May 23 2019 How to spot a good startup?
A lot of candidates often worry when it comes to working in a startup company. Who could blame them? Humans naturally tend to stick to what the norm is or to what they are comfortable with. Years of availing an established company’s products and services certainly factors to the psychological impact of feeling like you can trust that the company’s stability is set in stone.
So how will you be able to tell if the promising aspects of the startup outweighs these downsides?
The best way to look at it is from the perspective of the venture capitalists. These are the people who minimizes their investment risks by carefully assessing and analyzing startups. Venture Capitals raise billions of yen from third party investors and they are responsible in making collected capital profitable. Venture Capitals are a group of professionals who are able to identify startups that have potential to grow out of hundreds of startups they are meeting or doing research on.
We had a chance to listen to advice from one of the VCs in a very successful technology oriented Venture Capital. We have summarized his points below. We hope that these will be helpful in identifying which startups to apply for, or when you get an offer from the startup, you will be able to make a decision confidently.
Without further ado, here it goes!
3 VITAL FACTORS
(VCs look for in a startup)
1.)SCIENCE & TECHNOLOGY
Make sure that the technology their products and services uses or promotes are promising and profitable. One of the most crucial factors in determining if a startup is promising is the maturity of the technology the company is using or promoting. Most especially if the startup is a tech company their core IP(intellectual property) plays a vital role in getting a good funding. In rare occasions, some companies have patents and is usually taken as a good sign by investors. Also, the company’s competitive advantage over its competitors factor in the equation. The company’s leverage and probability of being able to protect their long-term profits and market share overtime, gives the startup a higher chance of getting backers and higher fundings. If the company receives large funding and has ground breaking or revolutionary products and services then that’s a very good indicator of it’s potential.
2.)WORLD CLASS TEAM
Do research about who the company is composed of and if their background supports their roles. Diversity in the team is not limited to the racial background or nationality of the team members, but in this sense diversity in terms of experience and expertise of the team. The team should have someone who has a very strong technical background with experience and expertise on the subject and as well as someone who has a strong business background who can take care and focus on the profit, marketing, and brand image of the company. And to top it off of course the CEO’s management skills and communication style is important and integral in making everything work. The ideas for the products and services might be ingenious but if the execution was poor and ineffective, the company will ultimately fail. And the nail in the wall that holds every team together is their passion and drive for what they are doing. No matter how great the team members are and how much they get along with each other, if they do not believe in their product or services, they are bound to leave. So in conclusion the diverse expertise of the team, their chemistry and their passion is crucial in the success of the company. So you should pay attention to the company’s founder, team members and history.
Check who is their target customers and how likely are they to conquer the market through their business model. The thing that sparks the interest of venture capitalists with startups is that they are problem centric. These companies started of with revolutionary ideas or innovative solutions that sets them apart from mass producing giant companies. They usually capture a niche market because they are trying to solve a particular problem or issue that others haven’t targeted. Another way of checking startups under this perspective is their presence in the stock market and of course the scalability of the business model. Highly scalable companies should grow exponentially. Even if the investments are high, in the long run they should be able to manage the cost and find ways to decrease it while the profits continue growing. Reading articles related to the industry and the specific products and services of the startup can give you an idea when it comes to this perspective.
So the next time you are hesitant to join a startup, putting yourself in the shoes of venture capitalists and keeping in mind these factors will give you a better perspective on how promising a company is and if they are what you want for your career.
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