Every week I get to see a few deals come through from startup founders. Some of these I find organically during my traversals; several of these are referred to me. Being a small firm, I have limited luxury to explore all companies and all founders in depth. The first question to ask is: do I have sufficient information to spend more time on learning about a company. To answer this I use a simple, yet powerful steps.
Understand about the Team
We respect that founding team comes from a variety of backgrounds. The two important attributes are: Passion and Persistence. Closely related is proven experience in the field and in startups. As a founder, one faces a lot of problems on a daily basis. This can be as simple as filing paperwork and following up. Or as complicated as solving customer problem in the middle of the night. We need to ensure that the founders have demonstrated depth, breadth, and engagement to handle these wide range of demands. Having an extra dose of humility is super important. Reason being, there are so many unknowns to tackle in the course of a startup. In addition it is important to understand the strength of the founding team and their engagement where possible.
Customers and Traction
All businesses need to demonstrate that they had solved valuable problems and hence are earning customers. Getting the first handful of customers is the hardest part of the game. Often these customers come through referrals and from within the network. Subsequently a consistent approach to marketing, sales, customer onboarding, etc., are required to ensure customers are engaging with the product. In this context having feedback from early customers and use of such feedback to refine the product roadmap is useful. The strategy and tactics used vary between B2B and B2C businesses. That is expected and hence it is okay.
Understand the Product and Technology
My experience is in product and technology to solve problems. I am interested in novel ideas; but what gets me more excited is the product and underlying technology. Where possible I would like to play with the the product and learn how it operates. Having an ability to provide demonstration accounts goes to prove that the idea is coming to fruition and is real. For some products like a green cleaning robot or aviation drone, it may be difficult. In these cases having a real product demonstration video (not necessarily polished lab video) is useful. It is okay if the products fail during demonstrations; I had lived through many occasions where the early stage of the product is rough. I am also interested in the roadmap for products and technology.
Funding Status
Much like many other early stage investors, I have a fair share of experience burning money at the earliest stage of product or company formation. For me, I cannot afford to be early or late. My sweet spot is to be in the middle somewhere. Knowing who has funded the company and how much is useful. Knowing what the terms and valuation are is important. On occasions, based on other data, I had invested in a company or two when the valuation was super high. However on most occasions I look for early stage valuations to be lower.
There are likely many other considerations that I apply. In 2021, I plan to introspect more and write down some of the considerations to create a more explicit set.