As a venture capitalist, hundreds of deals are presented to me on a monthly basis. Understanding how we evaluate these can help early stage businesses give themselves the best chance of getting noticed among the crowd.
At Seed Space, we focus on early-stage funding in the fintech space, finding the startups that will grow into the financial services powerhouses of tomorrow. Founded in 2018, we have made more tan 20 investments so far, with two of our early investee companies having moved to IPO, and the majority of the others having successfully undertaken second and third funding rounds.
In all cases, I’ve experienced how critical seed capital was for these passionate founders to survive and thrive. Without a doubt, the first investment round is a make-or-break moment for any startup.
Below are our seven most important investment criteria. Keep these points in mind when preparing your next pitch deck, elevator pitch, and investor presentation.
1. Stage-and-Sector Approach
At Seed Space we look for early-stage fintech startups in Australia, Asia and Europe. When approaching a VC, make sure you understand where they’re looking to invest, and whether your company fits the brief.
According to the EY FinTech Global Adoption Index publication in 2019, Australia has exhibited impressive growth in the adoption of fintech products and services, and rates ahead of other advanced markets. Coupled with a global push for regulatory changes, there is an outstanding investment opportunity to provide new and smarter financial services in this country.
2. Founder & Team
Lacking a lot of raw data at an early-stage investment, the founder becomes crucial in the decision to invest on a particular business.
We look for passionate, energetic, focused and credible founders with a unique insight in the fintech sector, and proven experience with the targeted market segment.
We truly believe in the power of a team with a certain mix of skills. First coined by AKQA’s Chief Technology Officer Rei Inamoto, the “Hipster, Hacker, Hustler” theory has always provided us with a framework to spot a balanced team that can effectively execute a business plan.
3. Customer Pain
We look for great scalable business ideas that address new customer needs or provide smarter financial services at a much lower cost.
The Original Airbnb pitch deck from 2009 is a popular reference point for entrepreneurs. Source: Slidebean
The key to tailoring your pitch the right way is to showcase your product-market fit. This concept speaks to a product being so attractive to customers in the marketplace that they identify with the problem it was intended to solve, and feel compelled to purchase the product. More importantly, they are delighted with the experience, ensuring recurrent revenue and low churn rates.
Targeting specific customers’ pains and explaining why you’ll solve a real market problem will prove you have a clearly articulated vision about your business idea.
4. Market Opportunity
To back an idea we need to assess the size of your market. A large and/or growing addressable marketplace lays a solid foundation for revenue and an attractive return on investment. Be ready to thoroughly describe the customer segment or segments you will cater for by providing all the raw data you can gather.
Dive into Compound Annual Growth Rate (CAGR), potential or actual user numbers, and any other indicators you can find, to present an estimation of the current market size, the penetration rate, and expected growth.
5. Go-to-Market Strategy
At an early stage you may not have launched your product yet. However, we’ll expect to get a clear picture of what your plans are to find your customers.
How will you promote your product? Will you leverage paid media? Or depend on strategic partners with a consolidated customer base?
What all these inquiries point to is evaluating your plan for acquiring customers, sales process and cycle. Go over what your sales funnel will look like, and the key messages are that you will need to convey to drive the buyer’s decision-making process.
Don’t forget to consider possible barriers for the entry of the product to the market, and address how you will tackle those challenges.
6. Competition
Almost in every niche there is competition. In fact, that’s a good sign because it means you are tapping into a viable market segment. However, how will you differentiate yourself from the pack?
Steve Blank Petal Diagram - Slack. Source: Daniel DAlonzo
First, you need to have a deep understanding of the competitive landscape and what’s your best positioning in that market. I suggest you check out Steve Blank’s Petal Diagram to illustrate adjacent market segments and its representative players.
Think of your unique product features, price point, convenience or any competitive advantage that gives you a leg up on the competition. At the end of the day, you’ll be answering this question: What’s unique about you, your startup and your idea?
7. Revenue Model
As investors, we need to know your key drivers of profitability. Address these concerns by describing the different sources of revenue generation like licensing your technology, selling your product/service, charging a subscription fee or transaction fee.
When it comes to freemium conversion rates to premium subscribers, Spotify is in a league of its own.
Another very popular revenue model these days is freemium — combining access to a basic product for free with charges for advanced features.
In the same vein, bear in mind to share your Customer Acquisition Cost (CAC), Payback Period and the Lifetime Value (LTV) of the customer.
Ready to Close Your Seed Round?
Overall, be ready to showcase why you and your team are better equipped to bring your idea to life, explain why the product/service will catch your target customers’ attention, address investors’ concerns about competition, explain your go-to market strategy and revenue model, and above all, be authentic; nothing is more compelling than your own inner belief in your idea.
At Seed Space we are heavily involved with all our investees, accepting board seats and providing support where needed. Having built a network of leading founders, investors, and top tier business representatives, we are committed to foster an environment where founders and startups can thrive.