THOUGHTS ON INVESTMENTS
While many of us think of startup investment as a specialist game reserved for a select few with expertise or experience, I believe it can be honed with a few guiding principles.
Generally, any investment is done for Returns with an assumed time period . Specifically, deciding to invest during the Angel round of Investment means the Venture has repeatable customer and Revenue that is capable of growth. To qualify this further, this revenue is because the price/value of Product / Service is acceptable to Customers .
This being understood, the decision to invest is made on few known parameters
- Ability of Entrepreneur to stitch a story of how they identified the problem and the approach he has taken to provide solution
- Detailed presentation of metrics he collected to prove his story
- Understanding of which domain his solution fits into
- Understanding of why the early customers believe in his solution
- Understanding how the Angel round will help him to scale
- Understanding of the Compliance environment and how this impacts his business.
- Who are the competitors and their understanding
- Ownership structure of existing shareholders and investors
- Background of the Entrepreneur
- Openness for change
Other factors that can give more insights will be
- Problem – Solution – Impact on Problem
- Cashflow and P&L behavior
- Buying Patterns of User, Influencer and Decision maker
- Customer profiling - B2B, B2C, B2B2C, B2G etc.
- Utilization of Funds
- Collecting Customer feedback
- Analysis of business model
- Other startups in a similar space
- Domain experts’ opinion
- Verification of Purpose with Entrepreneur
Responsibility of being a Lead Investor
Being a lead investor is not only about pride but one of great responsibility. Because of quick changes in technology, the relative ecosystem changes in evaluating a good proposal also changes. The lead investor place a Major role in evaluating a deal. Lead place a major role from Entry to Exit of an investment. A lead investor, in my view, is someone who has invested himself in the startup, typically going from being a mentor to lead investor, thereby traveling along with the entrepreneur from ideation to maturity. A startup that has a lead investor who has also been a mentor for them from much earlier is one indicator of a success story in the making – a person who believed in their solution so much so that he is putting his skin in the game.
In my limited experience, it takes average of 8 months for any good project to raise the money. Sometimes good projects fail because of compliance issues. Entrepreneurs should avoid such pitfalls.