How Do AI Startups Make Their First Million?

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In a piece published by RBC, Igor Yarunov, Deputy Investment Director of MTS AI, discusses what fledgling entrepreneurs should bear in mind. Here’s a short summary.

Find out how startups can improve their chances

Igor Yarunov, Deputy Investment Director at MTS AI, explained in the article for RBC Pro what are the chances for start-up entrepreneurs to become millionaires and who can help them with this. In this article, we share the key theses.

Only 6% of all the ventures entering the market earn at least one million dollars during their first calendar year in business, cited statistical records Verne Harnish, founder of the Young Entrepreneurs’ Organization and chair of the Birthing of Giants leadership program at the Massachusetts Institute of Technology. Given that IT startups are engaged in innovative and investment-intensive business with higher-than average market risks, the share of such enterprises aspiring to make a million in the first year accounts for even less than 1%.

The likelihood of a startup to become a unicorn increases as investors and business angels get involved in its making. But how to attract them and what to do? This is where accelerators step in.

The first step is to get on the accelerator‘s list

There is no universal recipe of how to present your idea in an accelerator. The broad-brush guidelines are as follows: clearly define the concept, give a qualitative assessment of the team’s vision, with all its ups and downs, and then present the team itself. Apart from that, the less formal requirements the accelerator has for a project presentation, the better are the chances for a startup to convey its concept in the best possible way. This is how the organizers sift through boilerplate projects that may fit the formal criteria but fail to come up with something truly unique.

Acceleration: the process and the way forward

Startups have 3 to 4 months to work on their projects together with mentors and other experts. This is enough time to see how the team works towards meeting its goals and how it responds to surprise turns. It is normally enough for most startups to produce a demo day presentation showing the progress. Then it’s up to investors whether to provide funds or not. How do investors make their decisions? The key criterion is momentum, or relative growth of business volume. Investors want to see a startup showing its qualitative, rather than quantitative, transition by the demo day.

Preparing for pitching: the team is important, but sales are more critical

The team is the primary asset of any startup. The key focus should be placed on presenting the team rather than on technicalities of its deeptech solutions. Stressing the expertise of each team member is important and the only compelling way to do so is to show the result. Another valuable indicator is when a startup gets real business clients at the first stage: this proves its market power, and the accelerator will help with attracting more clients for it.

Demo day: investors’ expectations

A good investor must quickly grasp what a startup does, get on the same page with it, and then quickly find the money. Besides, the investor may already have a history working in the respective sector, with a broad network or high-class subject matter expertise.

Even though each investor may have its own startup selection criteria, there is one hard and fast rule to follow at the pitching stage: you must have a very clear understanding of what your presentation is all about and what it seeks to achieve. And since the only goal is to attract an investor, every pitch phrase must be built around this purpose. Here, advice from experts and mentors will come in very handy. Keep your slides as simple as possible. The intent of the pitch is to draw investor’s attention to your product and show what your team has accomplished during the acceleration program.

The seekers and winners

Of course, intuition matters, and this is why it’s difficult to put a finger on what criteria to use when preparing a pitch. The skills of accelerator mentors and experts will help to guide you through. The investor is a startup’s business partner. There is no way to secure investment unless you can prove to your future partner that you are genuinely ready to pursue the set goal and to make it to the list of 1%, or even 0.05%, of candidates after passing all the hurdles. The best a startup can do is to seek support of a successful accelerator; otherwise, it makes no sense even to hope for your first million, let alone anything more.

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