How do investors evaluate startups? Part Three
In the first part, we talked in general about what matters to the investor and what you should take into account when preparing yourself for the fund
In the second part, we talked about best practices in two parts, which are the team and the market size
Today, we will talk about 3 other things, which are:
- Comparable startups
- Competitive advantage
- Definitions
And how each of them affects the investor's evaluation of your startup
And what are the best practices that you can do to be more prepared for the fund
But before we start, a small note:
After every post I publish, many people come to talk to me and tell me that we have such and such an idea and we need advice because we need a fund
Unfortunately, investment readiness advice does not help you at this stage because ideas before implementation do not have a chance for the fund except in exceptional cases, as we said before
But I provide business modeling advice appropriate for the idea stage, and in this we talk about the business model that is most suitable for your idea and does not reduce your chances of getting funding, and we talk about the milestones that you must reach to be ready for the fund
For startups that are already operating
We work in two ways, Either consulting or delivery
In consulting, it’s for two hours or a full day or one day a week on an ongoing basis (this is the most common thing, but it has to be at a certain stage) and we simulate due diligence, this is if you are ready but you want someone to evaluate you like an investor who evaluates you step by step so that when you go to the investor, your chances are better and we help you set up your data room
In delivery, we help you make a presentation, financial projections, an assessment if you are at a stage where you need that, analyzing the economics of the units and other documents that you need to be ready for investment
Let’s move on to the important thing: The first thing we are going to talk about today is [comparable startups]. Shocking start: If your startup is not like it and does something unique and there is no startup like it in the world, this is often a negative and not a positive at all, and this point may make you not suitable for investment. We explained in previous posts that the investor’s goal in investing in you is for you to exit, whether through an acquisition or an IPO, and this will only happen if you are able to take such a funding round, and because you are unique in the whole world, we cannot know whether there are companies that can acquire you or not, and the risk is also much higher because we do not know whether your idea is valid at all or not, so we are 100% of the money that is put into Egyptian startups, these startups have counterparts in markets outside Egypt or in the global market, as we are in Egypt and in the Middle East in general. Investments go to CopyCats, which imitate successful startups abroad, but this does not eliminate the possibility that you will do something unique and innovative, but if you are creative like this, then you are one of two things: a genius or your experience ends. If your experience ends, then this thing is most likely not destined for success. If you are a genius, then you will take the great one alone and make mistakes. There is no one to learn from it and you will start finding help and a hotel after it continues. Even so, before you go and ask for a fund, see who your Comparables are and know how much investment they have received and whether any of their startups have become unicorns or not and whether there have been acquisitions recently from them or not. The more investments there are in them and the more exits there are, the more positive the situation will be because there are unicorns or there are giant companies that are acquiring sartups, which is an indicator that the Middle East or Egypt still has an opportunity to acquire you, but if there is no Opportunity, this will threaten your exit chances in general. Of course, there is a lot to be said in the comparison part, but it would not be useful to make the post longer than that. The second thing we are going to talk about today is [competitive advantage and defensive capabilities], and we are going to talk about both of them together because they complement each other. Competitive advantage is the competitive advantage that you have that will differentiate me from your competitors, and this is about your competitors, and this is often in order to define it, we have to work on it case by case and do a very good analysis in order to define what your competitive advantage is, but this question is difficult for founders because they are comparing companies that have been in the market for years and they ask how are you going to compete with these names, but the answer to this question may be in the product that you have or the technology that you use or your costs. You know, you are offering the same value for less coverage and therefore at a lower price and you may already have a community of target customers.
