September 26th, 2018
Three things investors look for in a startup
Cameron Chell (Special to The Globe and Mail) | Wednesday, Dec. 05 2012, 8:26 AM EST
The technology superstars of the future are outliers. Not only do they have mass appeal, but they are able to redefine how a specific industry or niche market currently operates. But a startup's ability to succeed has as much to do with the industry in which it operates, the timing of the product or service and, most importantly, the people involved. As an investor, these three factors guide my decision whether to back a company or not.
If you want to be successful, you don’t invest in startups, you invest in people. My primary investment thesis is that if the people and the leadership of a startup are not world class, their business won’t ever be either.
One of the hardest lessons I learned as an entrepreneur is that you never have all the answers. A company driven by an egocentric founder who won’t be challenged, and who has assembled a group of employees rather than a team, is one setting itself up for failure.
When this type of singular dynamic has been established, entrepreneurs can easily get lost in the idea they are creating and not why it’s being created. World-class entrepreneurs and investors know the idea behind a startup means very little – the power is in the execution and the strategy around it. A company whose leadership is self-aware, flexible and able to learn and pivot without hesitation is, in my experience, far more likely to see eventual success.
The most successful teams I’ve worked with often consist of multiple co-founders and stakeholders who understand the buy-in they have and are co-ordinated in their desire to see growth and success. The surrounding team will also be better positioned to monitor not only their organization’s market position, but also the strength of their competition.
Industry and timing
The industry in which a startup chooses to operate and the timing of their offering has a significant bearing on whether or not it will be a success. When entrepreneurs look to enter an industry simply because it’s new and headline-grabbing, they are invariably already too late to the game.
A rapidly growing tech trend can be intoxicating to an entrepreneur, but a lack of real industry awareness and experience are red flags to investors. The best leaders know and love their competitor’s products or offerings but is looking to improve them. When a team is able to fully evaluate the strengths and weaknesses of the current market leaders, they will build strategically to better them. Hiding from the competition means building in a silo. World-beaters operate in the open, know exactly why they are in business and where to direct their focus.
Investing in startups is inherently risky. But by examining the egos at play in the boardroom, the industry and timing of a product, risks can be mitigated and great ideas and entrepreneurs can reach their full potential.
Cameron Chell is the co-founder and CEO of Podium Ventures