Alex from Make It talks about his criteria to pick startups to invest in
How Make It defines what is an interesting investment
Make It is a venture builder venture studio, which means that they invest in very early-stage startups, what Alex calls “idea stage” company. As soon as they have “an idea on a napkin”, they are already interested to invest. The sooner the investment the most added value to the startup by Alex and his team.
Why is it a risk to invest in an idea? Because only when you are building a start-up and working on the project you move forward and you solve unknowns and while solving unknowns, you validate your assumptions and reduce the risk.
The later you invest the less of the unknowns and the more assumptions you have validated. The risk has been reduced meaning that the valuations go up and also probably, if you need capital to grow, you need more capital at later stages because you will need to grow faster.
Idea stage risk
There is a risk at all stages. Alex thinks that when you are at the idea stage the biggest risk will be the founders’ needs. In the markets for that idea, as an entrepreneur, you see problems that maybe you have yourself or that you see it in your current job with other customers or friends and family. You see that they have problems and you want to solve these problems.
The idea itself or the problem that you the founder identified is already a big assumption because it has to be tested that other people have that problem one and secondly is this problem big enough that it’s worth solving. If the problem is real and people actually want it to be solved, then what is the solution for that and will the proposed solution be effective enough to actually solve the problem. The last assumption to test is: are people willing to pay the right price to get that problem solved.
Where the real risk is
Alex sais he has seen so many great stories but there is a big misperception about what it actually is to build a startup. Founders think it’s all about building that product or building that technology. But, when you look around, building a product whether it’s, should not be the focus of that startup. Building a solution or building a product is not where the risk is. The risk is really into the go-to-market strategy and its execution.
Alex has this test, where he asks the founder to assume that they already have the solution – everything possible that is in the founder’s head as a product or solution is already built and exists. The question now is: Explain what is your go-to-market strategy? He wants to understand how they’re going to do this and is it simple enough and scalable to be implemented.
This is a very important point. For an investor, the ability to sell and to market is much more important than the actual product. Many founders miss this factor and all they pitch to investors are products and solutions, while investors want to see that the founders can sell and market.
We had a very interesting conversation with one of the investors that are very active right now in the Los Angeles area.
Alex Bedoret likes early-stages startups and he is looking to see into a startup and founders that they have a sound idea and can sell. The stage may be just scribbled on a napkin idea, but as soon as Alex is convinced that the founders are sound marketers, he is interested to invest.
Most of the investors have similar views and interests, but they prefer to invest at different stages of the startup to mitigate the risk. The very early-stage startups have a much higher risk, but also offer much better ROI when they are successful.
Founders need to understand which stage their startup is in and make sure they have a sound marketing plan. Then they need to find and focus on investors who are investing in companies at similar stages of development and in the same industry.