How to Identify Quality Companies for Investment

3 min read When starting out, it can be difficult to know how to identify quality companies for investment. In funding startups, investors need to find a source of deal flow that provides venture-fundable deals.

Venture-Fundable Deals

Venture-funded companies typically share these characteristics:

  •   Recurring or repeat revenue business model
  •   Doubling revenue year over year
  •   Tech-enabled
  •   Strong team with industry experience
  •   Large target market allowing the firm to scale

In searching for a startup in which to invest, you should look for all of these characteristics.

Learn About Sectors Before Investing

Many startup investors begin with a portfolio theory approach in which one makes a few investments across a broad range of sectors. I often hear, “My strategy is to invest in good deals.” This is easier said than done. A broad-based investing approach requires the investor to come up to speed on each and every sector. That’s a lot of homework for an investment in one or two deals. Some investors choose to focus on a few key domains and become an expert in those areas. By diving deep, one can understand the trends, challenges, and factors that drive company success. There’s a risk that if you have too many companies in a sector, you are at risk for major disruptions. If the sector is broad enough, you can move to new areas within the space as it matures.

How to Find Deals in a Sector

To find deals in a sector, you can search Crunchbase for industry-specific reports. Pitchbook produces funded reports by sector by subscribing to their daily newsletter. Conferences are a great place to find personal introductions and meet with new startups. Also, venture capital is evolving into service models in which they not only fund the companies but also help with operations such as sales, CFO, etc. It’s not hard to find a list of VC firms focused on a sector.

Identifying the Risks

Every sector comes with its risks, such as regulations. Also, disruption from new technologies is an ever-present risk in the industry. By spending time with startups and investors in the space, it becomes clear where the threats come from and what one can do to mitigate the risk. Read more on the TEN Capital

eGuide: How to Invest in a Startup


Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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