Cracking the Code: 15 Factors to get the Perfect Investor for Your Business. By CA. Balaji Padmanabhan

MSME’s need investors for achieving their business plan, but in most cases lack understanding of what investors look at. The MSME’s rely on consultants to prepare a business plan and business owners have not given adequate to what prospective investors look into before investing. Below, is a few aspects which needs an absolute clarity and business owners should dwell on these points and involve their existing team members, consultants, auditors to arrive at a clear picture before planning to invite investors. The details are summarised below,

1. Market Potential

• Is the target market large and growing? Data to justify the same.

• Does the MSME operate in a niche with limited competition? Define whether catering to niche or planning to cater to niche and why the same is considered.

2. Unique Value Proposition

• Is the product/service innovative or differentiated? Is their any client testimonials or any proof of innvovation.

• Does your business have a competitive advantage? How can you justify that the same will not be copied by competition in a better manner.

3. Business Model

• Is the revenue model sustainable and scalable? Past data to be substantiated if existing business.

• Can the business model adapt to growth and changing market conditions? What plan is proposed?

4. Management Team

• Does the team have relevant industry experience?

• Are they committed and capable of executing the business plan? Do you have any ESOP or similar retention plans discussed with key resources.

5. Financial Health

• Are financial statements available and transparent? Accounting, Record keeping and existing MIS and extent of automation of data is important.

• Is the company profitable, or is there a clear path to profitability?

• How is cash flow being managed?

6. Use of Funds

• Is there a clear plan for utilizing the new investment?

• Will the funds drive measurable growth (e.g., marketing, expansion, product development)?

7. Risk Factors

• Are key risks identified and mitigation strategies in place?

• What is the potential market, operational, and competitive risks?

8. Exit Strategy

• Is there a viable exit strategy for investor (e.g., acquisition, IPO)?

• What is the estimated timeline for achieving the exit?

9. Customer Traction

• Does the MSME have a growing customer base? Data and proof is important

• Are there validated sales figures or signed contracts? Confirmed work order or existing contracts

10. Legal & Regulatory Compliance

• Is your business compliant with all relevant legal and regulatory requirements? GST, Income Tax, Labour Laws, Companies Act, Environmental Laws and industry relevant law.

• Are intellectual property protections (e.g., patents, trademarks) in place if applicable?

11. Scalability

• Does the MSME have the infrastructure and processes to support growth?

• Can the business expand without significant increases in cost?

12. Product-Market Fit

• Has the product/service been validated by the market?

• Are customers satisfied and showing loyalty?

13. Competitive Landscape

• Who are the competitors, and what are their strengths and weaknesses?

• How does the MSME plan to maintain a competitive edge?

14. Operational Efficiency

• Is the MSME optimized for cost-efficiency and productivity?

• Are key processes automated or streamlined?

15. Social & Environmental Impact

• Does the MSME have a positive social or environmental impact?

• Are there ESG (Environmental, Social, and Governance) considerations in place?