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How the MicroVentures Investment Committee Selects Startups

conf-room-256x183We are often asked, by founders and investors alike, how we go about selecting the companies we list on the MicroVentures platform. It’s a question that doesn’t have a quick answer. We are open to all kinds of companies at just about any stage of the startup lifecycle, but we are very picky. Essentially what we look for is viability – and we look at it from every possible angle:

Product viability. There are a couple of ways we gauge product viability. First and most obviously, we have to feel that product or service solves a real problem in a way that distinguishes it from the competition. But we also look at where the product is in its development: Is it product already live? Is it shipping or ready to ship? If so, then we look at user traction and sales growth. And if not, do the founders at least have patents pending on their intellectual property? Do they have a go-to-market strategy? Finally, we look to see if the product is easy to understand. Will the value proposition resonate with investors?

Financial viability. A great product or idea is only one piece of the startup puzzle, but assuming all is strong on the product side, we then look at the financial viability of the company. We look backward – at historical financials – and then use that information as a litmus to evaluate the company’s financial projections and determine if they are reasonable. We also look at burn rate, which helps us evaluate the company’s cash position. How much do they have in the bank? How much runway will our fundraise give them? And what other capital has been committed to the current round? Lastly, we look to see if the valuation and valuation cap are within reason. Are the terms going to be attractive to investors?

Team viability. Along with a strong product and sound financials, we look at the viability of the founding team. We look for relevant education and experience, and we look for industry insights that might lend themselves to competitive advantage. More importantly, we look for the inspiration behind the company – what led this team to this product or service at this point in time. We also look at the advisors the founding team has recruited to their cause. Do they have the industry insights necessary to help the team be successful? Do they have the resources and networks to open the necessary doors?

Industry viability. Finally, we step outside the company to evaluate it within a broader context. This research involves not only conducting an initial competitive analysis but also identifying and analyzing the macro and micro trends of the industry as a whole. We also want to see that the startup has done their homework in this regard. We want to see what information they have gathered about the potential addressable market, about their competitors, and about the industry in general. What social proof do they have that people are going to want to use a product like theirs, much less use their specific version of the product?

Evaluating a company for listing on the MicroVentures platform is as much art as it is science. While we are open to many types of startup opportunities, the company has to get solid scores in all four of the categories above before we give them the green light. And the younger a company is, the more solid those scores need to be in order to get our attention.

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