Analysts told how to choose a startup to invest in

When choosing a startup to invest in at an early stage (first sales stage), according to the expert, three key factors are of particular importance:

• Product: how promising the technology and/or business model is. You should also pay attention to the traction of the startup and the growth dynamics of its key indicators, such as revenue and the number of users/customers. At this stage, start-ups with a growth rate of at least x2 year-over-year are the least attractive to an investor, Natalya Magidey noted.
• The market is its volume/dynamics of development and the share that the startup plans to take. It is also important that an investor sees that the market is already reacting to the product, that is, he already has clients, both existing and potential. In turn, the value provided by the customer (LTV) must be a multiple of the cost of attracting it (CAC). If the potential market size of a startup is less than 1 billion rubles, then this is not the most attractive story for an investor, since it is unlikely to receive the desired 10x growth multiple.
• The team and the complexity of managing a startup: the composition and experience of the founders. If we are talking about IT startups, then it is essential that the team has at least two co-founders, one of whom has technical skills, and the second manages the business component (development strategy, sales, marketing, team management). In addition, it is important to understand the composition of the shareholders and to know the history of previously raised rounds, if any. There must not be too many shareholders, otherwise corporate governance will be difficult and the investment track record should show an increase from the initial valuation (stepping up) of at least 50%.

Natalya Magidey emphasizes that, of course, there is no universal formula for choosing a startup, what matters here is, first of all, the investor’s observation and understanding of what balance between the factors listed above is important for him.

In later stages, when sales reach a significant level and sustainable growth points are found, more attention is paid to financial modeling and revenue growth forecasting when choosing a startup to invest in; here, as a startup develops, it may remain attractive to an investor. even if its growth rate slows to 20-50% year on year.

The specialist also said that there are various platforms in the venture capital market that aggregate the most interesting technology startups, they can help investors solve project search and analysis problems:

• SberUnity’s online business center hosts about 3,000 startups verified by Sber technology scouts. Companies fill out questionnaires on their own and keep them up to date, and each questionnaire contains information on tracking key metrics that show a dynamic startup’s development.
• Investment platform rounds, where you can buy shares of promising Russian startups at a later stage.
• Dsight venture investment platform, a database of startups that accumulates data on companies from open sources.
• Accelerator Pitch Sessions and Demo Days are also a great way to find startups, as the accelerators have already done most of the work of selecting projects for the investor and bringing the best startups to the stage.