Startup Investing 101: Where should you invest?

If you had an opportunity to invest in the next Facebook, how would you?  We’ve got the answer. 

We want companies who will maintain their success against their competition because they know how to adjust their product or service to fit the needs of the market; they know how to spend their money responsibly; and they know that even when they reach profitability, there still won’t be enough time in the day to get everything done.   We look at four core values:

1.     People

2.     Product

3.     Execution

4.     Timing

* * *

PEOPLE  

Behind every great company is a founder who discovered a better solution to an everyday problem, and who is so dedicated, even obsessed, with delivering her better solution to everyone that she has no choice but to commit everything to the success of her company.  Behind every great company is a founder who knows the value of every dollar that comes in and every dollar that goes out of her company.  We want a founder who knows how to balance being pragmatic and passionate.  She won’t underestimate the value of her company, but she also pays attention whether there is an actual need for her product or service.  We don’t want a founder who is so in love with her company that she fails to pay attention to what the market actually needs.  Founders need to be focused, but they need to be flexible with their products, as well.  At Angel Kings, we also know that founders who are hyper–focused on profit and the marketability of their products only hire people of the same mindset.  Therefore, a driven founder, who is supported by an equally motivated and driven team, has a better chance in leading her company on a positive trajectory.  As an investor, look for founders who are obsessed with winning, but not blinded by illusion. 

PRODUCT

Companies that have withstood the test of time are quite simple in concept.  As we mentioned before, the best companies are the ones that provide solutions for everyday problems.  Some companies may even address the same everyday problem, but take different approaches to appeal to consumers.  Take Apple and Microsoft.  They address the same problem of providing people with a platform that connects them to the Internet, while providing an electronic interface for people to do their daily administrative or creative tasks.  They address the problem of communication and convenience.   

But if we look back at the development of these two giants, which existed before there was Facebook or Google, we can see that Microsoft and Apple products have evolved to fit the needs of their market—both in style and functionality.  At Angel Kings, we invest in companies that have the potential to evolve with the constantly changing market.  We first recognize the problem that the company is trying to solve with its product.  Then, we put ourselves five, 10, even 20 years down the road, and ask ourselves if this company can develop its product to fit the needs of people later on.  It requires more foresight and creativity to ask those types of questions, but they are important in assessing the longevity prospects of a company.  To illustrate, a company that sells protective cases for cellphones may become obsolete 10 years from now if cellphones are replaced by wearable technology, such as Google Glass. 

EXECUTION

Execution is closely tied with the people of the company.  Simply put, we want to invest in the founder who has the vision for the company, and who has an organized, realistic execution plan to launch and market the company.  A founder who does not have an execution plan on how to make her company profitable by a certain time is a founder who will not be financially responsible with her investor’s money.  To quote Robert Herjavec from ABC’s Shark Tank:

“A goal without a timeline is just a dream.”

Let’s face it.  Startups are expensive.  As investors, we don’t have time to invest in dreams.  We need founders who know exactly what they will do with the money we provide.  Will they use the money to meet the demand of their purchase orders?  Will it be used toward a better marketing campaign via Google Adwords?  Will it be used to lower the cost of the technology they’re using?

If the founder in whom you’re investing does not have the answer to execution questions, that’s a big red flag.  Execution plans are a necessity for a founder to show that she has the commitment, the preparedness and the follow–through to make sure her company succeeds.

TIMING

Timing is all about waiting for the right time to hit the market with the company’s product. There must be urgency for a better solution among consumers. This urgency emerges from previous products’ failures to address the needs of consumers.  Make sure that the company in which you’ll invest has a proof of concept and has gone through several iterations to meet the market’s needs.  Sometimes, this may mean that the company will wait for competitors to launch products first, then wait and see how the market will react.