Ways to Improve Startup Success in Your Investment Choices (for investors) and for founders.
#1. Choose Sole Founder or "Hired-Team" or Family Business models of concentrated leadership control, passion, vision, invested emotion, identity, personal value, heart value to the leaders.
- This eliminates or at very least significantly reduces the problems that "founding teams" have in their "marriages" and relationship issues, resiliency, and ensuring longevity of the business and the effort made in earning you a return.
#2. Choose Mission-Oriented businesspeople and models
- The longevity is a big concern in Startups. With the average startup community asking founders "do you really want to be tied to and sacrifice for one company for 5-7 years?" founders and staff flipping like pancakes from one to the next, is it really any wonder so many startups fail? The typical young startup entrepreneur doesn't have the intention nor lasting power to go the distance in that company they are making. Mission oriented businesspeople and family-business types live and breathe their missions as it's part of who they are. Though they may protect it more from your and every other sharks' control, they are there for the long term, won't be flipping, will bleed for "your investment" ie. their company before they let it fail, and that will ensure not only the payback but your quality return. Mission oriented businesspeople aren't there for a quick flip and run like a seeming majority of entrepreneurs and even sharks are teaching them to do. They are building their future lives, and they will grind out success. It's not a matter of if they and thus your investment will be successful, it's just a matter of when. Choosing the models where people may flip and flop is an incredibly risky investment proposition and not at all one that Value investors entertain. When it's getting tough for these slap-up teams they are gone. Startups break due to "team culture" reasons very often and this just doesn't happen anywhere usually in Mission-oriented founder's business, they just aren't leaving until they win.
#3. Choose mature age founders.
(though there are very often high quality young entrepreneurs, with fight, grit, determination, energy, and passion, there is a lot to be said for life experience, industry experience, business and investment experience, global travel and historical perspectives, etc) The right high values mission oriented-young founder however can go places and we don't want to take away from them. We were also those before.
#4. Ensure strong financial oversight and accountability.
Use escrows and trust accounts and third party invoice order systems. Don't just hand a check over to a startup unless you really think this guy will sleep in a hostel before spending extra of your hard earned money. You don't need to chance it. Any reputable businessperson won't mind you having the expenses paid directly from accountants or lawyers in a trust or escrow account. Stop throwing money into business accounts unless you know these people are die-hard "integrity-ists and value-ists, Christians and the like."
#5. Go for staple industry startups not flashy high burn infotech.
There is a lot to be said for staple industries and a lot to read about the carnage of failed high burn investments into infotech startups.
#6. Stay away from consumer product and gadgets, apps and ecommerce, software and consumer focused startups and stick to B2B and industry servicing companies. (in general) Stay away from clothing and "brands" unless they have IP or something really niche filling and raging hot on all metrics
#7. Get in earlier not later. (avoid pile ons as their performance in survival is contrary to popular belief actually quite brutal especially in silicon)
#8. Look for passive recurring income models for needed services that are customer-centric
#9. Watch out for cultures of the founders as some are very fraud prone in relation to others (for example devoted buddhist monks from Cambodia making a handicrafts business from traditional areas may be less likely to be fraudulent as app and software resellers from shady high flyer markets like Hong Kong etc where securities fraud and bosses doing a runner is a nearly every day occurrance and a culturally or very near to accepted way of life)
#10. Go with Lean Startup Nutcases and OCD freaks about their business models that will snap up a beneficial edit to their plans the second they can see it will add something. Lean Startup frugal guys that haven't lived the high life yet or have and prefer the simple life as can be seen in the life they are living are the better way to protect your investment and way to make sure to bomb-proof your investments. High flyer big spenders or those who have been spoiled or spoon fed are a big danger to your injected capital. What more often than not happens is big spending on things not needed for the business or not really necessary nor beneficial. Excesses that could add value are most often overdone. Parties and "branding" and "marketing" starts getting out of control and soon another round is needed. Don't take chances, go with lean guys, and overfund them.
#11. Invest in those with financial backgrounds and financial experience (if you can find them as they aren't very common in startups) There is tremendous value in this experience sphere that is just so underrated.
#12. Take less shares and opt for stronger contracts. Leave more for the future rounds and founder(s) and teams and dealmaking and getting more investors in when needed (and most infotech will need it though real economy often won't), and protect your investment with guarantees, notes, payback terms and such clauses, escrows and equipment security etc.
#13. Invest in Real Economy business not Virtual Economy business.
