Don’t invest unless you’re prepared to lose all the money you invest. This is a high risk investment and you are unlikely to be protected if something goes wrong. Take 2 minutes to learn more.

How to Find Good Startups at an Early Stage

Edward Stevenson, Investment Executive Joining SFC Capital in 2019 with a background in economics and financial analysis, screens and selects top investment opportunities as an Investment Executive.
Share on

The key factors you should consider if you want to invest in startups

When it comes to investing in startups, the goal is to identify high-potential startups early on and invest before they take off. However, with so many investment opportunities available, it can be difficult to know which ones have the potential to succeed. In this article, we will take a look at some key factors to consider when evaluating opportunities to invest in a startup as well as what the process typically looks like.

Deal Flow

To build a strong portfolio, it's important to have access to a high-quality deal flow. Here are some ways to improve your deal flow:

  • Network: Attend startup-focused networking events to meet potential founders and build your reputation as an investor.
  • Join an angel network: Joining an angel network or syndicate is an easy way to tap into a pre-existing deal flow.
  • Add value: If you're known for adding value, the best founders will come to you with investment opportunities.
Process

Most investors have a structured diligence process to evaluate potential investment opportunities. A typical process includes:

  • Screening: Reviewing and researching an opportunity to determine if it matches your criteria and fits well in your portfolio.
  • First Meeting: Conducting a first meeting with the founder either in person or via call.
  • Research: Conducting additional research and asking the founder additional questions.
  • Follow-up Meeting(s): Inviting the founder to a follow-up meeting or meetings to discuss deal specifics, terms of investment, and future plans.
  • Due Diligence: Conducting thorough due diligence and committing to invest – conditional upon satisfactory completion of due diligence.
Theory

When evaluating potential investment opportunities, it's important to consider the following factors:

  • Founders: It takes great people to build great businesses. Evaluate the founding team's composition, strengths, and backgrounds.
  • Problem: Evaluate the business from the perspective of the end customer. Is there a significant pain point that the product or service addresses?
  • Solution: Evaluate the potential solution to the problem. How much better is it than existing solutions? How much cheaper or more expensive is it? How long will it take to bring the solution to market?
  • Market: Evaluate the size and competitiveness of the target market.
  • Business Model: Evaluate how the business makes money and whether the unit economics make sense.
  • Funding: Evaluate how much capital is required to bring the product to market and scale, and whether additional rounds of funding may be required.
  • Red Flags: Look for potential red flags, such as dishonesty on the part of the founders or the presence of a big competitor in the same niche.

Investing in early-stage startups is risky. However, by carefully evaluating investment opportunities based on the above factors, investors can increase their chances of building a successful portfolio of potential stars.

Subscribe Here!

Get access to fund and direct investment opportunities. Capital at risk. For professional investors only.

Related Articles

London-based Startup Funding Club has reinvented early-stage investment by developing a unique co-in...
Startup Funding Club invests over £300K in British startups Curamicus, Designed in Colour, icaruspar...
London, UK – 3rd April 2017 – Startup Funding Club has invested £200K into Future Mobile Money. The ...

DISCLAIMER:
SFC Capital Ltd (SFC) is an appointed representative of SFC Capital Partners Ltd which is authorised and regulated by the Financial Conduct Authority (‘FCA’) in the United Kingdom (FRN 736284). This website is intended for professional investors only; any reproduction of this information, in whole, or part, is prohibited. The content is for information purposes only and should not be used or considered as an offer or solicitation to purchase or sell any securities.

Investment in early-stage companies involves risks such as illiquidity, lack of dividends, loss of investment and dilution. Investment in SEIS/EIS eligible companies should be considered as part of a diversified portfolio. The availability of tax relief depends on individual circumstances and may change in the future. The availability of tax relief depends on the company invested in maintaining its SEIS/EIS qualifying status. There is no assurance that the investment objectives of any investment opportunity will be achieved or that the strategies and methods described herein will be successful. The investment products cited herein may place capital at risk and therefore investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance and the value of an investment may go down as well as up. Investors may not get back the full amount invested. Companies’ pitches for investment are not offers to the public and investments can only be made by members of SFC Capital. SFC Capital takes no responsibility for this information or for any recommendations or opinions made by the companies. Neither SFC Capital nor any of its employees provide any financial or tax advice in relation to the investments and investors are recommended to seek independent financial and tax advice before committing. This website is not directed at or intended for publication or distribution to any person (natural or legal) in any jurisdiction where doing so would result in contravention of any applicable laws or regulations. No warranties or representations of any kind are expressed or implied herein. This material is confidential and is the property of SFC Capital.

© SFC Capital - 2024