We get repeatedly asked, what do we look for in a company that comes to us for funding and business growth assistance? The simplified summary is the following.
Naturally, we listen with an open mind to what is presented to us, and try to post relevant questions to understand well everything. However, in the background, the common themes we try to assess are what level of maturity the Company has in three key dimensions:
1. Does the Product / Service generate genuine value (emotional or monetary) to the user?
- Is it innovative and suitably unique?
- Does it have the ability to disrupt, i.e. become a major new force / player in the market?
- Can it reach the masses in a clever way, i.e. is there a way to build a user and/or business community around the core?
- Are there clear
and viable ways to monetize the offering?
2. Is there a solid plan for success?
- How will the Product / Service actually reach and attract users and customers?
- When new users/customers are presented with the Product/Service: What will make them try?
- After trying, what will make them stay?
- If they stay with the Product/Service, how should the base best be monetized?
- To support the previous reasoning, how should the Product / Service be developed? (Note: this development roadmap should be made based on the previous item, not the other way around)
- What market forces, especially competing / complementing / replacing Products / Services, and Industry trends, need to be considered and how?
- What key risks have been identified, and how to minimize their likelihood
and impact? - What does the financials look to support the plan?
- What effort will the plan require, what resources and what revenue scenarios can be estimated (and at what likelihood)?
- What financial buffer is needed and when, and how should it be arranged ? How much from investors and when?
- What is the current valuation of the company, and what is the future expectation? Where do the founders want to take the Company?
3. What is the team to drive success?
- Who are the founders and other key individuals
involved, and what do they bring to the table? - What should the Board and Management Team look like, in order to maximize chances of completing the business plan successfully?
- What should investors bring to the table in addition to funds?
Answering all questions perfectly is tough
It is hard work to answer to all the listed (and logical follow up) questions for a new Start-up. To put things in perspective: in the last 10 months we have met around 150 entrepreneurial Companies / Teams with Open Ocean, many with very innovative Products / Services, and only a few have been able to present excellent detailed answers to all our questions.
However, do not be discouraged. This situation is to be expected, since most teams have started from an innovative technology perspective to plan their Product / Service, and only later come to address such questions we investors ask. Our advice to teams visiting us is therefore:
- Try to cover the questions above to the extent you can
- Add further items to present, as you see relevant to your particular situation
- Then, when we meet, we will likely highlight areas to further dig into and improve. Then you will get a chance to do homework and come back with such additional information later.
- Getting good clarity of the above areas typically will require a few iterations on both sides.
Please note, that this iterative process is no criticism to you (for not being able to produce the ideal business case presentation), but is a good thing. Actually working together on real business issues before an investment decision, instead of just saying ‘Yes’ or ‘No’, is very valuable to both parties :
- a) We will provide “free consulting” on key areas we think need further thinking; improvements that we believe will increase your likelihood of big success
- b) By working closely with each other pre-Investment around business plan and strategy improvements will enable both parties to learn well what a joint future co-operation post-Investment will be like. This is an area to take very seriously for an entrepreneur: You should choose very carefully the parties you go into business with, since you will be “married” to them for life (well, at least for the life-time of your business) and need to rely on them heavily in all your future operation.
The guiding thought is that the parties might end up with ‘No’ at the end, but still both parties will have clearly benefitted from the joint co-operation.
Indeed, at Open Ocean the successful investment decisions we have made, have all typically been a result of a positive, productive and constructive partnership already constructed before the final investment decision, which have dug into the critical areas listed above.