Where to Start with Start-up Investments

Everyone talks about start-ups. They are either starting a start-up or looking to invest in one.

So, where to start when it comes to start-ups?

You can find a lot of advice about starting your own business but, perhaps not surprisingly,  much less so when it comes to what start-up business to invest your money in.

Let’s start at the beginning. What does any investor look for when looking to invest?

First off you need access. This is perhaps the easy bit. Through one’s networks and by just having an ear to the ground and an eye for an opportunity this should yield some results in this area. It’s worth just hanging out sometimes with people who are full of ideas and trying to put those ideas into some form of business model.

A way of gaining access is, of course, to make yourself accessible. Writing – partly why I write this each week – is a way of saying to the world: I’m here should you wish to “grab a coffee”.

Secondly, you need to look at the person behind the start-up. The history of business is littered with great business ideas that became great companies but behind them lay a great founder of some sort. This goes back to what I wrote about being able to spot potential. History shows and the market ultimately rewards those who found and invested in exceptional talent at the time when it was not fully mature.

I can’t stress this enough. Okay, let’s think of a non-business example. Ever been to a football academy? I have. Lots of young kids playing football, and they are kids. But the adults watching them do not see a group of young boys kicking a ball. They are watching their every move. They are also observing them: their personality off and on the field; how they play as part of a team, their attitude to training. In short, the whole person is under scrutiny. That is because they know that among these young footballers just maybe the next Pele, the next Renaldo, the next Messi. And, like panning for gold, you only need to strike lucky once. So get your glasses on and look for talent, when found it will be as life-changing for you as for them.

The founders of start-ups should not just have ideas; they also need vision. They need to be able to read and articulate the coming trends. These are the men and women who anticipate the next move in the game. They see where the trends are going and act upon that. Basically their hunches are good, and you are betting on that.

Of course, you can always just invest in what is already setting the trend. Sure it’s safer. It’s also not as good on investment. In fact, we all know you’ll pay a hefty price to buy into an already successful going concern. And that’s why start-ups are so attractive, so exciting and so risky, but that’s why you are an entrepreneur – right?

So what do you look for, what are the signs?  If over a period of time, say a few months you notice a gradual and steady business improvement coming together on a start up then you should start to consider have you found something more than an observational project?

If this is the case, then double back and take a good hard look at the person or team running the operation. Are these the types who are going to be market leaders?

A checklist of mental and personal qualities of the people you invest in should run something like this: tough, obsessive (about their start-ups success), driven, determined, decisive, in a hurry, and most of all smart – not just bright, not just well educated, smart! They also need to be good communicators, and they need to communicate that zeal for the product or the service they are selling.  You also need a large slice of ambition thrown in here. If their ambition reaches only to the city limits of their small town – population 15,000- then I’d move on. If they are talking – sometimes jokingly – about global domination, and they have all the qualities outlines above then I’d keep an eye on them.

There is also a quality I look for all the time in those with whom I work and those in whom I invest. It’s called grit.

Do the founders of these start-ups have that quality, that toughness that makes for someone who is in the game for the long haul or someone who is going to whimp out when the pressure hits or the going gets tough? No point in beating around the bush, if they don’t have this then the business will go so far before it implodes, and so too does your investment.

One small thing – but important to look out for. A number of people have told me that they NEVER invest in companies where the people running it are slow about answering emails. The important ones that is. If they just don’t get back when you need information or an answer quickly then there may be something wrong with their systems or with them. They are too distracted or they just don’t like committing when a big decision is needed. A small thing but I suggest a telling one.

Now, my shopping list above is a heck of an ask. I know. But these people do exist, they just don’t grow on trees and so you need to able to have this checklist in your mind to spot them when they do appear – and that won’t be often either.

There is another characteristic these people possess that is going to sound a little mad. Remember genius and madness are not that far apart. Successful start-ups are started and run by people who were and are convinced of their success. What sounded like bragging to the world these founders actually believed and, in the fullness of time, it came to pass that it happened. Again, when you hear them talk of “certainty” and, crucially, all the other factors above are in place, then stick around, buy that person another beer and ask to hear a little more. If the chemistry is right well then it becomes your job to not only help them fulfil their dreams but to make them think even bigger, even more ambitious then they already do.