Venture Investment Criteria

I have started, partnered and invested in startups, and early stage businesses across many different industries. Some of these industries include: Tech, EdTech, SaaS (software as a service), Commercial Lending, ecommerce, lead generation and Real Estate (more info on that here).

When I look at a business opportunity I place it in one of the following categories for consideration:

  • Income producing passive assets: ventures that produce monthly passive income with little to no employees. Assets in this class that I have started, or invested in include: Real Estate, Online Directories, ecommerce ventures with manufacturers that drop ship, etc. These businesses are not working to “take over or change the world”, but fill a niche market void. They are often cash flow positive within a minimum of six months. I am most active in this venture category.
  • Innovative growth ventures: Scalable ventures that are looking to innovate, fulfill the need of a large and viable market then exit within three to five years for a 10x+ return for investors. These ventures often have some sort of protectable IP, a qualified team, and reach break even within two years. I have started, partnered and invested in several startups in this venture category. These are risky, but more risk more reward right? I’m open to considering investment and consulting arrangements for ventures in this category.
  • Flips: Quick opportunities to buy an asset low and sell high. Though I am open to reviewing and considering these opportunities short term capital gains tax can erode margins.
  • Life Style Companies: Service or small retail based businesses that require staff and manager to operate. Often times a solopreneur or partnership made up of individuals that work in the business. Usually little to no differentiation from competition. I’ve ran a business such as this that I grew to millions in sales. It is time intensive and can have a very hunt, kill, eat model. I am open to consulting with startup businesses such as this, but unless the business has aggressive expansion goals or an extremely high return, I am usually not interested in investing.
  • Passion Projects: Initiatives, or businesses that may not make a lot of money, but are in line with my passion(s), or have a charitable return. Examples of this include my wife’s non-profit Crossroads Corral that uses horses to promote personal growth and healing in our community. I open to being a part of businesses such as this that align with my interests whether as a consultant and/or board member. My interests in this area include: mentorship, education, basketball, fishing, artifact hunting, treasure hunting, etc.
  • WOTs (Waste of Times): Self explanatory. Bad Market. Money PIT. No real growth potential. No value add. No fun. Time suck. Non coachable founders. Poor product with no customer validation. I steer clear of WOTS.

In general, I am most interested in consulting and investing in businesses (income producing assets & innovative growth ventures) that meet the following venture criteria:

Market Related Criteria

  • The entrepreneur(s) have chosen a fertile Niche Market to target.
  • Market is large enough to generate the desired target revenue, return or exit relative to the investment
  • If market is not large enough, the entrepreneur has a clear path to expand to adjacent markets (Bowling Pin Strategy)
  • There is a void in the market that is unfulfilled
  • If no clear void exists, the team has an innovative approach that can save members of the market time & money, or add meaningful value in some other way.
  • The entrepreneurs have taken the time to understand and assess direct and indirect competitors
  • The team’s growth plan and sequencing to grab market share makes sense
  • The product or service has been validated by the market either through a beta product with initial customers, or through an experiment (mock ups or prototype shared with potential customers with positive feedback received)

Customer / Marketing Criteria

  • Clear target customer is identified
  • The type of customer is intimately understood.
  • The customer has a true need and receives meaningful value or relief from obtaining the product or service.
  • Customer has ability and authority to buy (Purchasing power and authority)
  • Customer can be reached (Marketing and sales plan is clear)
  • Decision making and purchasing process is clear and understood (Conversion Process)
  • If the venture has multiple potential customers then each customer segment is prioritized.
  • Venture can ideally benefit from network theory (viral organic growth / network effect) to increase awareness and sales
  • Decision makers, or highly visible influencers, can provide effective leverage to reach many customers or prospects
  • Customers are “sticky” – the business has high retention rates.

Business Model Criteria

  • Re-occurring revenue (ideal)
  • Ability to upsell add-on offerings, upgrades or related products to customers
  • High barriers to entry for competitors
  • High switching costs for customers (lock in business model)
  • Clear CPA (Cost per Customer Acquisition)
  • LTV (Life Time Value) is significantly larger than CPA
  • Economically viable and scalable model

Product Criteria

  • Product has a distinct and “marketable” advantage over competing products and/or alternatives (indirect competitors)
  • If the product has not established a meaningful advantage over competing products – the product has a clear plan to gain a marketable and distinct advantage.
  • If the product is a software venture – the software should be focused enough to serve a niche market well, but not rigid to prevent the product from adapting to market issues or business objectives that arise.
  • Product does not win in the marketplace on price alone (Not commodity product or service
  • High profit margins

Team / Entrepreneur Criteria

  • The leadership team has sound judgment, justifiable experience and integrity
  • The entrepreneur is passionate, committed, focused and driven
  • Entrepreneur is able to adapt to change gracefully
  • The entrepreneur knows when to “explore” and when to “exploit” and can adapt his team accordingly
  • The leadership has a strong ability to collaborate and work with others
  • The leadership is willing to listen and understand the perspective and suggestions of others
  • The entrepreneur(s) is/are not overly confident – willing to seek out advice from wise counsel when needed (Coachable)
  • The entrepreneur or team has deep knowledge of the market and/or customer
  • The team or entrepreneur has the ability to manage operations, people and finances
  • The leadership understands financial statements & tools like cashflow, budgets and the balance sheet.
  • The team has a qualified product engineer or specialist

Operations and Company Criteria

  • No partner or investor issues that could be difficult to resolve (“dead equity”)
  • No significant looming lawsuits
  • There is an operational agreement in place that outlines owner (member) responsibilities and protects against unfair equity allocations.
  • No substantial company debt, unless it is income producing or strategic debt.
  • Scalable operational systems are in place or planned that can accommodate future customer growth.

Current Status & Existing Performance Criteria

Before choosing to invest or determining a valuation, the current status of each perspective venture should be understood. Various areas of the business should be assessed including:

  • Company legal status and structure
  • Current product status – Just a plan? MVP (Minimum viable product), beta, product used in market already, etc.
  • Existing customer satisfaction and/or commitments
  • Existing team & planned potential hires
  • Current operational efficiency
  • Brand and related assets – Does the brand match the key prospect? Review website, collateral, social media, etc.
  • Sales and marketing efforts, performance and plans
  • Current financial status and position (Balance sheet review)
    Current profitability (cash flow and income statement review)

If you have a venture, or venture idea that meets these criteria, I want to hear from you. Contact me today.

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