I have been an entrepreneur for most of my life, predominately focused on building technology companies in Canada. Through my experiences in business, I have learned a lot of what works and what does not when you are looking to build a successful business. My experiences are real world knowledge, not MBA textbook suggestions – the world of hard knocks as they call it. The real world in most cases is very different than the textbook jargon people read. Building a business is not a black and white process, there is a lot of maneuvering and pivoting to successfully bring the puck to the other side of the rink and create a successful venture.
When I decided to start Launch Capital our Toronto based family office to help provide venture capital and guidance for aspiring tech entrepreneurs, I spent some time thinking of what qualities we would look for when identifying exciting businesses to get behind.
Here is the basic criteria we start with when evaluating a business idea:
1. Does the “Jockey” have what it takes?
At the root of any business is the leader, the entrepreneur the “Jockey”. When we look to place a bet on the Jockey here are some of the questions that go through our mind:
- Is the entrepreneur passionate about his business? Does he have high energy, drive and willingness to focus and never give up?
- Is he knowledgeable about this space and what real world experience do they have in this vertical?
- Does he look at his role as a 9-5 job or does he not define his work by hours in the day, rather as a non-stop effort of commitment, drive, and path to success?
- Can they communicate effectively with people?
- Can they build a great team, can they attract customers, partners, investors?
- If I was a customer, would I buy something from them?
2. Does this venture have a place in the market?
We like businesses that will disrupt the status quo and solve problems in the market. With that in mind when looking at a venture which we would classify as a potential disruptor here are some of the points, we try to focus on;
- What “Pain Points” – problems / inefficiencies exist in the marketplace that this business could solve?
- If it can address these Pain Points, are there customers for the solution and more importantly would these customers pay for it and if so, how much?
- Is this solving a long term problem or is it simply addressing a short term fad?
- Can this business scale and become a leader in its market?
- How big is the TAM (total addressable market)?
3. Does the business offering have what it takes to succeed?
We like businesses that focus on markets with big barriers of entry. The hardest, most challenging businesses to build are typically the best. Like the saying goes – if it was easy to do, everyone would be doing it. Here are some of the points we look at:
- Does the offering the business is pursuing have a place in the market and if so, how competitive is that space?
- Are there barriers of entry? How difficult would it be for someone to come in and duplicate this offering?
- When the competitors show up (and they will) – can this company compete with them?
4. How do we make money?
Over the past number of years there has been this theme that has somewhat emerged over the startup scene – let us not worry about revenue right now, eventually it will come. Well, what I can tell you although there is some merit to this point – we like revenue and more importantly we like predictable, recurring revenue models. You can only run a business so long on a hope and dream. At the end of the day, the business must be able to sustain and grow on its own. This is what goes through our minds:
- Can this business monetize its offering and if so, how much would that be?
- How big of a market does this business have?
- What type of revenues would it be; one time, recurring, hardware, services, etc.?
- How “sticky” is this revenue?
5. Can we work with these people?
Like I mentioned earlier, business is all about people. So, if you are getting in bed with people to go build a killer business, we need to make sure that we are working with a management team that is like minded and understands the go forward strategy. Launching a business and making it successful is hard enough, working in an environment with the wrong chemistry is a recipe for disaster.
- Does the team have the right skill sets to be successful?
- Do they have focus?
- Will they accept guidance?
- Does everyone know what their roles are?
6. What is this going to cost?
Many times, I have seen and been involved in ventures where there is no clear understanding of how much capital is required to build and operate the business. Having a clear understanding of finances is very important. Forecasting and tracking financial metrics are extremely important to determine the success of the business.
- Do they have a proper financial model built and who built it based on what assumptions?
- Have they considered all the soft, hidden, and unexpected costs?
- How many rounds of capital are required before this can sustain on its own?
There are many amazing, game changing ideas floating around in the Startup community. The process of taking that idea and turning it to an exceptional business requires a special type of entrepreneur and team. Venture capitalists such as ourselves focus on key areas as we discussed to help pick the entrepreneurs and their companies they want to get behind. Hopefully, this little bit of insight I provided here can help guide you through your journey of launching your startup and being successful in the journey.
Guest Post By Tony Di Benedetto, Founder, Launch Capital