startup is distribution. You can have the coolest product but if you can’t get it into your consumer’s hands it will never reach its potential.

Traction – the more metrics a startup can show, such as revenue, user growth, engagement, etc. the less risky the startup will appear. Traction is hard to show especially for a new startup, which is why the above four attributes are helpful. However, metrics on traction are what show value in the company and a signal that things are working.

To read the original article by Matt Swanson of SVSG click here.

To learn more about SVSG click here.