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How to Find Good Startups at an Early Stage

How to Find Good Startups at an Early Stage Investors

The key factors you should consider if you want to find the best startup investment opportunities

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When it comes to investing, 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 startup investment opportunities 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.

Edward Stevenson Edward Stevenson
Investment Executive