I try to follow certain ”rules” both for the selection of the startups and for the allocation of funds within my startup investment portfolio. These rules are not written in stone for me, nevertheless, I try to adhere to them as much as my human nature (greed and fear) allows me, i.e. I follow a heuristic approach to investing acknowledging that even 1% discretion in the decision making, means that in the end such decisions are entirely discretionary.
With regards to the criteria for selection; you will probably get my attention if you are a startup raising funds for:
- Seed investment up to Series A (as Jason Calacanis says: such startup should be in the “ Goldilocks Zone, not too hot, not too cold “; beyond an idea and before you start executing your international expansion phase) ;
- Have at least a successful pilot (best if paid by the end users) and ideally some market traction ;
- Actual revenue of at least $60-$100k pa, $5k in MRR + with growth m/o/m ;
- Depending on the market and product / service, pre-money valuation between $1-5m ;
- Impact related – solving a major problem ;
- There are other companies working on similar issues ;
- Trustable founder(s), strong technical team ;
- Scalable ;
- As little capital intensive as possible ;
- Ideally has received a patent or applied for one (although this is more to signal to the customers than a value adder);
- The startup has received nonrefundable grants, access to debt.
With regards to the criteria for allocation within my portfolio of investments:
- I try to limit my allocation to startups, including potential follow up rounds, to less than 10% of my net worth.
- The aggregate initial investment in startups -as an asset class – is limited to 5% of my net worth.
- For the first time in investment in any startup, not more than 1% of my net worth
- Ensure that I already have sufficient liquidity or know that I will have within less than six months of the date of investment, at least the same amount that I would invest, for follow up rounds.
Which rules do you follow? – Please leave a comment
I also found the following criteria from other investors:
1. Are the founders top 0.01% entrepreneurs?
2. What does this team understand about the market that other teams don’t?
3. What is the biggest risk to the company, and can the team solve it?
4. If it works, how big of an impact will this company have?