4 signs your startup is fundable, according to top investors

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Every beautiful garden begins with a humble seed planted in the ground. That’s where the startup world got the term “seed funding”: some of the earliest money a new company receives to grow.

“For startups, seed investing is what is needed for you to see those beautiful tulips one day,” says Michael Duda, cofounder and managing partner of Bullish Inc., a venture capital firm that has invested in companies like Warby Parker, Peloton, Harry’s, Bubble Beauty, and Bandit Running.

“It’s that early money to plant the beginning of something in the ground, and hopefully help it grow and flourish in the future,” Duda tells Shopify.

While seed funding is often associated with venture capital firms, startups can seek capital from a variety of sources, including friends and family, crowdfunding platforms, and grants. Whichever sources you choose, securing funding can be a challenge for a new business. A polished pitch starts with these four things.

You have an MVP

It’s helpful to have at least a basic example of your product or service—even if it’s a minimum viable product (MVP)—to show your potential investors. An MVP is a basic version of a product or service with just enough features for customers to use and interact with, while still feeling complete.

This doesn’t necessarily have to be a full prototype. There are several types of MVPs that don’t require you to build a product, such as a website describing the product and its features, an explainer video, a marketing campaign driving people to sign up for a waitlist, or a single-feature MVP to test one functionality.

When Susie Harrison was building Hearth Display, a digital whiteboard that helps families organize schedules and chores, her MVPs were design concepts she created in Figma and shared with her target audience. “We started by quite literally just showing families the actual product designs of the software features—not even a fully baked hardware prototype, not even a fully baked engineered software experience,” she says.

While Harrison’s MVP was more conceptual, it allowed her to validate the need for her business.

You can demonstrate consumer traction

Besides giving you something tangible to show investors, MVPs also allow you to collect feedback from users and prove consumer interest to investors. Harrison knew this was especially crucial for Hearth Display, which aimed to solve a problem many male investors couldn’t relate to—the mental load of running a home.

“One of the points of pushback that we received from potential investors was around whether or not somebody would actually pay to solve this problem,” Harrison says. “We also had pushback around whether or not the problem was actually real.”

Harrison first created Facebook groups to gather families’ pain points and feedback as she began building the concept of Hearth Display. She then launched a pre-order campaign where customers put down a small (refundable) deposit. Finally, she followed it up with an Indiegogo campaign that raised $600,000—definitively proving the problem and interest in solving it.

Duda also recommends crowdfunding to both fund the development of your MVP and demonstrate traction with your target audience.

“Forums like crowdfunding can be really great to spread awareness and build a little bit of a fan base,” Duda says. “You can learn about your customers and get feedback. And if you show investors that you raised $40,000 instead of the $20,000 you were hoping for, it can show them that there’s something here.”

You’ve developed a financial plan

A good product concept doesn’t necessarily translate into a viable business plan. Investors look for a clear business model and financial plan showing that your idea can make money.

“We don’t expect some complex financial model at this stage, but we do like to see that you’ve thought about: ‘How far will this money get me, and how much more money might I need in the future?’” Duda says.

Within your pitch, include research about the market size and market opportunity, as well as why you believe your offering has product-market fit. Back up your assumptions with market research and metrics about your traction so far.

If you’ve already made some sales, detail your revenue streams, annual sales, customer base, customer acquisition cost, cost of goods sold, monthly website traffic, and profit margin. Forecast how these numbers will change in the future by including your growth strategy and financial projections.

Duda says it’s also critical to explain why you want to raise seed money, what you’ll do with the capital, and how it’ll help the company grow and succeed. Some entrepreneurs miss the forest for the trees here, says Duda, failing to demonstrate a strategic and targeted plan for the funds.

Some startups may need the money to build a prototype of their product or conduct market research. Others might look to grow their engineering team to develop their software further. Knowing your why is crucial when pitching investors.

You’ve identified investors who are a fit

If you’re targeting angel investors and venture capital firms, research your targets’ previous investments to determine if your business fits into their interests. You may have the greatest consumer product in the world to pitch, but if your target invests only in enterprise technology, there’s simply no point.

“Beauty is in the eye of the beholder, and different people want different proof points,” Duda says. “Some VCs really like a certain entrepreneur, some love investing in snacks, some prefer tech products. At Bullish, we love early-stage consumer businesses. Find who you’re a fit for, and who’s a fit for you.”

Harrison and her cofounders sought out investors who aligned with their vision, not just to receive funding but also to gain true growth partners.

“It’s pretty clear from the first couple conversations whether or not [our vision is] something that we’re having to overeducate and overexplain … or if we’re in a conversation with an investor who actually starts dreaming with us, ideating with us, and very innately just understands the problem,” Harrison says.

Duda notes, however, that very few startups raise venture capital. So when finding investors for startup funding, don’t end your search there. Friends and family, crowdfunding platforms, local small business grants, and accelerators are excellent choices for many businesses. Explore all your funding avenues and know you don’t have to choose just one.

No matter which paths you explore, Duda stresses the importance of showing potential investors you deeply care about your mission, the problem, and your ability to solve it. After all, you’re asking someone to believe in you and back their belief with cash, so you have to believe in yourself first.

This story was produced by Shopify and reviewed and distributed by Stacker.