Pre-IPO Profits

Our Five Criteria for Evaluating Startups

Our Five Criteria for Evaluating Startups

Hopefully you’ve noticed the changes at Pre-IPO Profits recently. We emailed you an interesting startup investment opportunity last month. This month, we’re bringing you an exclusive webinar about investing in the KingsCrowd Capital Fund. In June, we’ll bring you another investment opportunity. And in between, you’ll get a variety of market updates and podcasts to help you on your investment journey.

Behind the scenes, we’re working hard to make sure that we find the best investment opportunities for you — especially in the midst of market chaos. That includes:

  • Researching startup investment opportunities in every sector. In challenging environments, it’s bad business to ignore great investment opportunities. They’re hard to find. So when an opportunity presents itself — regardless of sector — investors need to be ready to pounce. The best investors take advantage of down markets to find great investing opportunities. And that’s what we’re trying to find for you.
  • Scouring the ENTIRE country for great startups. No region of the country has a monopoly on great ideas. And valuations outside of Silicon Valley are far more reasonable than those you’ll find in the Bay Area.
  • Looking at late stage secondaries. These are fast-moving deals. But they’re rare opportunities to invest in some of the best startups around — late in the process. The upside is lower than early-stage investing. But so is the risk. And the returns are still likely better than anything you’ll find in the public markets.

Some of the best startups we’ve seen started in down markets. Airbnb started in 2008. Uber started in 2009. So did Venmo and Slack. And Pinterest started in 2010. If you want to go further back, Microsoft was launched in 1975 and Electronic Arts in 1982.

And because capital is harder to raise during down markets, it’s almost easier for astute investors to find great startups to invest in during tough economic times than it is during boom times.

So what are Andy and I looking for as we evaluate new startups? Here’s our criteria:

  1. Massive disruption. The startup needs to be disrupting a big market or changing the way an industry or society works.
  2. Differentiation. The solution a startup is providing has to be significantly better than anything a competitor has. Bonus points for defensibility.
  3. Team. Startups are hard to build. Startups working on massive disruption are even harder to build. It takes special founders and a determined team to succeed.
  4. Traction. Revenue or user growth is always important. During down markets, it takes on even more importance.
  5. Price. Valuation inflation has been a problem in the private markets. In the middle of a correction, investors can’t afford to come in at a bad price. That can kill returns.

We look at other factors too, including whether the risk justifies the potential rewards. But those five are the big ones.

We look forward to bringing you those investment opportunities that best meet our criteria.

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