Venture capital firms receive thousands of investment opportunities each year from all over the world.
Unsolicited pitches make up 99% of the offers that arrive each week and need to be screened very quickly.
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The importance of a positive referral cannot be underestimated. It’s untenable to meet each and every entrepreneur so curated deals that come through a referral from a trusted connection will always be considered more carefully.
At Trimantium Capital, we’re primarily fintech and healthtech impact investors, so unsolicited deals that are not in these categories are set aside quickly.
Once we have sector alignment in categories we understand, we undertake an initial pass to determine whether or not we should meet the entrepreneur.
These are the questions that investors will typically ask while screening these pitches and startups should have them answered before they submit anything.
1. Does the business solve a real problem?
- Do people currently pay for it, or something similar, to go away?
- Is it a large market with favourable macro-economic trends? Is the market clearly defined and understood?
- Does it deliver positive social benefit and reduce systematic investment risk from potential corrections resulting from political regulatory, social or environmental risks?
2. Does the business have a world-class team?
- Is the entrepreneur intimate with the problem they are solving and have unique insights?
- Can the key team members demonstrate an extreme level of mental resilience to survive the journey?
3. Can the business be a unicorn?
- Can the business be a $1 billion company plausibly in three or four years?
- Does it make sense for our fund? Can we deploy a minimum level of capital into the venture in the first 12 months?
4. Is the business resilient?
- Are there, or could there be, very large barriers to entry, or the potential for wide moats?
- How do they see disruption and international entrants affecting the market structure?
- Is there the potential for market domination or pricing power?
5. Is the business and team a good fit for us?
- Culturally, is the team a good fit, do we think we can work with the key team?
- Do we understand the business and could we run it if we had to?
6. Do the commercials make sense at small and large scales?
- Do the unit economics make sense?
- Does it only make sense at large scales? If so what special dynamics give confidence that the business will be able to sustain stickiness during the initial period before the durable scale?
- Does scale lead to efficiency or inefficiency?
- Is the capital requirement well considered? Does it give the business sufficient runway to prove key assumptions and take the business to a new valuation milestone with an adequate safety margin?
Phillip Kingston is the founder of venture capital and investment firm Trimantium Capital, and a technology entrepreneur and investor. You can follow him on Twitter here.