Investment is never an exact science. When it works, there are few better feelings. But there will inevitably be times when it doesn’t quite work, for whatever reason.
The longer you spend as an investor, the more you subconsciously look for the same defining traits in the people you are about to hand money to. This is where I truly believe it’s more of an art. How do you find the diamonds in the rough whilst thumbing through hundreds of pitch decks? And, as a business looking for investment, how do you hope to stand out?
The founding team
I absolutely invest in people more than ideas. Ideas can – and often need to – be developed, whereas there is little that can be done if founders don’t have what it takes. You’re looking for people who are hungry, dedicated and not too precious to hear honest feedback. I don’t want founding teams that roll over when it gets tough; the best development happens when people with integrity and passion work together to achieve the same goal.
Proof of traction
There is absolutely no reason that a startup can’t create a minimum viable product and test it to gauge interest. If you can demonstrate that people will pay for your product or service, you’re already on your way to succesfully securing investment because investors will be in a much better position to envision future funding rounds, an exit or perhaps even an IPO.
Keep it real
We’ve all watched Dragons’ Den and seen somebody burnt on account of an inflated valuation. If you haven’t made a penny but ask an investor for £500,000 for 10% of your business, you will be laughed out of the room for valuing your as-yet unproven business at £5m. That’s why realistic expectations are incredibly important.
Understand the market
We tend to invest in e-commerce businesses because that’s where our strength and experience lies. But Expocart, one of our investees, is in the exhibition business, an area we know little about. So, when we are approached by a company from a market that’s unfamiliar to us, we need to be convinced that they do really know it. And, just as importantly, we need to feel confident that the market is big enough for the company to grab enough of a share and thus create a good exit.
I started my career in restaurants where I quickly realised that scaling meant expanding into a chain. But the margins involved for the effort expended didn’t make sense to me. It’s a lot easier to scale nationally and internationally in e-commerce, especially when proof of concept and market size is a given. We take a look at every potential investee that comes through the door and ask ourselves: “Just how can this startup scale – and what’s the size of the opportunity if it can?”