How I Choose Startups to Invest In
As an investor and the head of the venture fund, I invest in startups at different stages: from the very early stages to late seed or even series A.
For the very early project, we start with a modest check. We use it just for early support and to be in touch with an entrepreneur when there will be a bigger round.
For the more mature products, which already have some data to analyze, proof-of-concept, initial product-market fit, and clients, we write bigger checks. It is our sweet spot, we may lead late Seed or round A. We usually will support projects on a few next stages.
So how do we find if the project is the one in which we’d like to invest in?
Here is the checklist of how we make our investment decisions.
1.Experienced team or at least a team that can easily explain why they’ve started this project, who will benefit from it, how they are going to make it global, and what ambitions they have.
2. An idea which I understand well. I need to figure out what are the advantages of this particular startup. Can I sell it to myself or to my team? If yes, I’d consider this project for investment.
3. A startup can explain what they do and why.
Often, we meet quite strong teams that struggle to explain what they do and why they do it even to themselves. We have two options: pass on it or start working with these teams before they can explain what they do and why.
4. Ambitions are global and there is a market that is big enough.
Sometimes, we meet teams that have global ambitions, but their target market is rather small. They cannot grow substantially so we usually point at this.
5. Clear business model and focus.
I am not impressed by projects screaming they can help everyone with everything. I prefer a clear and understandable business model on which the project is focusing on now and is going to focus on in the upcoming future.
6. Nailing unit economics.
By unit economy, I mean how much a company spends to attract clients and how much profit is earned from a client. So this CAC: LTV ratio is one of the most important things to consider.
If a project already has its clients and sales, we need to look at another important parameter — the pace of growth.
7. Industry fit.
As many of the industries seem attractive, we avoid those in which we are not experts or cannot attract proper external expertise. For example, we try not to invest in pharma or medical devices. We understand there are plenty of more experienced players than us.
We are interested in productivity tools, direct-to-consumer subscriptions, FinTech, InsurTech, or digital health. There are a lot of possibilities for projects to emerge in areas that are important to people.
8. Technologies fit.
We look for AI/ML, big data projects. We are also quite positive about the future of blockchain. Even though there are no actual projects in the market, I am sure we will see progress.
Each venture capital fund must have its own growth strategy. That is why it is so important to have your own set of rules for selecting projects for investing.