Anatomy of an Investment
Investors determine their investments in various companies based on a variety of criteria. Ultimately, the investor wants to see the startups scale and grow to be a large enterprise. In order to be able to do this, the company must have certain fundamentals right. Having sat through several hundred pitch sessions, these are some of the things the investors look at, often in the order below but not necessarily.
Like the industry
Do I like the industry that this business is in? Animal husbandry might be a highly potential industry but if I personally have no interest in the area I am least likely do go in there and make an investment. On the contrary if travel is something that I like, despite the fact that seven hundred people might be taking a crack at the same problem, I would still perhaps invest in the segment. All you need to do it take a look at the portfolios of most investment funds to see this philosophy at work. Our personal biases matter more than any data.
Like the market
I might like travel and I might think that there is a market for it everywhere in the world! Even so, if you were to start a tour service in Siberia, which by the way is underserved, I might not be necessarily jumping on board the bandwagon. We all want to be playing in the markets that we like, where we have connections and we have the ability to affect the destiny of the business. While data might point us in another direction, we would still gravitate towards markets that we like. Just go search for Siberian tour operators, you will find all 10 of them. And then you will feel so bad for not having undertaken the tour to Siberia, its gorgeous!
Like the founder
People invest in people because people like people. At the end of the day, all said and done we invest in people. To me Airbnb sounds like a dumb shit idea even today! If someone came to me pitching Airbnb, I would probably chase them away, unless… Its the energy and the charisma of a person that guides your judgement on whether to invest in them or not. We all get carried away by the founder, the pitch and the energy. Even the best of us has fallen prey to it. If you are not a likeable person, you are shit out of luck. There is no way that you are going to land money.
Like the business
What you are going to be doing comes after this. Invariably the business plan with which you would enter the business and the business plan with which you would exit it will not be the same. So, while we see what you are doing with your business it is how you are doing it which is more important.
Like the Modus operandi
Which brings us to the how? How are you going about doing what you are doing? Does it seem scalable. Ok it isn’t but would you flip to a direction that perhaps is? Are you mentorable? Would you listen? What happens when I poke holes at what you are doing? This will determine the anatomy of the relationship going forward once the investment is made. So how things are going to be done matters.
This has been my experience, would love to hear from others.