EquityZen Users Community/EquityZen F.A.Q.
How TOP VCs can help you analyze EquityZen stocks and deals
Choosing EquityZen deals
There are no notable differences in the process of deals selection on EquityZen or anywhere else. The main question that all investors are trying to answer is:
Should I spend time exploring this deal? Is it worth it?
When they start looking for an answer, they may have many other, equally important questions, such as:
What kind of factors determines the success of this particular company?
What are the perfect scenario to get the lowest risk and the highest return on this investment?
The EquityZen platform mainly features mid-stage and late-stage companies. It means that investors are facing much less risk than while funding the startup. It seems that if a company has reached a late stage, it is at least viable. However, many companies will never become market leaders, even if they get into mid- to late stages. The risk persists anyway.
Venture investment is a risky sort of business by default.
This thesis brings us to another excellent question.
What rules should I be followed while separating promising market players from unpromising ones?
In other words, how can we find a rare diamond among other EquityZen stocks that do not require much attention?
Optimal criteria for evaluating EquityZen deals
The experience of the best VCs (venture capitalists) of all time shows that there are specific rules of success in the search for promising market players.
Even though they invest in companies of different stages and market directions, when selecting companies to invest in, all the best VCs use a common approach.
Venture firms such as Andreessen and Horowitz, ARK Invest, Sequoia Capital, Bessemer Investors, Index Ventures, etc., use broadly similar investment criteria (see the table below)
The best VCs have collected their experience selecting the best companies for decades. And it gives its results. You can mention that TOP global VCs continually invest in promising market players.
If some criteria work for Andreessen and Horowitz when analyzing the entire venture market, it should also work for me when analyzing EquityZen deals!
That’s why I confidently build my own EquityZen offerings analysis by learning from the best VCs.
Eight significant standard criteria from TOP VCs can be used to analyze EquityZen stocks.
As practice shows, these criteria accurately determine promising and unpromising market players.
1. C-level Executives
First, you should explore a key figure in business — the CEO. For a deeper understanding of the situation in the company, you should also study information about key tops: COO, CSO, CTO, etc.
The tops of the best companies in the market are, as usual:
— Real stars.
— Recognized professionals in their industry.
— Popularisers of science.
— Academia members.
— Specialists with impressive experience.
2. Corporate Culture and Team
Like the best VCs in the world, you should look at the company’s overall rating and other indicators on Glassdoor, corporate social networks, and the HR department page.
The task is to understand whether the company has a system for hiring the best of the best professionals, whether the staff is growing dynamically and whether a corporate spirit corresponds to the business’s mission.
3. Market and Competitors
Be careful and study in detail the industry, a specific niche, the size of the market, and the forecast of its development for the coming years.
Profitable investments are made in promising markets and trending areas only. No half measures if you want to be a successful investor!
4. Characteristics of the Current EquityZen Deal
The investor’s task is to buy a rare diamond at a favorable price at the right time.
So you should pay close attention to the information provided by EquityZen on all deals and companies. With some colleagues and co-investors, we keep our register of EquityZen deals to have the history of the secondary market in miniature.
5. Investments
The most understandable and logical way to determine a worthy company is to check whether TOP VCs have invested in it. You should always carefully consider the list of investors, considering which of them participated in the previous rounds and how many times.
Below, I provide a sample of processed information in the form of a graph containing the dynamics of the company’s valuation, fluctuations in stock prices, etc.
6. Traction
All investors want to deal with a business that actively performs and can generate income. The classic parameter here is traction. As venture industry leaders, you should consider the company’s income data for the last 2–3 years. At the same time, you should study important news and events within the company to better understand trends, drivers, and barriers to development.
7. Customer Rating
An essential criterion is user reviews of the company and its product. To form a picture of reviews, I recommend making reviews of specialized websites (mainly G2.com and analogues) and viewing the ratings in the AppStore/PlayMarket.
8. Exit Prospects
A liquidation event is a landmark moment for an investor for which an investment’s success (or failure) is determined and how much they managed to earn. All venture capitalists, without exception, calculate the exit.
When studying the deal, it is possible to talk about it only in terms of probability and calculate only the POTENTIAL profit.
To understand what the real exit prospects are, you (and most investors) should:
— watch the news and official statements of the company’s management;
— study the experience of C-level executives related to IPO/M&A;
— take a look at indirect signs: the appointment of a new CFO, recent investments from Pre-IPO funds, etc.
All that criteria should be considered together, in logical relationships, since they largely depend on each other and have a mutual influence.
Quotes from the best investors
When studying approaches of the best VCs to selecting companies, it’s helpful to go beyond information from their official websites.
Below you can find just some of the statements of famous and successful investors that made up a significant part of the eight criteria mentioned above.
Marc Andreessen
“Another thing that should be emphasized, which we think a lot about inside the company, is that we have this concept: ”invest in strength, not in the absence of weakness”
Ron Conway
“When you talk to me for the first minute, I think — is this person a leader?”
Peter Thiel
“The only word for vertical progress from 0 to 1 is technology. The rapid progress of information technology in recent decades has turned Silicon Valley into the capital of “technology” in general. But there is no reason why technology should be limited to computers. With the right understanding, any new and better way of doing business is technology”
These words make a strong impression, don’t they? It is a huge inspiration and the opportunity to begin creating your investment analysis according to the lessons from the best in their field.
Conclusion
When analyzing EquityZen deals, you should rely on the lessons of the best VCs. These lessons will allow you to find diamonds among the rocks with greater accuracy that are unworthy of either attention or resources.
In your analytics, try to use criteria that underlie the approaches of the best VC firms and private investors. Also, rely on your own experience and, of course, your flair :)
Never underestimate intuition (especially if fact backs it up)!
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Not saying goodbye :)
Have successful investments through EquityZen!
