Seeking projects for investment is a challenging and risky task. While success is expected, dreams about unicorns may not come true on the first try. Sergey Kartashov, the Senior Partner at technology company Roosh, tries to keep beginning investors from making typical mistakes.
Investors are looking for long-term perspective projects giving preferences to them over the potential promise of windfall profits. Big ideas and timeless values become competitive advantages of the project seeking investment.
In the 2010s, the riskiest venture investments amounted to half of this year`s which amounted to almost $300 billion. There are about 900 “unicorns” on the market, and one-third of them reached $1 billion in capitalizations in 2021.
Finding good projects for investment requires an investor to be familiar with the trends on the market and to know the main players of the niche. According to Sergey Kartashov, one of the key arguments for focusing on the project is analyzing a list of co-investors. If such experienced venture funds as Andreessen Horowitz or Sequoia Capital invest in the startup, then most probably it is worth doing it as well.
Sergey Kartashov explains that the rate of successful projects on the market stood 10% in 2017. It means that behind hundreds of startups that achieved remarkable results there were thousands of unsuccessful stories.
Investors should consider several aspects while selecting projects. First of all, the founder of the startup should be talented and the idea should solve a relevant problem, but it is also important to analyze how the team is going to bring it to life, monetize, and develop according to the business plan. The competence of the team is one of the key factors that the investor should not ignore.
Speaking about the projects that failed at the beginning of their lifecycle, Sergey Kartashov mentions Tutorsband, the first project of Restream’s founders, that spent $480,000 of angel investments and did not deliver the promised profits. Engineers developed a good platform for broadcasting educational webinars but made some business mistakes and lost the game.
Sometimes, the founders fail to connect the buyers of the services with their sellers or they lack team-building skills, explains the expert. “When a group of friends turns into a full-fledged company, one has to delegate authority, motivate people, and replace those who defy motivation,” Sergey Kartashov says.
The other aspect to check before greenlighting the project is to check a crisis response strategy that the team has built and its level of understanding of the legal intricacies of the industry. If there is no strategy, it becomes the investor`s task to prepare it and deal with lawsuits if they appear. For example, a promising Ukrainian startup with sales of about $1 million specialized in the development of new genetic tests, called Titanovo, has to shut down because of a subpoena from a large American competitor. The failure of the startup sank the team together with the investors.
Looking for innovative ideas, investors have to feel if they forestall the present. Ideas that can skyrocket in a decade can be a risky investment, Sergey Kartashov points out. To put money into the project, the funder has to weigh the risks, predict further development of the industry and the future demand of the product.
Sergey Kartashov strongly encourages beginning IT investors to focus on experienced entrepreneurs with reliable portfolios and a foreseeable development course. On the contrary, partnering with inexperienced founders can become “a headache for an investor as they require making difficult compromises,” says Senior Partner at technology company Roosh.