Startup Investment Guide: 10 steps to assess whether a venture is suitable for investment (2024)

• Kickoff considerations.
• Objectives and strategy.
• The pitch.
• Information exchange.
• Venture maturity evaluation.
• Impact vs. Activity metrics
• Venture validation.
• Venture valuation.
• Investment criteria.
• Final decision.

If you’re here, it means that your company is probably interested ininvesting in one or more startups.

Prior to making an investment decision, we have to make sure that the opportunity makes sense bothstrategically(with a validated offering along with a compelling and competitive go-to-market path) as well asfinancially.

Here’s then our structured 10-step process to make sure you’re investing in the right venture. Let’s start!

Step 1

At the kickoff conversation, make it known that before making a decision, you will run a rapid evaluation track that will, in reality, benefit both parties. For your organization, this means peace of mind and for the venture, it is a valuable validation exercise that builds the relationship!

By following these steps, you’ll show the venture’s what smart capital means to you! Make them understand that you’re putting the ‘smart’ on the table before putting the ‘capital’ on the table. Keep in mind that before you have a formal investment/ actual financial investment, you will be doing a serious investment in time, energy and knowledge by following this guide,before investing with money.

Step 2

What’s the goal behind your interest in investing in a venture?Remember, there is a substantial initial investment of time, energy and knowledge way before money is involved, so before diving into the investment evaluation, you need to clearly define the organizational goals and expected outcomes of this process.

This will be the foundation to return to when deciding on the right approach to pursue, that will best deliver on these objectives.

Step 3

The pitch is acrucial moment to kick-off the formal relationshipinto evaluating a venture’s potential for investment

It may be tempting to simply have an informal discussion with the founder, however, it is crucial to ratherclearly define a date and time for the pitchandkeep it formal.In this way, you signal to the team that they have to come prepared, which willset the tone for your collaboration, should you later decide to proceed with the Rapid Investment Evaluation track.

In your pitch briefing, communicate clearly what you expect to see in their pitch. Do encourage them to be creative with it too, but these basics should definitely be covered. While they are pitching, observe their body language, and ask a lot of ‘why’ questions.

You may be tempted to, buttry not to give advice yet, mostly ask clarifying questions. For now, simply focus on building the relationship.

Step 4

• Pitch document
• Business Model
• Team CVs and Organizational chart
• Proof of traction (customer information, sales references, letters of intent etc.)
• Current investment and capital structure
• Financial information (e.g. burn rate €/month)
• Description of all products and services
• Supplier or significant partnerships information
• Legal information

Step 5

Before spending substantial time and energy in the validation phase of this process, you need to define how much effort will be needed for the Rapid Investment Evaluation by assessing how mature the startup is, which in turn affects how much resources you will have to invest in the venture validation phase.

Ventures at different maturity levels would require a different validation track.Startupsare naturally risky, and would consequently need more time spent on validation of various aspects in comparison toScaleupsfor instance, that have found a market-fit and are seeking to grow.

Step 6

A venture’s first focus should belearning. Only after a while should it beearning.

If you start focusing onearning, you start by building things right. If you focus onlearning, you start by wondering what is the right thing to build. That is the mindset we’re looking for.

Since everyone has read Lean Startup, and no one applies it, we need to objectively measure whether or not that mindset translates to the way the startup is run.

Step 7

Step 8

When it’s time to have the Valuation conversation, things could get less than amicable. There is no ‘single right way’ to do this and we would definitely recommend bringing in an expert.

Problem is: while valuing mature companies is fairly straightforward using market capitalization and sales multiples, valuing startups is often more ambiguous and involves not only money, but also energy spent.

However, since these conversations sometimes occur quite spontaneously, we have put together a few pointers to help you keep the discussion in the relationship building realm vs. delving into financials too early.

In the guide, you’ll find the link to 4 common methods of Venture Valuation.

Step 9

Step 10

• Validation guide covers how to choose the right experiments to validate elements of a business.
• Questions to ask during a founders pitch.
• Competitor mapping analysis tool to compare companies
• 10 questions we ask founders
• Crunchbase and Mosaic: Discover innovative companies and the people behind them.
• Inspiration from the top 100 venture capitalists.
• How to Pitch to a VC covers what Venture Capitalists usually look for in a pitch for investment