Whether you are an angel investing directly startups, a VC, a leader of a syndicate, etc, you will have to have the following five in place before the investment transaction. Of course, they often happen in parallel, but these are the five main components, or rather the five steps to a startup investment:
1. Sourcing/scouting
Establish a way to get access to a substantial deal flow of startups that would accept your investment.
2. Screening
Use a practical method or philosophy to screen and narrow down the deal flow, based on metrics and facts, as well as on your own interests and strengths.
3. Inspection
Go deeper into your investigation of the startups that pass your screening. Learn whatever you can about the startup, talk to the founders, and if possible with existing investors, customers, and other stakeholders, and reach a preliminary decision.
4. Negotiation
Even if the setup is such that the valuation is fixed or predetermined, you need to negotiate and agree on how the relationship will look going forward, your level of involvement, reporting, etc.
5. Review and Due Diligence
Make sure everything you learned and was told about the startups is true. Use external providers for a legal and financial inspection of the startup.
CFG’s Two and a Half
CFG‘s 2.5 are the first two steps to a startup investment, and half of step 3. What does that mean? We at CFG present our site visitors and investors with a deal flow of investment opportunities in selected startups from around the world, that accept investment in real-time and are willing to present their offering (fully or partially) online (step 1). We highlight the key metrics and our own screening criteria, the Five Startup Strength Indicators (step 2). We also help investors go deeper (step 3), by directing them to the sources of information, and, more importantly, giving them access to the investment, often even connecting them directly to the startup’s founders. Then it is up to the investor to complete the next steps to a startup investment, stages 3, 4, and 5.
And then come steps 6 (transaction) and 7 (ongoing relationship, follow up).
