I’ve had the opportunity to invest in 15 startups over the last five years, and I’m currently “out of the game” as every bit of my energy and resources is going into my current startup, Dragon Army. But I still have the chance to meet with and advice many startups – part of the pleasure of working in the Atlanta Tech Village – and I was asked recently what I look for in startups that I invest in.
My recipe is fairly simple. I look for 5 key things in the startups I invest in:
1. Do I believe in the leader and the team? This is by far the most important thing for me. If I don’t get that feeling from the leader of the startup that he/she has tremendous potential to be successful, then I’ll pass on the startup every time. The leader and the team are the most critical aspects of success for any startup.
2. Do I understand the market / product and can my experience help? It’s always hard for me to look on as a startup struggles to grow and not be able to contribute with recommendations or connections. I much prefer to put money into startups that I personally have the ability to help when needed.
3. How long will it take to know if the startup has a chance? If I’m putting money into a startup I like to be able to assess progress fairly quickly. Personally I’m not interested in investments that take 12+ months to show progress or results. This is because I’m not putting in a large enough amount of capital to make long-term bets. However, I’m a big fan of long-term vision from both startups and investors, but for me personally I’m making smaller bets and want to see progress fairly quickly.
4. Will there need to be follow-on rounds of funding and what will that look like? Many startups will need follow-on rounds in order to grow at the rate necessary for success. As an early stage investor, I want to know what that will look like so I know if I’ll be able to participate or if I’ll be squashed during the process. Because I make smaller investments, I’m not as interested in startups that will need huge second or third rounds in order to “make it”.
5. What’s the upside? The great Jack Donaghy coined the phrase, “What’s the upside?”, and I think it fits for the way I assess startups I invest in, but its clearly the least important of the five I’ve listed. I certainly want there to be upside, but I’m mostly taking a chance on a person or team that I believe in to help them fulfill their dream. I know how hard it can be to start a business and the personal sacrifices that one makes, and I enjoy being on that journey and helping others be successful. But I’d be naive not to look at the potential that the business has before I invest as I want to make sure there really is a path to success.