What I Look for When Investing

I’ve already talked about my detailed 10 years of experience building multiple hardware-related startups, why I love helping early-stage founders, what kind of investors to target, key factors that most investors consider before they invest, what they do when they are considering a startup for a potential investment, how much they typically invest in the early stages of a company, what they can help startups out with, and how you can create a hardware company that investors will ACTUALLY love.

Since 2013 I have invested in research teams, crowdfunding campaigns, startups, capital markets. This post discusses how I as an investor view startups.

Sectors

I usually seek startups that exist in the field of hardware. But this is not an equal split. My focus is usually Robotics > IoT/IIoT > 3D Printing > XR or wearable devices > other related fields.

I also have interests in other unrelated fields such as cleantech, medtech, fintech, eCommerce, Edtech, fashion/art, food, cosmetics, dating apps, etc, but only if I come across something exciting.

I’ve shared why I like to help startups early on, but hardware startups need a lot more support than your typical software ones, whether it is – expert guidance, helpful connections, operations, business development support, team building, reducing risks, creating better processes, prototyping, manufacturing that can scale up, or more.

A lot of investors believe that “Hardware is Hard”. I on the other hand know exactly how to help because of my experience, and make sure that the foundation for them to reach success is much greater and faster. When it comes to hardware I will want to see the current version and am capable of breaking it down to the smallest parts in its hardware components and code so be prepared to answer for every tech decision you have ever made.

By Stage

The really early stages are typically where I come in as an investor and my focus is specifically on the first round of funding.

Contact me, even if it’s just an idea right now, and I’ll share exactly what I need to see before investing.

Depending on the stage of the startup this is what most investors, and I personally too, look for.

Angel or Pre-Seed

Strong Lean Founding Team (Read more)

Vision and Innovation: Compelling long-term vision backed by innovative ideas. So founders need to have a deep understanding of the industry’s pain points and how their technology can address these challenges with proposed unique solutions to real-world problems.

Well-defined Problem for ideal customer profile with founder insights into the problem that exists (Unique Value Proposition). If an investor has more knowledge than you about your market then maybe you haven’t done your homework properly.

The team should be currently building, or testing the MVP, have validated the tech using a prototype, and hold possible Intellectual Property in the design, usage, or code. I want to see that the technology is not merely theoretical but has been put into practice and exhibits promising potential.

Are you at MVP yet? Quick way to find out:
Proof of Concept (PoC) exists to prove that the core technology you are trying to build IS ACTUALLY possible to make with current technology
Prototype is the version you show to people around you and maybe even early adopters or potential ideal customers who give you feedback on the things they like or would change about it. If you’ve done a Kickstarter or other crowdfunding campaign, you should realize that those may not be your actual target customers and merely early adopters so take A LOT of feedback from them to validate that a wider market exists for your product.
Minimum Viable Product (MVP) is built from the feedback you got with ONLY the features that the target customer ACTUALLY REALLY wants and you can now run a pilot on how it is performing with your actual customers and start to get more feedback on performance, usage, and other metrics.

Intellectual Property: Including patents, trademarks, and copyrights that provide a competitive edge, and/or prevent imitation.

Ethics: Prioritizing data privacy, security, and inclusivity, while being transparent about potential risks and safeguards.

Contact me, even if it’s just an idea right now, and I’ll share exactly what I need to see before investing.

Seed

This includes everything in the earlier stage along with:

Product-Market Fit (PMF) is the state achieved by a product or service when it perfectly meets the needs and demands of a specific target customer, leading to strong customer satisfaction, significant adoption, and sustainable growth.

If you’ve already reached PMF on your own without raising outside funding, then you are at the Seed stage, doesn’t matter if this is your 1st round of raising or not. If you have reached PMF you also likely have the following.

Scalability and Market Potential: A clear plan on how the technology can scale to meet market demands and reach a broad customer base. Understanding the target market, identifying potential competitors, and having a compelling go-to-market strategy are essential elements.

Experienced and Committed Team: Besides experienced and dedicated founders with technical expertise and business acumen, you should also have a well-rounded team that works well together to get products into the hands of customers, can adapt to challenges, and executes the business plan effectively.

Traction and Milestones: Progress made in terms of user adoption, revenue growth, or successful partnerships which validates the startup’s value proposition and reduces risks. It doesn’t matter how small you think the impact is, as long as things are moving forward every month.

Data Room: A well-thought-out Data Room including your product demo, pitch slides, and impact of your product on customers’ money/ time/ resources shown in numbers and percentages if available.

Solid Financials and Capital Efficiency: Financial health of the startup is important after this stage which shows that everything you have built (product + team + business plan) is actually working and solving the problem for the customer and there is a real market for your product. Being profitable with a healthy gross profit margin is important, or at the very least having a clear path to profitability within the next year.

You should have minimized all possible costs in your business by reducing any and all inefficiencies in your processes, and logistics before you raise Series-A.