There are many reasons why investing in an early-stage venture is so rewarding for us. First, we become part of a startup’s journey and get a chance to build an ally for years to come. Moreover, we are actively involved during pivotal moments of our investment, such as fundraising strategy, positioning, network and community. Most importantly, even though we’re often investing the standard amount at an early stage, we know there is excellent potential for substantial financial return if the startup multiplies its value later on.
However, at the pre-seed stage there is only limited data available to assess whether a startup could hit the jackpot. There are many things we look for during the initial engagement process that help us predict a startup’s trajectory. A couple of factors in particular help us to strengthen our portfolio, and ensure that our energy and capital are used wisely.
Based on our own experience, we’ve collected a checklist to guide early-stage startups through the initial engagement process with Newtopia.
Identifying a Winning Pitch Deck
The pitch deck is one of the most important decision-making criteria for Newtopia. It’s not for nothing that people often talk about how the best unicorns were the ones who delivered the most convincing ‘elevator pitches.’ But what is it that’s supposed to convince us here? How do we differentiate between great ideas and those with real potential?
- 5 minute pitch. The short timeframe forces the founder to focus on the most convincing arguments.
- Leave enough time for questions and answers – this is often the most insightful part of the call, where we get to learn more about you. And you get to learn more about us too!
- Stories are crucial to convincing investors, customers, stakeholders, and the media. Pay special attention to how you develop an exciting narrative and present surprising facts.
- The raison d’être of any product or solution is the problem. A problem (and its solution) must be backed up with facts and/or relevant statistics.
- Don’t present unrealistic funding round targets. This can indicate that a founder may have overvalued their startup or conducted poor market research.
- Every good pitch acknowledges the competitive landscape. The pitch deck must answer how the solution differentiates itself from the competition and how it can gain a market foothold. Be sure to include the most relevant variables (these should not be pricing or user experience).
Using 1:1 Meetings to Check a Founder’s Personality
During the initial interview, we often ask questions about the business model, budgeting, funding and economics of the company. We believe that this is also the best opportunity to assess the founder’s personality. To uncover their soft skills, we pay attention to:
- What pushed a founder to create their startup? Startup stories often shed light on the founders’ ambitions, ability to reflect, and risk-benefit attitude.
- We test founders’ ambition but also their understanding of limitations. We ask them to outline their vision for the next 6-12 months and 2-5 years. The more fact-based arguments they bring in, the better.
- We look to determine why we should invest now rather than at a later stage. We know the value we can provide them, but do they?
- The meeting should feel like a balanced conversation. We ask that our founders describe each other in the call so we can understand the team dynamic. We are wary of founders who only focus on themselves as it may prove difficult for them to build a team, lead, and employ more experienced specialists.
- We often ask a difficult question. Founders must be able to have uncomfortable conversations about finance, ownership, and legal affairs early on. It shows you can withstand the pressures of growing a startup and working with partners.
- An openness to receiving feedback about the pitch finally demonstrates that a founder is willing to learn and take our advice.
Remember, we are looking for exceptional founders with in-depth insight into a market poised for growth. A driven, passionate and tenacious personality demonstrates that the founder will execute on their promises.
Important Post-Call Decisions
We’ve read the pitch deck and unpacked the founder’s personality in our first meeting. What’s next?
We don’t commit to an investment decision right away.We take our time to talk with the rest of the team or follow-up with requests for information if needed. A couple of things to remember:
- We don’t keep startups guessing. We are respectful of their time, understanding how difficult the fundraising process can be for founders. We are also very aware that fundraising can be a distraction from their innovation and product development.
- We usually keep the decision-making process to one month, and a maximum of four meetings at the pre-seed stage.
As you can see, testing a startup does require proper due diligence. By taking these steps, we hope to find the most trustworthy, ambitious and driven founders. We’re here to help drive smart funding decisions in markets with massive potential.
Learn more about how VC funds work and Newtopia’s investment process here.