You’ve found an interesting startup, you’ve done the necessary research, and you feel it could be worth investing in. Now it’s time to meet the founders. This initial meeting between founder and investor is very important. Beyond being decisive for you as an investor, it also sets the foundations of the future relationship you’ll have with the entrepreneurs.

Early stages and growth stages

If my startup candidate is at the pre-seed or ‘idea’ stage, then my assessment focuses mainly on the founder, evaluating his or her background, such as educational qualifications, experience and any previous business ventures. If there are cofounders, then I’ll also look at the complementary knowledge and skills they bring to the table. Market size should always be evaluated to get an idea of future potential in the specific sector.

Once a startup has reached growth stage, then it can be assumed that it has already achieved product market fit. I would expect it to have a clear value proposition, a growing revenue pipeline with predictable sales cycles, and of course an established database of paying clients. I also assess the management team and examine the marketing strategy, distribution channels and the scalability of the venture.

With a company which is already at the unicorn stage, it’s not advisable for an individual investor to participate. At this late stage, the startup’s valuation and minimum investment requirement will be very high, while the upside potential will be relatively low. An individual investor risks having a lot of capital locked away in a company that has limited potential in terms of valuation and linear growth.

Meet the founders

As discussed in my previous post “How to choose a startup for investment”, the complex world of startup investment has immense potential but by its very nature is also characterised by risk. Even after I’ve studied the pitch deck and done my own research, I usually have further questions for the founders, to be 100% sure I’m investing in the right startup.

It’s essential to assess the management team because, to put it bluntly, if the team is incompetent or inconsistent then the startup won’t survive for long. In fact, 23% of startups fail because of management problems. Both the founders and the team must have the business-specific skills and knowledge required, and individual skill sets must complement each other. I also want to understand how strongly motivated the founders are – if they’re working on the business full-time and have no fallback option, then they’re probably very focused and hungry for success.

Market demand and competition

Lack of market demand is one of the main reasons why startups fail. This aspect is usually researched during the early development stage, but if the market research wasn’t done properly, there’s a high probability of future failure.

The founders should have clearly identified the target market and the existing problem that their product or service can solve – it’s a huge mistake to believe that a product or service can simply create market demand if it doesn’t already exist. Negligence in this respect will probably mean the company joins the other 42% of startups that fail because they underestimated the importance of market demand.

Founders should have identified the competitors, their strengths and particularly their weaknesses so these can be leveraged to gain a competitive edge. By completely ignoring the competition, a startup will probably join the 19% of failures who have made this fatal mistake. However, there must be a healthy balance between overconcern and total disregard when it comes to assessing the competition.

Founders’ questions

Startup investment is a two-way relationship. You can expect questions about your personal investment philosophy so the founders can assess whether it aligns with the company’s own goals and values. Founders usually want to know about my previous experience in their specific sector because an investor who understands the unique challenges they may have to face and has knowledge and connections in their industry can bring significant advantages.

Other aspects that founders frequently ask me about are my investment style and level of involvement, timelines for making investment decisions, funding range and exit strategy. It’s a good idea to be prepared for these questions when you go into an investment meeting.

Setting expectations

A strong working relationship between investor and entrepreneur is often key to long-term success in any business venture, so the sooner you start to build one, the better. Having clear ideas about what each party expects of the other is essential for a productive collaboration with the best possible outcomes.

A good place to start is transparent and regular communication. I want to have a clear understanding of how the company is progressing – after all, I can only help solve a problem if I know that it exists. A solid business plan is one of my key criteria when identifying startups for investment, and while this plan needs to be flexible, it’s also important that it is maintained as an organized roadmap for growth and development, as well as a reference point for decision making.

Getting to know the founders is a crucial step in the investment process, because a strong bond between investor and entrepreneur leads to a mutually beneficial relationship that will ensure the success of the business in the long run, with both sides reaping the benefits.