With Asia-Pacific now accounting for 37 per cent of global investment, our region is in with a shot of overtaking the US and Europe to become the world’s biggest investment market.
To get a piece of this growing pie, investors need to know what to look for. Experienced investor and mentor Pedram Mokrian, who teaches into VC Catalyst, has pulled together the ‘6 T’s’ framework to help you pick a winner.
1. Team
Ideas are a dime a dozen, but great execution requires a great team.
“It’s clichéd but true,” says Mokrian. “Getting product-market fits requires a resilient, visionary and technically capable team.”
And he’s not just talking about the founders and the operating team; you also need to consider the pedigree and expertise of the other investors and advisors.
Picking the right people is something you will get better at with experience, he says. Hear enough pitches and see enough teams and you’ll start to pick up on the subtleties.
2. TAM (Total Addressable Market)
This is the total revenue of the particular market the startup is operating in. You’re looking for one that is large, growing, accessible and strategic.
“The market shouldn’t just be large today, but you should be able to see that it will continue to be large into the future,” says Mokrian.
Consider the competitor environment: can this startup carve out a profitable space within it? Will the market be willing to adopt the solution being pitched?
TAM comes with a warning: it can be hard to predict. Take Netflix, for example, who created a market nobody knew they wanted when they launched their first streaming product in 2007.
3. Technology
“Ask yourself how this technology solves a big, painful problem,” says Mokrian.
Compare the technology to what’s already in the market. Is it unique? Can you defend it compared to other offers?
“Remember, you’re looking for technology or a business model that’s disruptive,” says Mokrian.
And wrap your head around what’s under the hood: the deep technology or IP behind it, whether there is a network effect driving business, and how to tap into that long-term.
4. Traction
“This is the only indication that you’re not just hearing a pretty story,” says Mokrian.
Or, in other words, is there a demonstrated ability to execute?
Look for data that validates the product-market-fit. It might be the number of active users, profitability, the amount of engagements or the number of partnerships and/or clients already generated.
Traction is the most variable aspect of this framework, with what you’re looking for changing depending on the stage of the business.
It can also take time for a business to demonstrate traction. “Just look at how long TESLA has taken to turn a profit,” says Mokrian.
5. Trends
“Nailing that right time in the market is the difference between life or death,” says Mokrian.
“Too early and your capital will be ploughed right back into educating the market. Too late, and you’re spending money trying to compete with established businesses.”
Consider the market trends pulling consumption of this technology. Blockchain products are a great example, with a range of market trends (perhaps most notably Bitcoin) driving demand.
On the consumer side, Mokrian says it can be more difficult to spot trends. “It’s an artform that not every investor understands. Being able to forecast the future is something that’s usually developed over time, by being immersed in a particular market.”
6. Terms
Essentially, this is the legal bit. It’s all about the amount of capital required, how funding will be structured, what milestones you would like to see and so on.
But don’t leap to this stage too soon.
“Good startups aren’t about finding good deals,” says Mokrian. “Terms are always the last thing. You’ve got to fall in love with the team and the market, love the product and feel it’s the right time first.”
Finally, Mokrian advises thinking about your early venture capital experiences as an apprenticeship.
“It takes time to get good at spotting great investments,” he says. “To do it, you’ll either be a specialist in the space or you will have seen hundreds, if not, thousands of pitches.
“At the end of the day, it’s about much more than understanding the mechanics of the deal. It’s really about understanding people.”
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