Everyone loves the Oscars, well, not everyone, most people, well some… well…Billy Crystal please come back!
But what most people don’t know is that the complete name of the Oscar Academy includes “Motion Pictures of Arts and Sciences” and what even fewer people know is that 2 weeks before the big ceremony to celebrate and award the arts there is another tiny and less glamourous dinner where the sciences are celebrated.
I am telling you this because Startup evaluation somehow, mixes both concepts, it can be modeled as a science, with some try and error, but mostly is an art.
Let me explain, before digging deeper we need to understand this framework. There are two kinds of metrics when we talk about early-stage companies, qualitative and quantitative.
For someone like me who started his professional career in banking as a credit analyst, if you don’t show figures, you show fairy tales, when you are seated in a deck in a powerful German bank and see how the CFO of a quoted company sends to you 10 years of financial statements, somehow you feel more powerful than your youth and intern salary should allow you to.
What happens when you are dealing with companies with a future but no history?
Long story short, as an analyst you are s*****.
So, how do we start when there is absolutely nothing to start with? Give me a lever… says Arquimedes,
- Market, Research
- TAM, SAM, SOM. As a startup, you should need to find those figures, if you don’t know what it means, you are coming late to the party.
- Current Sales Pipeline
- How much money are you making right now? We combine this with the first point.
- Comparable.
- Who are your competitors? And how much money did they raise? How many clients did they have and how much did they value when they were in your current stage?
45% of startups fail during the first 5 years because they don’t know anything about the market where they are getting into. In my very humble experience is one of the main reasons that most startups don’t get to raise any capital. I’ve experienced seeing an entrepreneur becoming tomato red when someone in the audience formulates a technical question and is unable to answer it.
Would you, beloved reader, invest in a company whose founders don’t understand the market? Me neither.
In the qualitative arena, is where the beauty lies. Because is when the human aspect of the business enters, where are not only physics and chemistry, aren’t we?
- Team
- Any time Crunchbase polls about why a startup fails, the “Ineffective” or “wrong” team lies at the top of the list. With a huge difference from the rest of the factors (LINK). So, what is a good team? Here comes the punchline, it depends on the business…but as a more general rule of thumb we are going to a mix of soft skills (the artist, the boss, Al Pacino) and hard skills ( the scientist, the coder, the guy who tailors a perfect 40’s Italian suit in the middle of the 70’s) both should be interoperable and be aligned with the goal of the company and be committed with the company. And most important not only being capable of executing the business…but being able to convince others they are capable. What brings us to the next point…
- Vision
- What do want to achieve? Warning advised, “I want to be rich” is not the right answer. What Adam Smith wrote about the brewer and the butcher is still valid, if you want to build a profitable business capable of attracting investors to grow you need to solve a problem for someone else, humankind advances thanks to entrepreneurs solving problems. This brings us to the next point.
- Plan
- How are you going to? It is one of the most common constructs on any pitch day, why? Because is another of the main reasons why companies in the early stages fail. Following from the Team bullet, everyone loves to work with nice people, but sadly for you, because I am sure you are a good, nice fella, you are reading this, no additional evidence needed, but investors don’t choose the nice guys to dance. The chosen ones are those who know what they want and how they are going to achieve it. Don’t get us wrong, most plan fails, but they can fail because some strange virus pops up and the global economy stops because the aliens are coming to Medallo to see Parque Botero and enslave humanity as a souvenir…or because you haven’t taken into account several existent regulations or the fact that you need people with certain skills to enter into that market…We need a plan, not to stick to but to organize ourselves and to prove to others we are capable of adapting to…when circumstances change. Show us you know the trenches and maybe we can get out of it.
- Alignment
- Following the rest of the points, if the team is not aligned with the goals and the working procedures, you are f***** (excuse my language), if you don’t share the vision, aka “investment thesis” of the investors and your don’t know how to navigate the waters to harbor safely…you probably are not going to success…
I know, it might sound pessimistic in some of my excerpts, but I’d rather choose the word “persnickety”.
Most startups never get funded by institutional investors, around 0.05% in countries with well developed Capital markets like the USA, UK, or China, which means, your success is a function depends on your effort to prove your product-market fit, your knowledge of the market, and your ability to execute and what is most important (that’s why I left it to the end) your ability to pitch your skills and the urgency to share your solution to the world.
Fortunately, for you, all of those are not born skills, can be learned, and are learned by practice by most people.
Navigating new markets, and understanding new geographies, environments, and legal frameworks are unique battles for most, and most of us simply need help to overcome it.
Not easy at all, but with the help of CRG and Unlock LatAm these hurdles will be overcome because we haven’t been there. We experienced what you are experiencing and faced with the same troubles.
If you are in LatAm and you seeking to jump the leap with your startup, ring us a call.
We are here to help you succeed.
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