How to choose your next start-up?

Can high growth investments ever be more precise than spread betting?

I’m sure some of you, like me, have sat through plenty of pitch meetings from start-ups. The young, audacious founder and CEO pitches their amazing new business idea with equal parts visionary and naivety. A good start-up pitch (and we know this can be rare) — will include a convincing view of the future, a future which will cater to overwhelming success for the start-up’s new product or service.

Beyond a qualitative assessment of the team, a quantitative forecast of the business plan and potentially some early sales figures, there are few ways to quantify whether start-ups are actually meeting consumer needs of tomorrow. The former requirement critically impacting whether start-ups reach the mythical unicorn status (valued at $1 billion +).

According to Aileen Lee of Cowboy Venture’s analysis of unicorns, over the last 12 years consumer oriented unicorns have outnumbered enterprise start-up unicorns and represent more aggregate value (even excluding Facebook, the first ever super-unicorn or decacorn). But unlike enterprise investments, predicting consumer behaviour — especially global consumer behaviour — makes predicting snowstorms look like child’s play!

What if there was a way to understand and apply macro-consumer trends as an additional way to assess whether start-ups will meet the consumer needs of tomorrow?

Well, I think we can.

How do consumer trends help investment decisions?

  • Help understand the contextual drivers, primary forces shaping the world consumers live in — ageing populations, smartphone living, work-life tensions etc.
  • Provide a framework to understand macro shifts in consumer behavior. Key trends are shifts in consumer expectations or decisions such as mobile first, connected communities, cashless society.
  • Anticipate future consumer behavior by uncovering emerging trends, niche consumer behaviors that will grow into key trends, and thus new business opportunities. Emerging trends such as bioMEtrics, predictive personal probabilities and casual connectivity.

If I was an investor looking for my unicorn, this is what I would want to find out:

  1. A way to quantify the overall market size of key consumer behavior impacting the potential investment’s business idea. What’s the potential size of the prize and who are the target consumers?
  2. Will the market size grow? Drop? Stay the same? What are the trajectories of the trends impacting my investment’s business idea?
  3. What are the consumer needs that my investment’s business idea needs to tap into?
  4. How competitive is my potential investment’s business area? In other words, is the business idea meeting an existing need or an emerging need?

But, I wouldn’t stop there.

Could I be able to find a celebrated new industry based on emerging consumer trends? Absolutely. By understanding key consumer behavior now and how it will shift over the coming years, you can anticipate future consumer behavior and unearth the new industries that will grow based on meeting future consumer needs.

Take the much talked about Apple Watch, or wearables, as an example. The last 10 years of smartphones sales have grown out of the consumer need to access information, communicate and be productive on the go. Now, consumers seek the ability to collect and analyze their personal data in order to optimize their lives. Enter the Apple Watch and wearable technology which seamlessly monitors and tweaks our lives.

What’s next? Technology with casual connectivity — less interruption, not more. Shoes which allow me to vibrate my way to my destination so I don’t have to look at a map as I walk, fitness trackers which tell me whether I can have that second helping of mac & cheese guilt-free.

Consumer trends are the leading way to understand the goals and needs of consumers today. Use consumer trends to anticipate emerging consumer needs which will provide the necessary inspiration to unlock new industries, and thus get ever closer to reaching the illustrious unicorn.

Go get that unicorn!


Originally published at www.nvestventures.com.

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