What Investors Look for During The Product Development Stage

If you’re a founder of a tech startup, you’ll want to attract investors to support your growth. However, the one thing founders should know is that investors actually don’t focus on the product itself. Sure, you can have a well developed product, but your investors want to know that your product can make money and live sustainably within a changing market.

As an investor, founder and advisor to digital product-led startups, I’ve seen my fair share of brilliant ideas and exciting ventures. But before writing a check, there are a few key things I, along with other investors, look for during the product development stage in order to guarantee a positive business outcome.

Ask yourself these 3 questions before pitching your startup to investors:

1. Does your product solve a real problem in the market?

While you may have a genius idea for a product that’s going to change the world, the first thing investors want to see is proof that your product addresses a genuine problem that people face.

Do people want it? Don’t just assume they do; conduct user interviews, create prototypes, and gather feedback. Understand your target audience inside-out. Emerge with a clear understanding and articulation of the problem so that you can sell it to investors. In your pitch deck you’ll want to illustrate your understanding of the problem and provide data to reinforce that there is a market for your product as the solution. 

Tip: In your exploration, you may discover more than one problem to be solved. This is a typical distraction for founders. Focus on your core product with the problem you are able to solve first. You can expand your focus later.

2. Is there a clear path towards revenue?

You may have a fantastic product idea that solves a real problem. But here are the next questions investors will throw your way: How is your company going to generate revenue?  How will this product contribute to a sustainable and profitable business? Investors want to know the business model and the potential for profitability.

Business outcomes matter—a lot. Having a great product is fantastic, but investors want to see how it translates into a healthy, revenue-generating company. Let’s face it; we’re not in the business of funding hobbies. In your pitch deck, make sure you demonstrate how your product contributes to tangible outcomes that investors look for.

And if you’ve had a product in the market for years and still haven’t figured out a way to generate revenue, that’s a red flag. Investors want to see a clear plan for making money, and they want to see it sooner rather than later.

3. Do you have the team capable to build the product in a reasonable timeline?

It’s time to talk about execution, especially if you are a founder without a technical background. Can you build your product and can it be done practically? Consider the legal, team, and operational aspects. How are you going to make this happen without hitting roadblocks? Having a big idea for a product that has been proven desirable within the market and has a path to profitability is one thing, but bringing it to life is a whole different ball game.

Investors are keen on knowing that you have the technical expertise or access to a skilled team that can execute the product development efficiently. Hiring the right people is crucial. You can either build an in-house team or opt for a fractional team, and I have to say, the latter often holds the edge due to experience and maturity.

The key is to show investors that you have a well-rounded team capable of taking your product from concept to reality within a reasonable timeline.

In summary, investors want to see proof that your business is more than just a vision for a product. We want to be confident that your product solves a real problem, has a clear path towards generating revenue, and has the right team to execute the plan.

Remember, when you’re pitching to investors, be passionate about your idea, show that you’ve done your research, and be ready to address any concerns they might have. Showing that you’ve done your foundational problem exploration, have a well-researched business plan and strong team for execution will go a long way in convincing investors that your product has the potential to gain traction in the market.

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