So... What do I look for when investing in startups?

At CapHorn Invest, we invest in B2B startups, at series A and B maturity stage (rounds of €2M to €20M), that “blow the digital wind on dusty industries”; in effect, we like companies that aim at transforming traditional businesses, or parts thereof — be they internal or customer facing processes. We invest mostly in software companies, albeit we will also look at companies that use hardware as a trojan horse to trigger software sales.

Beyond unit economics and financial aspects, you can expect us to dig into four main areas, as most VCs do:

• MARKET: You are addressing a deep market, with replicable international use cases based on real world problems.
• PRODUCT: You have built a strong product whose differentiation is backed by unique technological assets
• TEAM : The founding team showcases complementary skills and experience, is extremely ambitious, and has proven its ability to attract top talent.
• GO TO MARKET: You have demonstrated your product market fit by attracting reference customers, and have built a strong repeatable sales and marketing model that you intend to execute at scale.

What we, at Cap Horn Invest, will also specifically look into is whether you have the potential to leverage our extended network of 250+ private LPs that are extremely well connected within Fortune 100 companies senior management, to provide you with market access!

As for me, a little over one year in the VC world (but close to 20 years in tech, I’m that old) - and after meeting with over 100 startups - I have refined my own thesis, i.e. what I look into when assessing dealflow and what is more likely to draw my interest before digging deeper.

Not all VCs (and I don’t mean only firms, but actual individual investors) are the same. Each and every one of us builds his/her own set of beliefs, preferences and biases, that are based upon our own mix of culture, values, background, experience, skills, expertise, expectations, etc…

Let me first share what I look into when analyzing an investment opportunity; this will build into my personal investment thesis, which I will outline in an upcoming article.

The first thing I really need to understand is the problem you are addressing. Although I love tech, I always start with the business problem, both in qualitative and quantitative terms: what is the pain point and how much is that problem costing whom? It doesn’t stop there as it is key for me to understand the persona that will be buying your solution to relieve him/her from that quantitative stress. Digging deeper, I need to be able to picture the replicability of the problem and therefore the depth of the market.

The second thing I then look into is what your product does to solve that problem: how do you define it ? Where does it begin and where does it end ? How do you plan to evolve it, i.e. what is your roadmap ? What are the alternatives? What is the unique differentiator that positions you against said alternatives? I will then dive into your technology to understand the defensibility of the edge you have built (in other words, your entry barriers) and its scalability to back the growth you are planning.

The third thing is the founding team, the history of the company, and its inherent culture: what drove you to build this company ? How did you decide to join forces? Where do you see your complementarities play ? What scars have you endured in your lifetime ? How did you attract initial talent ? What kind of people do you need to recruit to bridge those competency gaps you have identified?

The fourth thing I will dive into is your go to market model : How have you driven your initial sales? How will you replicate them at scale? What is your partnership / indirect sales plan ? What kind of marketing, pre-sales, sales, and customer success resources do you need to attract ? Where do you hire from ? How do you monitor your sales activity ? What are your key current and target metrics for your sales activity ? How do you incentivize, measure and reward success?

As an intro to my investment thesis, let me conclude on this first piece: I see a lot of tech startups that start their pitch with the technology they have developed; building great tech is one thing, but building a great company is yet another one. My belief is that it’s not always the best tech that wins the market: it’s your ability to capture the opportunity better and faster than your competition that will make you succeed. To do so, you need the right product for the right problem, a very driven team and clear GTM strategy. I shall go deeper into my personal interests, beliefs and specific preferences on the above when I describe my investment thesis. Stay tuned.

Does that help at all? Does this change the way you think of your investor pitch/deck? I am not saying this is THE way to do it, I am humbly sharing how I look at investment opportunities. I am always (and will ever be) learning: comments and suggestions from fellow VCs and entrepreneurs are always helpful ;-) Thanks.