Startup Investor School Day 2 Live Stream

TL;DR

Learn about the process of making investment decisions in startups, including asking the right questions, evaluating founders, and navigating competition.

Transcript

Hey good morning thank you we have a lot to do today so I'd like to get my way my part out of the way as quickly as possible good morning again and welcome to our second day of start-up investor school my role is a little bit more but not much more than telling everyone not to park over there so don't park over there there's other parking apparentl... Read More

Key Insights

• 🔍 It is important to have a process in place when making investment decisions, even if it's a simple one. The face-to-face meeting with founders is a key part of investment decisions.
• ♂️ Meetings should be scheduled in a non-painful way, be on time, and in convenient locations, as this can set you apart as an investor and build rapport with founders.
• 👥 Start meetings with basic questions to understand the founders and their company in their own words. Dig deeper to gain a complete understanding of what the company does and what their big idea is.
• 📈 Evaluate the company's potential by asking about evidence of success, competition, and market size. Consider the team's expertise, the founder's trustworthiness, and their ability to withstand challenges.
• 💡 It is better to make investment decisions based on your own criteria and conviction, rather than following the herd. Be willing to look past traditional ideas and make unconventional investments.
• ✅ Clearly communicate decisions, both positive and negative, to founders. Saying "no" can be difficult but it is an important part of the investment process. Be honest about your reasons while also being considerate of the founder's feelings.
• 💰 Understand the financial commitments of your investments and consider factors such as dilution and potential risks. Milestone-based financings may complicate deals and it is important to evaluate the potential benefits versus the complexity of the deal.
• 🌐 If unable to meet founders in person, use video calls to gain some understanding, but try to meet in person as much as possible. Consider the impact of your remote presence on your deal flow.
• 🤝 When dealing with information asymmetry or proprietary information, it is generally best to keep that information to yourself rather than sharing it with the founder. Avoid unnecessary complications in your relationships and investment decisions.
• 📉 If a company in which you invested is not performing as anticipated, it is important to evaluate the situation and determine the best course of action. Sometimes, it may be necessary to continue supporting the company even if it is not growing as expected.
• 🔄 Continuously evaluate and learn from your investment process to make better decisions. Review previous investments and track progress to identify patterns and improve your investment strategy over time.

Questions & Answers

Q: How can investors ensure that they are asking the right questions during meetings with startup founders?

Asking the right questions during meetings with founders is crucial for making informed investment decisions. Start by focusing on the basics - what does the company do, who is on the team, and what progress have they made? From there, dig deeper and ask questions about competition, market size, and their vision for the future. By asking thoughtful, specific questions, you can gain a better understanding of the company's potential and make more informed investment decisions.

Q: How can investors navigate competition in the startup space?

Competition is a common challenge in the startup world, and investors should consider it when evaluating potential investments. Ask founders about their strategies for winning in a competitive market and what sets them apart from other players. However, be mindful of how you approach this topic, as some founders may be defensive or unwilling to admit competition. Aim for an even-toned conversation and focus on getting a clear understanding of their competitive advantage.

Q: What should investors do if they have proprietary information about a startup that the founders are unaware of?

If you have access to information about a startup that the founders are unaware of, it's generally best to keep that information to yourself. Sharing proprietary information with founders can create complications and potentially damage the relationship. Instead, use the information to inform your decision-making process and assess the potential risks and opportunities associated with the investment. Remember, it's important to maintain trust and transparency with the founders throughout the investment process.

Q: How should investors handle situations where they are unsure if a startup will secure additional funding?

If you are interested in investing in a startup but are unsure if they will secure additional funding, communicate your concerns with the founders. Let them know that you are willing to invest but would like to see additional funding secured before finalizing the deal. Be open and honest about your criteria and what it would take for you to commit to the investment. Ultimately, it's up to the founders to decide if they want to meet your criteria or pursue other funding options.

Summary & Key Takeaways

• Start by developing a simple process for making investment decisions and create a process funnel to guide your decision-making.

• Face-to-face meetings with founders are crucial for evaluating potential investments.

• Consider criteria such as team, market size, traction, and relevant expertise when deciding whether to invest.

• Communication is key - be honest with founders about your decision and why you are or aren't investing.

• If a company is flatlining after investment, you may need to reassess your position and be prepared for a long-term commitment.