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  • 09 December 2019

    What Do Smart Early-Stage Investors Look for in a Startup?

    On December 9, WTECH together with EO Business Incubators gave a lecture at the Coworking Platforma with Charles Whitehead. Charles is a co-founder of EO Business Incubators in Ukraine, which is supported by USAID’s Competitively Helpable Economy of Ukraine Program.

    Upon numerous requests, we share with you all the important information from Charles’s recent speech.

    We’d like to thank WTECH participant Natalia Rogovaya for providing a meeting analysis and getting interesting insights!

    “Search for investments, communication with investors, preparation of presentations, public speaking.

    We kill so much time on this! One format for Europe, another format for the US, and something completely different for the local investors.

    We are approaching the ideal, adjustments to the presentation are left, the presentation itself happens, the moment of triumph is so close … but again  — all wrong. 

    Sounds familiar?

    Part 1. What investors perceive and deem valuable 

    1. Communicate the value

    Convey values, talk about values, facts, figures, hypotheses must be in the context of values. Business is about Additional Value.

    1. Investors will not do YOUR homework for you (market research, competitors, available solutions, legislation, you should know more than an investor)
    2. In the presentation, you are always SELLING. Think about what you are selling.

    The product is an investor, perhaps your target audience, but do you dream about this deal?

    Decision? For an investor? See above

    Startup? Startups often do a pivot and this is normal. In other words, you sell one startup today and pivot tomorrow.

    An opportunity for an investor to get rich?  There is something to it. But how do investors invest in startups that cannot profit for several years in a row, for example, Uber?

    1. Investors are more interested in what you will do with technology, what kind of business you will build, than the complexity of the technology itself.
    2. What is important, very important, mega important in the presentation for the investor?

    What do we sell to the investor? What do we involve an investor in? Why does an investor react to one project and ignore another?

    This is being discussed at many Ukrainian events, and many Ukrainian mentors talk about it.

    Yes, yes and yes again.

     

    Part 2. TEAM

    • 3 skills from Charles Whitehead

    To talk in English to investors. A team member who has good enough English

    Operations

    A person who is responsible for the production (hardware startups), development (software startups), talk to customers.

    Tech people with English.

    They will explain tech people from the investor’s side what your team is doing in terms of technologies.

    • You should answer the question about team members.

    What does each person bring to the startup?

    • You sell your team

    YES. Energetic and enthusiastic, be focused.

    NO Part-time jobs

    You have to be 100% involved in your startup.

    • IP

    It’s very important for investors.

    The presentation design is as important as availability itself. Everything a team does for a startup should belong to the startup. Duly executed documents matter a lot: contracts with employees, contracts with contractors, patent protection!

    • Your ambitions

    When one startup asks for 25K, and another one wants 250K  — where would you invest?

    Chuck said that the risks for the investor are the same in both cases, and the risk premium for a more ambitious project is higher.

    I will translate it into Russian. A project that asks for 25K is similar to someone who begs for alms, and a project of 250K has business ambitions.

    Warning! Handle it with much care. Do not get carried away, pace yourself! Lack of ambition and unfounded ambition are extremes that investors do not perceive. But each of them has own measure and philosophy.

    Recommendation from Natalia:

    The amount of investment should be sufficient to bring the project to a new level.

    The total amount may be, for example, 500K, but you can offer a specific investor to invest 100K, collect a pool of investors and close the deal, without losing an investor who has 100K.

     

    Part 3. VALUATION

    Startup Evaluation. How to evaluate a startup?

    Convertible Note to help you.

    This financial instrument makes it possible to resolve the contradiction: there is nothing to evaluate, but the evaluation is necessary. Postponing the question is the solution.