Each investor has a different method of deciding whether to invest in a particular company. My strategy has always been to evaluate the following factors in this order: the synergy of the leadership team, the timing and innovation of the technology, and the company vision and strategy.
#1: The Team
The first thing I look for in a potential investment in a company is the team. Despite what you might think, the resumes of each individual executive team member are not the most important things, although necessary. Instead, I observe how the team works together, how they communicate with one other, and I discuss with them how long they’ve known each other and how long they’ve worked together.
The importance of team synergy in a potential investment should not be overlooked. In fact, my biggest mistakes as a venture capitalist were missing the signs of potential dysfunction …..both at my own firm, and in the companies where we invested. Starting a new venture will have its fair share of difficult challenges, and the best way to come out alive is to have the true synergy of a team that works together as one.
#2: The Timing and Innovation of the Technology
The second thing I look for when investing in a company (assuming the technology has already been vetted), is the market timing for the product or service. Is there a need for this product or service right now in the market? It may be the next best thing since sliced bread, but if no one is interested in it now, or in the near future, it won’t sell and the company will have a hard time getting off the ground or scaling. Just as important as the uniqueness of the technology is the market strategy and the branding and the power of the sales force.
#3: The Company Vision and Strategy
The third and equally important item to consider when preparing to invest is the vision and strategy of the company. “Where there is no vision, the people perish.”
A vision is extremely important in any type of leadership, and is the snapshot of where to company plans to go. All employees of the company should be able to recite the company vision at any given time – that is when you know that the company has chosen a direction and is communicating it effectively to the team. However, a vision by itself is nothing without a blueprint to get there. The company leadership should have a strategy development that lays out the goals and objectives that will empower them to achieve their vision.
The most effective way of discovering whether the vision is real is to ask the executive team for a business plan. If they have a detailed business plan, that’s a good sign – it means regardless of who is coming in or out of their venture, they know where they’re going. The number one hiccup I have with potential investments is the lack of a comprehensive business plan. See my previous blog on the most important components for a business plan here.
