How to quickly screen startup decks as an angel investor (Step 1 - the vehicle)
A simple two step method to make better decisions more quickly
It can feel daunting staring at a deck packed with information about a product you’d never imagined existing, aimed at a customer you know nothing about. How can you form a meaningful opinion without spending all day analysing it?
With an early stage startup (pre-seed and seed stage) we can largely only judge the potential of an outlined strategy and the fit of the team trying to deliver it. By definition there will be minimal historic data available. And we accept that many things about the founder’s plan will change in contact with reality.
Our main job is to assess whether it’s a credible strategy (goals and methods) at this point and whether we concur with the founder’s analysis and conclusions. We’re not expecting them to be right about everything at this point. But a demonstration of good judgement now is a good sign for future challenges too.
Caveats and assumptions
We’re not trying to come to an investment decision at this point, just quickly screen for decks we want to spend more time on
Not all of these principles will apply to all categories, e.g. deeptech or medtech. They often operate on different investment and product cycles.
We’re not only looking for VC unicorn potential (£100m turnover at 10x valuation) - smaller scale businesses fit our thesis too
We’re taking an evidence-led and iterative approach to building a startup (Lean Startup not Zero to One)
What am I missing? I’ve written this up partly so that others can help improve it!
The vehicle and the journey - a two step method
First we form a picture of the ‘vehicle’. The core components of a startup that must function together coherently to generate traction.
Step 1 - The vehicle
Problem (what problem is the startup solving in the world)
Solution (how will they solve it)
Go To Market (how will they sell to customers)
Team (who are the founders)
If these areas are too vaguely described, not credible or don’t make sense then there’s not much point in going further. This is partly because the founder may not be clear enough themselves yet which would increase the risk of any investment. But also because it’s very difficult for us to have a meaningful opinion about the wider market and strategy picture if these areas aren’t well described.
Step 2 - The journey
With a clear sense of the vehicle it’s then possible to form an opinion about the journey the founders are describing. And you can start to form answers to questions like - What’s the potential scale of this business? What would enable or limit this scale?’
The key slides we can use to build a wider picture of the journey: Business model, Market size, Competition, Use of funds and Financial model.
I will write up some recommendations for analysing the journey in a subsequent article.
Step 1 - How to analyse the vehicle
These are specific suggestions to analyse each area. But just as important is an integrity check, does each area align and support the other? It’s not unusual to hear a thorny problem described in visceral detail - only for the startup’s solution slide to appear barely related!
It must be clear exactly who has this problem and when
We want to be able to empathise with the potential customer. We can then understand whether this is a credible buying journey for them to take.
The customer must know (and care!) that they have the problem
It is a common startup trap to solve a problem that is a ‘real’ problem. But not a problem that the customer cares enough about to spend time, energy or money to buy a solution for.
A ‘hair on fire’ problem is best of all
A problem that customers are actively searching for solutions to is good signal. A buying journey that requires educating customers that they have a problem and also that it needs solving adds cost and risk.
Delivers hugely better outcomes in ways the customer cares about
It can be a common trap for startups to deliver a ‘better’ way of solving a problem that has no real benefits the customer.
Complicated to adopt solutions are harder to sell
The anticipated effort to use any product is going to be front of mind for a customer. Customer behaviour change, learning time or many decision makers all add friction.
A killer use-case should be shown now
The deck should demonstrate a clear, specific and compelling real world example of how it will work and what benefits it will deliver. If it doesn’t, why not?
3. Go To Market (GTM)
Proven - one channel in action is better than a list of potentials
Strategy and execution in this area is hard and still required even with a great product. The plan doesn’t need to be hugely scalable but they do need to acquire enough customers before their next funding round.
Credible - think through the customer’s buying journey
Never mind the marketing jargon, can you actually imagine a customer purchasing the product using the route they’ve described?
Simple - if it’s not clear to you then it’s probably not to them
There can be a temptation to hide uncertainty under complexity here. In reality most startups will have very limited resources at this point, so a good plan is likely to be a simple plan.
All founders were first-timers once
Be optimistic but analytical. This can be a tough balance to strike but look for signs of remarkable potential.
Problem. Solution. Building a company.
The team needs to be sufficiently passionate about all three to succeed. Who in the team is covering each one?
Shiny CV logos and fancy advisors are a distraction
What really matters is how relevant their skills and experience are. For example, don't assume that someone who has experience of solving Google-scale problems (with Google-scale resources) is a natural fit for an early stage startup.
What about traction?
Traction is the team’s ability to demonstrate early commercial progress (however small or unscalable). It’s validation that they are on the right track with their problem/solution fit. It also demonstrates they have the ability to find early adopter customers and make them happy - even at a micro scale this is a great proof point. The volume of sales may be low or the solution rudimentary. But the process (and willingness) to test their strategy is a great indicator of resourcefulness.
The best traction metrics are real sales of a real early stage product. Other metrics are often offered when this isn’t possible but these metrics can become a very weak proxy for what really matters. For example, waitlist signups demonstrate capability to reach and engage an audience. But they don’t offer much evidence of a customer’s willingness to pay or the startup’s ability to serve customer needs.
I’ve found the best way to get better at screening deck is to… screen a lot of decks! It’s only by practicing applying your judgement that you develop a better sense for the startups that have real potential. And if you can find some fellow angels to debate your opinions with then even better - it’s more fun and you get to learn from other’s perspectives.
In the next article in the series I demonstrate methods for evaluating the ‘journey’ - if there’s a viable startup vehicle how far could it go?
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Excellent read Tim!! Thank you for this