Well, the simple truth is that we invest to win.

We tend to strip out a lot of soft factors and focus on results.
Did management deliver?
Can they do it again?
A lot of investment decision making is based on an understanding of industry trends, a trusted relationship with players that perform consistently above industry average and some form of defensible proprietary technology that is in demand because it solves a specific pain for a given market segment.

If a company has a specific target market segment in their crosshairs, we know that they have done their homework – when management states that they serve all industries, our alarm bells start ringing.

Following is my personal guideline for what really counts when considering investment in a startup or early stage company.

1) Market potential
2) The Team
3) Results
4) USP

Investment Process

• The success of investment in an early stage company depends on people and their ability to execute on a detailed business plan, therefore a lot of emphasis is placed on the team.
• The structure of the investment is vital and requires creative and often complex terms.
• Pricing is a key factor which needs to be carefully analyzed and negotiated.
• An interesting exit strategy is required in order to maximize a timely return.

Investment Selection

• Management Team: Experienced, in-depth knowledge of business, results oriented.
• Innovative Products/ Proprietory Technology: Highly differentiable, superior, specialized expertise, meets market needs.
• Business Plan/ Milestones: Well thought out business plan including milestones and contingency plans.
• Substantial Investment Position: Ability to obtain a substantial investment position, influence the selection of executive management and the strategic direction of the company.
• Valuation: Negotiate and obtain a fair pricing structure.

Initial Investment Valuation

• Underlying industry assumptions
• Realistic income statement over 3-5 years
• Competition
• Major criteria:
  • Technology value
  • Capital requirements
  • Market potential
  • Capital structure
  • Operational cash flow

Determination of NAV for privately held startup companies

• The original cost: An approximation of the fair market value at the time of the transaction.
• Write off: NAV calculation at cost, less any write-off deeemed necessary if subsequent performance fails to meet business plan forecast.
• Capital increase: NAV calculation in principle based on the capital increase price, less 10% to 29% discount if deemed necessary based on valuation factors.
• Write up: A write up is recognized when a significant event occurs such as increased profitability and achievement of milestones.