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.
Evaluating the market potential is crucial for any early-stage investor. Before you commit your effort, time and capital to a startup, you need a clear sense of how much “runway” the opportunity has for growth. Is there a true demand for the product(s) or service(s) on offer? Does the startup truly solve pressing consumer problems in a unique way?
Below, we offer a short guide on how to evaluate startups, using our experience and insights from our exclusive angel investor network here at Bure Valley Group. We hope this content is useful to you.
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:
+44 160 334 0827
Market problem & solution
It is not always clear to investors and startups what consumer “pain points” are. Indeed, the world got on fine without the internet’s arrival in the early 1990s. The same was true before smartphones stormed the market in the late 1990s. However, can we now imagine a world without them?
In these special cases, innovative companies identified a broader consumer need or problem – e.g. the desire for greater connectivity and communication – and offered unique solutions. Perhaps the arrival of generative AI (artificial intelligence) is the next frontier in this technological journey, revolutionising how people and consumers interact.
When evaluating startups, try to get at the heart of the consumer problems they are trying to solve. Does the consumer even know they have a problem? If not, the startup will have more work to do – educating potential buyers beforehand.
However, if the startup is speaking to a clear, pressing need which other solutions are not satisfying, then this can be a positive sign to investors.
Market size and growth
Demographics matter. What does the startup’s target market look like? Is it trying to appeal to one key segment or many? How big is the market, where are they concentrated, and how much money do the consumers have to spend?
An investor will want to see clear evidence that a startup has done its research before a pitch. There are two useful “lenses” for analysing a target market – demographics and psychographics. The former refers to customer traits such as age, gender, occupation, income and job description. The latter describes the customer’s mind – fears, aspirations, hopes, common problems and values.
Market strategy
With the target market(s) clearly defined and identified, how does the startup intend to reach them? What is its marketing strategy and vision? How does the business intend to acquire, retain and monetise its users?
Here, a startup should demonstrate a clear awareness of its unique competitive landscape, its challenges and ideas to overcome them. How many other “fish” are swimming in its “pond”? How much market share do they have, and what would it take to take pieces of the pie?
Perhaps the startup is facing a “blue ocean” market with little (or no) existing competition. In which case, how does it intend to handle different potential consumer demand levels? If its solution(s) is soaring in popularity, how much demand could it handle before other firms notice and enter the blue ocean?
Investors should also get into the “nuts and bolts” of the startup’s marketing plan. Which marketing channels will be used (e.g. SEO, paid ads, email or social)? Can the startup realistically engage in its selected channels effectively? Are the channels relevant to the target market(s), and which metrics will need to be measured to track marketing performance?
Team and Culture
Crucial factors behind a startup’s success prospects include its workplace environment, leadership style of managers and overall staff cohesion. An investor can discern some of this from a distance – e.g., by analysing employees’ qualifications and experience. However, you must spend quality time with the team to fully understand its culture.
Does everybody get on well and complement each other’s skills and personalities? How do employees respond to criticism, and do they show a shared passion for the overall vision of the business? Are they willing to adapt to shifting consumer demands and market conditions? How resilient are they when problems arrive?
Commitment to excellence
Is the startup a data-driven business? Of course, strategic vision is vital if a startup has any chance of succeeding. However, if milestones are not identified and measured regularly, it will be difficult to discern whether the business is making meaningful progress.
Does the firm understand which metrics are most important to track (e.g. website visits, customer phone calls or social media “likes”)? A prudent founder will know the difference between “vanity metrics” and “conversion metrics”, emphasising the latter when analysing performance and making strategic decisions.
There are many other factors that can determine the potential of a startup. However, these arguably form the backbone of an investor’s due diligence process.
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