Often the problem with vaporizing investment is the one-sided brainia-mania of money into asset-less business models like websites and apps and internet-consumer-subscription mass followings where they have no valuable equipment to be leveraged or sold, etc, nor do they derive their incomes from. Industrial and real economy startups that have equipment and hard assets enabling them to earn income versus the low barrier to entry infotech spend to get cash madness are far more secure and safer and allow for collections and recieverships if things go south, and sales of businesses and equipment when they have the asset. There is a baseline book value of underlying assets also which most infotechs don't have for years into operation.
#14. Ask your founders to make a clause to step aside to others on their team 'in the spending department' if they don't achieve certain financial management goals (not blowing your money) If they are worth your investment they won't have a problem putting their money ...no wait YOUR MONEY where their mouths are.
#15. Ensure they commit to sticking to their pre-determined budget, and their spend sheet, before they get to spend more money and not just with their mouths but with financial structure accountability. Do it in draws and checking and if you don't have time, have an accountant handle it it's not that hard. If you're gonna lose, lose less when you do.
#16. Invest in people who live their Startups.
If they don't live it what do you got? Nothing, someone who will be gone at the easiest path of least resistance and paycheck steplife to fund their lifestyle. OCD freakaholics hell bent on success are far better investments. If you don't think so take a look at Elon Musk or the "ADHD maniac" who build the 4 best airlines in american history and is now building Brazil's Jetblue. These guys know one thing and one thing only, VICTORY. They may be unconventional, unorthodox, and against the norms, but they have something in common. They are going nowhere but forward in their companies success. How fast may be a question... How much gets reinvested and thus making the "profit look worse" is a question (amazon) but they are going forward and nothing short of an evilly motivated trial and calls for crucifixion by the mob could stop them.
#17. Invest in those who are very innovative, overlooked by most people, often introverts, careful thorough planners, workaholics, creative minds, those dedicated to their causes. Disruption doesn't usually come from conformists. Keep in mind that the "liberal apple consumer and fb culture era" is now the conformity in startup.
#18. Invest in philanthropic minds.
These people have very high levels of integrity and honorability in general (always exceptions to the left) and will do things the right way whenever possible and to them it seems always possible to do so. They will build cultures where anything but is not acceptable, and where values are the vision. That means more successful investments, fewer losses and very few debacles and partying on your money bosses.
#19. Invest in those who have significant emotional connection to their Cause and in Changing The World for the better not just talking about it.
#20. Look at their personal lives. If it's a mess of party and lack of personal values code, lack of sacrifice, lack of hardships, lack of battles fought, you may want to wait until maturity has sunk in and choose some of the many hell bent values champs that didn't get their chance yet that are out there instead.
#21. Notice how social profiles and CV's are not on this list. Conformists aren't generally those who provide shock to the world. Though such can be valuable for marketing to a vast consumer-market-need business marketing strategy, (however generally most top brands don't have such people as the brand but rather some solid family business type style minded folk behind the brands) Your leaders should have much stronger ability in their person than merely sopro and some fancy paper. Going out looking for and talking to and spending a good amount of time with your founders is the best strategy. Warren Buffet often made a habit of spending a good amount of time meeting his managers to 'see their heart and mettle, hear the vision, and understand the management philosophy, direction of the company, plans, strategy, and he went to them, they didn't chase to him at events and seminars like crush or slush or some other across the world with an attitude like it's owed to the investor with a nose up.
#22. Invest to the market not far ahead of it.
Being first to act is very important, but investing in VR in Cambodia or Africa for example trying to serve the local market isn't going to get anywhere ...yet. Choose investments that make sense as technology in the virtual space is far ahead of a lot of the economy and much further ahead of most people's vision.
#23. Invest in economic growth not economic consolidation.
Usually many infotech models are just consolidating an industry from 4 players to one player for example. They aren't really creating any new products, services, or technologies. While this can be a windfall for the one company certainly if it works, it's usually hit and miss and not so sustainable. Creating new systems, products, serving needs and making solutions in areas that industry needs that helps get more products made, provides net new jobs rather than a consolidation and loss of jobs elsewhere, are far greater long term profit centers than those made just to feed on the existing industry. Those models that can transform the way of doing things also can often be a good bet if they have high customer benefit and not just hoping for a trend change in behavior.
#24. Invest in businesses on fast track to IPO and know how to get there.
If your startup doesn't know how to IPO and has no plan, your investment is worth far less than if you have it. The #1 exit strategy should be IPO from day 1 not later. Look for IPO readily planned Startups.