by Hall Martin
Investors in startups need to monitor the candidate startup before investing so as to better understand the company and to see some consistent progress.
As an angel investor, I hear pitches every day. It’s been a while since I heard a software pitch that WASN’T going to market in two months. In fact, everyone is “going to market in two months,” but the reality is that most take one to two years to really get traction in a market.
When I find a potential investment that looks interesting, I put it on my watch list. My father was a buy-and-hold value investor in publicly traded stocks. He had a watch list of 10 stocks that he checked every month. He would look up their earnings, check for any management team changes, see what new products they were offering, and then he would look at the price. After a period of time, sometimes a few months, sometimes a few years., he would decide to invest or not. A no meant he took it off his watch list. A yes meant he invested money and put it in his portfolio.
Startups are pretty much the same. You can track them on their sales growth, team changes, product development, and in this case their fundraise. As you receive reports you can start to build out a list of key traction points– leads, sales, channels, etc. As one investor said, “I don’t invest in dots. I invest in lines.” It’s important to build out a picture of how the business is growing.
By watching the deal over a period of time, you can better understand it and also hopefully see an upward trajectory at which point an investment makes sense.