What Investors Actually Look at Before Writing a Check (It’s Not Your Idea)

Over the past few weeks, I’ve been helping founders prepare investor pitch decks; a well-designed deck can often be the difference between raising capital and not getting funds. 

So we were very surprised to discover that our investor interest dropped significantly once the conversation turned to our financials.

We started digging deep into this problem and quickly realized two things: 

1. Both founders and investors obsess on different issues. 
2. Most startups enter fundraising without a structured capital-raising preparation process. 
3. They have absolutely no idea what’s actually being scrutinized by their prospective investors.

I asked myself, “What numbers are investors actually looking for? 

 Well, obviously they wanted to understand exactly what made us special, but also importantly, they needed to assess the sustainability of our proposition. 

Here’s my top 5 insights about what investors actually scrutinize.

These metrics are what every investor wants to see, which will help them decide whether to fund a business or not.

1. Customer Profitability Metrics

This shows how much value each customer actually brings to the business. This will give a good indication of how much you need to spend to attract customers to your business relative to the value you get back. If this number doesn’t seem crystal clear, that’s a serious investor concern.

2. Revenue Model

How do you make money, and is it predictable? Predictable recurring revenue is much more highly valued than one-off sales models because it provides greater assurance around future income. If investors can’t quickly understand how you make money, they’ll question how sustainable the business really is.

3. Liquidity and Cash Lifespan

Cash runway shows how long your available cash can support the business at your current burn rate. For investors, knowing that you need to seek fresh cash under immediate pressure is a big negative for them. If your cash lifespan is under three months, that changes the entire conversation. Investor-ready financials should clearly show how long your current cash can support the business.

4. Growth Assumptions

Your projections tell the story behind your growth plans and your expectations of future success. Investors are interested in understanding these underlying assumptions because they may affect the accuracy of your forecasts. It’s important to highlight key areas where you expect growth, especially relating to customer numbers, pricing strategies, and customer retention figures. Assuming anything that might not prove true under stringent review has the potential to end investor negotiations at the early stages.

5. Staff Cost Structure

Where is your operating cash actually going? Investors love to see an evidence-based approach behind hires and salary increases, ideally showing increased productivity rather than simply growing overheads. As a rule of thumb, anything that accounts for 80%+ of your monthly operating expenses needs explaining. Why did you hire them and how did you justify these decisions to your board members? 

What Happens When You Go in Without Investor-Ready Financials

What Happens To You If You Don’t Get These Right? More likely than not, you’ll either experience delays during conversations as investors require more information, suffer through a painful period of greater equity dilution because you’re negotiating from a weaker position, or end up walking away completely with no agreements signed. None of these necessarily mean your idea is weak. They simply show investors that the financial side isn’t ready yet, only deficiencies in critical areas required by investors to invest successfully in your startup. 

Founder’s Takeaway

While a great idea goes a long way toward securing support for your vision, it will mean nothing unless backed up by equally impressive financial data. By preparing yourself using a standardized checklist such as this,  you dramatically improve your chances of raising capital.

Are you unsure whether your finances are ‘investor rea