When it comes to investing in startups, reviewing companies’ measurable and quantitative metrics is an integral part in deciding whether or not to invest. At FrontFundr, we often share tips on what to look for quantitatively in a business—from gross margins to recurring revenue—but it’s also important to evaluate companies qualitatively. These metrics will vary based on the business, the industry, the team and your own experience. However, there are a few qualitative measures that are universally relevant to most investment opportunities.
Understanding Market Need
Businesses are created out of a market need—someone realizes there’s a gap, a pain point, or something that’s missing and there’s an opportunity for a product or service to fill the gap. As an investor, evaluate the team, the product and the brand position to determine if the business truly understands the market need. Determine if they have credible evidence to substantiate that there is indeed a market need and that they truly understand it from the customer’s perspective. Beyond quantifiable metrics that prove there’s a market need, determine whether they understand the qualitative aspects of their audiences needs. What is the brand position—is it empathetic and relatable? Are they doing a good job putting themselves in their customers’ shoes? Ultimately, you need to evaluate whether or not the business’s product or service is creating value for its customers.
Delivering a Quality Solution
If you’ve determined the business understands the market need and is delivering a product or service that would create value to the identified market, the next step is to evaluate the business’s solution. How well is the product or service delivered filling the market need? Does the process, execution and product actually resonate with the target demographic? Does this business understand why this particular solution to the market need is relevant to its target audience? What and how are generally the easiest to answer, but why is often left unknown or undefined. Make sure the business understands the why behind their product or service’s solution.
Getting to Know the Team
The team plays an integral role in the company’s success and growth. Take into account their experience, the existing networks, their values, and their dynamics. This can be difficult to determine, as the team’s potential is subjective and different investors will have varying opinions. However, it’s important to evaluate what you can and make a decision based on both their quantitative merits and what your gut tells you about the team.
If you’re new to investing, it’s important to develop your own due diligence process and set of evaluation criteria. We recommend speaking with a trusted advisor, engaging in extensive research, and also listening to your gut.
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This article has been prepared by FrontFundr, a registered trade name of Silver Maple Ventures Inc. (SMV), an Exempt Market Dealer, and is for general information only. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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