What to consider when investing in an idea?
We publish a note by Nik Brisborn, managing partner at Forward Partners, a serial investor and an expert in the field of venture investment about what needs to be considered when investing money in a project at the idea stage, considering the risks of investing in the early stages.
Our readers know that Forward Partners invests money in companies even at the stage of generating an idea, when there is nothing other than an entrepreneur and his business plan. People often ask me how to learn to do this and get huge profits, given the risks of investing at this stage.
The answer to this question is ambiguous, of course, the product itself and the presence of an experienced team to turn the ideas of entrepreneurs into successful companies play an important role, but today I would like to talk about how we evaluate the idea from the point of view of the possibility of turning it into a business and profit.
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Below is a list of criteria from the post of my colleague Matt Bradley on the Forward Partners blog.
1. There is a great idea - usually an interesting way to use something, or an interesting solution to a complex problem, confirmed by some objective research.
2. There is a deep understanding of the market - the behavior and motivation of consumers, supply channels, pricing, market entry.
3. The competitive environment is very favorable - competitors are properly studied, and their spheres of influence are clear (pay attention to the phrase "properly")
4. The main indicators are unshakable - the forecasts of profit, the cost of attracting one client, the value of the client for all the time of cooperation with the company are clear.
5. There is a basis for a long-term competitive advantage - there are no barriers for entering the market, at least, large-scale ones.
6. Have the necessary skills - the founder is suitable for his role.
7. Have a solid plan for the first year.
We did not immediately appreciate the importance of the last point. Venture capital is most effective with rapid project implementation and rapid progress. All company founders go through a research stage, which in most cases is, as I call it, a period of aimless wanderings — new ideas are being studied, information is being gathered, connections are being established, but in fact there is no definite progress. Then (if, of course, transports) the stars converge, a clear idea and plan appear. It is at this point that it is worth investing in the company and helping it to accelerate its development. Of course, we will help the founders to reach this stage, but investing in a company without a clear idea, which can turn into a plan, is very risky, because there is still no understanding how to turn a theoretical vision into a business, and there is no confidence in the possibility of rapid project development.
________________________________________
Nick Brisborne is the managing partner of Forward Partners and has been working in the field of venture capital for 13 years. Before joining Forward Partners, he was a partner in the leading venture capital firm DFJ Esprit. Nick worked and invested in London and Silicon Valley, led investments in more than 25 projects, several times very successfully withdrew from an investment project, including buy.at (bought by AOL for $ 125 million) and Zeus Technology (bought by Riverbed for $ 140 million) . Nick's articles can be found here on AlwaysOn or in his blog The Equity Kicker .
Our readers know that Forward Partners invests money in companies even at the stage of generating an idea, when there is nothing other than an entrepreneur and his business plan. People often ask me how to learn to do this and get huge profits, given the risks of investing at this stage.
The answer to this question is ambiguous, of course, the product itself and the presence of an experienced team to turn the ideas of entrepreneurs into successful companies play an important role, but today I would like to talk about how we evaluate the idea from the point of view of the possibility of turning it into a business and profit.
')
Below is a list of criteria from the post of my colleague Matt Bradley on the Forward Partners blog.
1. There is a great idea - usually an interesting way to use something, or an interesting solution to a complex problem, confirmed by some objective research.
2. There is a deep understanding of the market - the behavior and motivation of consumers, supply channels, pricing, market entry.
3. The competitive environment is very favorable - competitors are properly studied, and their spheres of influence are clear (pay attention to the phrase "properly")
4. The main indicators are unshakable - the forecasts of profit, the cost of attracting one client, the value of the client for all the time of cooperation with the company are clear.
5. There is a basis for a long-term competitive advantage - there are no barriers for entering the market, at least, large-scale ones.
6. Have the necessary skills - the founder is suitable for his role.
7. Have a solid plan for the first year.
We did not immediately appreciate the importance of the last point. Venture capital is most effective with rapid project implementation and rapid progress. All company founders go through a research stage, which in most cases is, as I call it, a period of aimless wanderings — new ideas are being studied, information is being gathered, connections are being established, but in fact there is no definite progress. Then (if, of course, transports) the stars converge, a clear idea and plan appear. It is at this point that it is worth investing in the company and helping it to accelerate its development. Of course, we will help the founders to reach this stage, but investing in a company without a clear idea, which can turn into a plan, is very risky, because there is still no understanding how to turn a theoretical vision into a business, and there is no confidence in the possibility of rapid project development.
________________________________________
Nick Brisborne is the managing partner of Forward Partners and has been working in the field of venture capital for 13 years. Before joining Forward Partners, he was a partner in the leading venture capital firm DFJ Esprit. Nick worked and invested in London and Silicon Valley, led investments in more than 25 projects, several times very successfully withdrew from an investment project, including buy.at (bought by AOL for $ 125 million) and Zeus Technology (bought by Riverbed for $ 140 million) . Nick's articles can be found here on AlwaysOn or in his blog The Equity Kicker .
Source: https://habr.com/ru/post/296804/
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