7 startup investment criteria that will help you mitigate risk significantly
Choosing the right startup to invest in is one of the hardest tasks that a startup investor faces. If you choose well - you succeed and can realize a nice return. If you choose wrongly – you lose money, time, and a lot of energy. Thus we must answer: How do you know which startups are worthy of an investment, considering it
is a think-out-side-of-the-box venture?
It is not just about the idea or the vision. The startup has to fulfill several criteria and every investor or VC fund has different criteria with different levels of importance. Someplace great emphasis on personal sympathy, others may prefer more analytical evaluations. At our Depo Angel network, the initial process is done by our analysts, where the project is evaluated based on a pitch deck (and some preliminary research) followed by at least one call with the founder or team. We have chosen the most important criteria for you to be able to distinguish a good project with a high probability of success from one that can fail.
The Problem
Investors today search for specific projects that have original solutions to real current problems. Success is more likely when advanced technology is present in the solution.
The Feasibility
Although the project may have developed a prototype or a beta version, it is necessary to verify the feasibility on a larger scale. Eg. whether the cost of producing one product is not too high / if economies of scale are applicable.
Uniqueness
A so-called USP (Unique Selling Proposition) has to be present. In other words, what makes you unique. It can be found directly in the product or in the business model.
Scalability
If expansion to foreign markets is not possible, low and slow appreciation is often assumed, which is generally not interesting for investors. The principle of a startup is for it to be able to grow very rapidly, and ideally, be capable of expanding all over the world.
Business model
A great idea doesn't mean it will sell. The monetization of a product is one of the main keys to success, but it is something that can be worked on with experienced investors.
Market potential and competition
These criteria can give investors a picture of whether there is demand in the market, who and what the real competition is, what the barriers to entry are, how long a product would need to establish itself on the market, how fast it could expand, and so on.
Team
It is necessary to evaluate a team‘s connection to the startup as well as experience. If one has already had a business and failed, one must not be ashamed of it. Previous failures are welcome.
The personal contact, impression, and chemistry between a founder and an investor cannot be faked nor prepared in advance. You either feel it or you just don’t. The earlier the phase of the project the more investors rely on personal feelings. This has also confirmed to us by Michal Ciffra, partner of the angel fund Grouport. "When I have personal meetings, I tend to listen and focus on the speech of the founder. Specifically, how he describes his project, how he thinks about it, and how he is attached to the project. He doesn't have to be similar to me, but I have to instinctively feel that he is the one who will make it."
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Depo Ventures is an investment group manages an angel fund, angel network and provides capital advisory services. Our team is helping European investors identify promising startups, find co-investors and mitigate the investment risk.