Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
How do you know if a startup holds promise as a potential investment? Investors can sift through different early-stage businesses to build a robust startup portfolio by engaging in a careful due diligence process. However, how can you ensure this process is robust?
Below, we identify some key hallmarks of a good startup investment in 2024, focusing on positive signs to look out for (and some red flags to avoid). We hope these insights are helpful.
To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page. For enquiries regarding our latest projects and funding, you can reach us via:
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Competent leadership
Startup leaders need very specific traits to succeed in their role. A visionary is often a good hallmark. These leaders can look beyond the present moment and see an image of the future they wish to seize.
With strong communication skills, these leaders can inspire their teams with their vision – motivating them to overcome obstacles and seize opportunities. Competent leaders are also:
- Pragmatic, but able to balance this with long-term thinking.
- Strategic, but with a good eye for detail.
- Charismatic, but also with a strong depth of character.
A skilled team
In a large organisation, diseconomies of scale can eventually set in – i.e. slacking control, communication and coordination, which can allow incompetent workers to sit in their roles. However, a startup has no room for this. Every worker counts.
Moreover, each person may be required to go “above and beyond” what they may be required to do “on paper”. A marketing manager may need to help out with sales or account management. A director may need to engage in similar tasks too.
As an investor, take a close look at the teams of your startup investment candidates. Are the people competent, motivated and synergised as they work? Are there skills shortages holding back the business’s potential?
Scalability
Certain business models are inherently limited in their ability to scale. A hairdresser, for instance, can only take on so many clients with the space and staff available.
By contrast, a SaaS company (software as a service) could take on far more customers by nature of their online business, without needing to rapidly scale up investment to meet demand.
Sometimes the limits lie not primarily in the business model, but in the target market. Is there sufficient market volume in the startup’s value proposition(s)? If the startup eventually dominates the primary market, are there others it could expand into easily?
Deep research insights
A strong startup candidate will know its target market intricately. It will have a deep grasp of customer demographics (e.g. age, income and marital status) and psychgraphics, such as fears, hopes, goals and values.
Team leaders will also demonstrate a strategic awareness of the customer lifecycle – i.e. how they move along their “sales journey”, from initial acquisition to conversion. The sales team will know how to “nudge” the prospect along this pipeline in a careful, effective manner.
Traction signs
Is the startup spinning its wheels on the ground? Or, is it making genuine signs of progress towards its objectives – e.g. sales maximisation?
An early-stage business will naturally be in quite a precarious position as it establishes profitability and brand recognition. However, it should demonstrate signs of improving metrics in key business areas as time passes.
In particular, are KPIs such as sales cycle conversion and teammate productivity improving? Make sure to focus on the metrics which matter most. Vanity metrics, such as social media “impressions”, are less important than other metrics which directly affect the bottom line.
A disruptive idea
This is often the ultimate crux of the matter, dramatised by shows such as Dragon’s Den. Does the startup offer something different to consumers which is not readily available in the marketplace? How does it solve customer problems faster, cheaper or better?
A strong disruptive startup idea will hold even more promise if it is difficult to replicate. Here, a patent will offer a strong barrier to entry for potential rivals. Otherwise, non-legal barriers can sometimes be equally imposing – e.g. founders’ niche knowledge and exclusive connections.
A willingness to learn and adapt
Many startups are embarking into uncharted waters. The concept may yet to be proven. Even the best research may not fully prepare founders (and investors!) for what transpires in the marketplace. Here, startups need to show flexibility and durability.
Perhaps acquiring technical talent is more difficult than startup founders anticipated as they seek to expand the team. Or, maybe rivals enter the marketplace faster than expected, creating fiercer competition. Are there contingency plans in place to address these kinds of scenarios?
Again, much of this comes back to the startup leadership. Do they regularly ask themselves: “What could go wrong?” and put plans in place to quickly correct course, if events do not go to plan? The old adage, “hope for the best and prepare for the worst”, holds ever true.
Invitation
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group?
Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827
