No secured debt, no operating assets and no guarantee of future cash flows to finance – all bets are off when it comes to investing in a startup.
According to a 2017 survey carried out by Statista, 58% of startups have less than US$25,000 at their disposal during the startup phase, while only 40% of startups are destined to become profitable in their lifespan.
However, investors can gauge the profitability of companies by focusing on their potential for investment, which can be found by measuring the level of risk against the size of the opportunity and scale of profit and return on investment, factoring in the time and capital needed to achieve these goals efficiently.
For example, a startup with a sound business idea and a compelling external market environment will theoretically (based on potential for investment) be able to provide a practical solution to a real customer problem.
Sustainability can also give a startup the edge against its competitors, with sustainable investing assets totaling US$30.7 trillion worldwide in 2018 (according to the Global Sustainable Investment Alliance), a 34% rise from 2016. Likewise, potential for investment may be influenced by the presence of a working beta product, ideally one which has already been copyrighted as intellectual property.
Valhalla Private Capital points to a two-pronged approach which focuses on talent and trust as the key assessor of whether an entrepreneur has the bandwidth to execute their vision of the company.
While talent can be seen in a sound business model or a working beta product, working with a team which has domain and business experience may suggest that a startup can de-risk business dimensions and navigate unexpected hurdles along the way.
Alas, there’s a limit to the power of hypotheticals. When looking for your ideal startup, be aware of the potential for personality mismatches along the way, factoring in geography, technology, size and target market, as well your own capabilities as an investor.
In essence, startups are selling a vision of what their company could become thanks to your investment.
Do you have a question about angel investing? Get in touch with Valhalla Private Capital via our contact page.