10 questions to ask yourself before investing in a start-up
Corporate venturing can provide businesses with a pipeline of fresh, startup thinking and talent. But how do you evaluate where to invest?
Shilen Patel, from Corporate Venturing and innovation agency, Independents United, provides ten pointers to help you navigate startup investment:
1) Am I 100 percent clear on why we are doing this?
It might seem like an obvious start point, but most people don’t stop to think this through before they jump in. Make sure you’re clear on what the value of doing this is to your company, and that your stakeholders are also 100 percent clear and aligned
2) What have I got to offer beyond money?
Once you’ve clarified why you’re investing, put yourself into the startup’s shoes to work out what they might want out of the relationship. Money is only part of the picture; so consider what else you’ve got to offer them, by way of assets, expertise and knowledge
3) What is it that this startup is bringing that we really need / admire?
Make sure you, and other stakeholders, are really clear on what value the startup will bring – then safeguard it. Once you have identified what you need them for you can work out how to ensure they are best able to deliver it. Which brings us to the next point…
4) How will I ensure that we let the startup get on with its work without interfering?
If you’re clear and aligned about what they do that’s different to, or better than you, you stand half a chance of not meddling with it or getting in its way – and this is important. Agree on how you will work together to get the best from your startup without treading on toes or suffocating it
5) Is the startup really clear on why it’s embarking on this partnership?
Make certain your startup is clear on what they want to get out of the relationship, and that their expectations are fully aligned with yours. Delivering against unknown expectations is difficult , therefore ‘success’ will be harder to achieve
6) Are both party’s interests fully aligned and does the deal reflect this?
If you’re not both pulling in the same direction from the outset, you could you find yourselves at odds sooner or later down the line (when things might not be going so well). Make sure you have a deal structure in place that is a true reflection of this too
7) How will we support this startup beyond the initial investment?
This is the bit everyone forgets, but if you get this wrong you could end up investing huge amounts of time and distract your core organisation, only to see little benefit in return. To help you work this out, think about how you can ensure that the startup benefits from your expertise (in a light touch way!) that makes sense for them.
8) How do I know this is the right startup?
Make sure that you have looked at a full portfolio of startups, and compared the investment opportunity in each – conducting a good level of due diligence along the way. You should never go into an investment having looked at only one runner
9) What happens if this all goes well?
Again, it sounds obvious but few companies bother to plan ahead to work out their integration plan if everything goes well. So – be one of the few; ask yourself whether integration is even the right end outcome – and if not, what would it be?
10) Are we ready for the roller coaster?
Lastly, remember that partnering with startups is not just for Christmas. It’s a long journey of ups and downs: things are likely to go badly before they go well – so make sure that you and your organisation are fully prepared for it.
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