What Attracts Investors to a Company

As mentioned before, one of the biggest differences between angel investors and venture capitalists is that a venture capitalist is a professional investor and does not look to help a given entrepreneur out financially without expecting to gain a substantial profit from his investment.

 Let us make things clear. An angel investor might also aid the entrepreneur by helping research market data and other crucial parts of the business plan, which can help the entrepreneur eventually find a venture capitalist in the future for larger funding amounts.

The venture capitalist looks first and foremost at your business plan. This does not mean that you give up your business plan right away. In fact, that would be a mistake. When approaching a venture capitalist or other kind of equity investor, you should first write up a teaser e-mail that briefly explains what your company is about and what products or services it provides. This is to get the investor interested.

The next thing is your executive summary. The executive summary is a shortened form of your business plan. A good executive summary should be no longer than two or three pages. Even three pages may be too much for an executive summary.

Basically, your executive summary is a short outline of your business plan that points out the key features of your business plan that you believe the investor should be interested in. This is very important.

You need to understand that institutional investors are opportunists. This means that if they see an opportunity in your company to make big profits, they will invest in your company. Investors will want to make sure the potential profits outweigh the risks of their investment.

This is why it is crucial that you should do all your market research. Market research is crucial because you can be assured that venture capital firms have their own market researchers who also research the market data of your sector. If you make a mistake, they will catch it.

What is good market research? There are many aspects of your business and its market that you should research.

For instance, is there a profitable demand for your product or service? What are your barriers of entry? Barriers of entry are also very important.

A barrier of entry basically describes things that you can benefit from but without them your competition is at a disadvantage.

It is very important to have barriers of entry, especially for those of you entrepreneurs who are in highly competitive industries, such as the electronics, healthcare and IT industries. You need to have barriers of entry, and you need to explain why they are good barriers of entry.

A barrier of entry can be anything that is unique that you have, which your competitor cannot take advantage of. Barriers of entry can be anything from new revolutionary technologies or services that are legally protected.

Protection can range from having patents to being able to monopolize real estate in order to provide a specific service. For those who want to expand your company abroad, you can discover that some countries will offer important national property to foreign businesses for a given price or lease

Tapping into those resources can provide your company with barriers of entry in that market. How? Well, if you go into a country that is encouraging foreign investment and wants the business of foreign companies and you lease large amounts of land or other resources, you can leverage a monopoly in that particular market. It’s that simple.


Here is another example of a barrier of entry: Running an electronics company and having a new gadget or device that can do something the competition cannot is a profitable barrier of entry.

A specific example of this is Apple’s iTunes. As the mp3 player became popular, there were many small competitors in the market.

When Apple joined the market with its iPod it accompanied the mp3 player with iTunes. With iTunes, Apple was able to create a one-stop-shop for all those seeking to purchase music for their iPods. The specific barriers of entry that Apple created were the legal rights to sell and distribute a large portion of online music sales.

This brilliant move prevented start-up companies from providing the same services as Apple, giving Apple an almost impenetrable barrier for others seeking to access the mp3 and online music sales market.

So, what do these two examples show? Simple. There will always be competition in any sector. However, the investor wants to know whether he or she is investing their client’s money in a company that can survive and be successful in face of the competition.

Not every company can stand up to the competition.