[vc_row][vc_column][vc_column_text css=”.vc_custom_1522899603303{margin-bottom: 0px !important;}”]There is a direct correlation between an investor understanding the 5 basis principals of considering making an investment and an entrepreneur receiving the appropriate type and amount of funding to launch their startup. Therefore, for both funders and founders, focus on these 5 M’s in evaluating any successful entrepreneurial investment: (1) Management, (2) Momentum, (3) Model, (4) Motivation and (5) Market. As an active angel investor, I consider these 5 concepts on a regular basis when evaluating entrepreneurs for investments. These 5 M’s are also revisited by every angel group, syndication network, and angel conference in analyzing startups for investment.
(1) Management (the team)
The passion of the startup individual or team is contagious when it is genuinely communicated and embraced by all involved. Is the founder / founder team experienced enough to take this startup towards creating value inside the company (culture) as well as execute on product deliverable? Is the founder coachable? Do they have the right board of advisors (scientific, technical or industry board) who have validated the startup potential and gotten in back of the mission? How credible is the startup team? Do you trust them with effectively using your investment dollars well? How experienced are they in the industry they are going into? How experienced are they in creating startups? One huge consideration and one that really makes the “female founder – female funder” connection really thrive, is the personality match between the entrepreneur and investor. They will be spending many hours and years together, so that that connectivity is crucial for a successful return on investment. The tenacity/grit of startup founders has been a deciding factor in many investment decisions.
One of my portfolio companies, TAGit, founded by Ana Bermudez, is the prime example of this consideration. Ana is the quintessential, hard-working, focused, dedicated millennial latina female tech founder who will be successful in any venture she puts her mind too and it helps that TAGit is in a huge market solving a solution for many TV viewers.
(2) Momentum (traction)
The type of traction a startup can garner from their immediate startup ecosystem supporting their endeavors, advisors connecting them to great collaborators, and just a non-stop attitude is what investors want to see. Many entrepreneurs ask how do they show traction at early stages of launching their startup. Simple traction of presenting at conferences, meeting with angel investors (even over coffee), pitching at startup events, or customer interviews are great ways to show you are on the right track. However, the number one way that you can show traction is actually getting paid customers, the speed of early adoption by your target customers is crucial to your continued growth of happy customers.
A prime example of an entrepreneur who should such amazing traction that she was able to close a significant round of seed investments for her company. Her traction spanned from media hits, concrete strategic partners to scale her business, and beta testing sites that had measurable economic outcomes for her startup. I am proud to say that she is one of my portfolio female founders, Jennifer Saxton, founder of Tot Squad.
(3) Model (show me the money)
Model is as simple as the business model. The startup needs to be able to communicate the way it thinks it can make money, through BtoC, BtoB, franchising, licensing, etc. There are so many ways to build a business model, but those startups who are successful really understand the intricacies of their industry and innovate around how they can make sustaining revenues for the highest return of their stakeholders. A prime example of investing in a startup primarily because of the business model is one that understands how to create value and revenue at a very early stage to be able to fund the larger vision. This shows business acumen in the industry, value of the investors’ money and returns, and an astute business model innovation.
One of my super star portfolio investment female founder, Samantha Urban, CEO of Urban Translations, (all my portfolio female founders are rockstars, BTW) had a fantastic business model that allowed for a traditional software company model to be turned on its head so that revenue would be generated immediately. I valued that Samantha not only is a phenomenal technical expert and patent guru, she knew that innovating on the business model was equally as important as the technology, hence, investors have always been highly interested in the opportunity to financially support Samantha.
(4) Motivation (why now?)
For a product to penetrate a market, a certain market factor needs to drive a large component of the business model. The market driver might be that the technology is ripe enough in the industry to support a new way of delivering a certain product (Spotify) or that the customers are ripe for a new solution in the growing sharing economy (Airbnb). There is an urgency to capture the increased interest or leverage certain new technology to launch & receive funding for a new venture. Another consideration under “motivation” is the team-product fit. Why is this team best suited for producing this product and executing a flawless business model for optimal proof of concept validation (and actually having a startup survive)? If the product is so suited for the team as well as the market, does it have enough IP (Intellectual Property) protection to ensure long-term success?
An investment I made as a Pipeline Angel is such a great example of this category, MSDx, founded by Marie Wesselhoft. MSDx is a personalized medicine company developing blood testing products for brain diseases and is dedicated to providing the neurologists with critical data that can be useful in diagnosis, monitoring, and assessing therapeutics response. Personalized medicine is a HOT TOPIC right now and it is gaining more traction as the wave of the future for during diseases and managing chronic conditions. In addition, the product-team fit is extraordinarily perfect for sustaining growth and scientific discoveries.
(5) Market (are there enough customers to buy?)
There are two approaches to help define the market: Top down and Bottoms up. Top down takes a macro-economic view of how large the market is, competitors, and current market trends. Bottoms up takes the customer view of how many items will be sold to how many people while not taking too much notice on the larger drivers in the industry. The product-market fit is crucial in the successful launch of startup, connecting the passion-driven development of an impactful product with a market who is hungry for the solution. A typical VC would only look at Market of >>$500M, growth rate of >>10%, large pain point among customers (in numbers/size of customers and value to the end-user), and unique approach to solving pain.
My very first investment, Hera Therapeutics, which then was renamed to Antiva Biosciences, is now being led by a phenomenal female CEO, Gail Maderis. The company changed its name from Hera (after the Greek goddess, a reference to women’s health) to Antiva (to represent antiviral) to indicate it has broader antiviral potential. Antiva Biosciences, Inc. is a clinical stage biopharmaceutical company developing novel, topical therapeutics for the treatment of diseases caused by HPV infection. There’s about $4 billion spent annually on the diagnosis and treatment on HPV. This is a large market where the startup can make HUGE impact.
For entrepreneurs, being able to clearly articulate the unique the 5M’s to an investor will get to the next meeting, which is the only goal you should have when speaking with potential investors.
It’s a delicate dance founders and funders take in increasing trust between them through genuine conversations, breaking down market drivers and investigating how unique the product is for the customer who is in desperate need of a solution. Albeit if you are in tech, like Ana Bermudez or Samantha Urban, focusing on these 5 aspects will allow for you to easily articulate your value and startup plan.
A collaborative approach between female founders and female funders on not only giving and receiving funding, but supporting one another with strategic oversight is a significant reason that female-led startups are thriving! Connecting with the network of amazing female angels and VCs will also solidify that the female-led startup receives more follow-on funding for more startup progress. More communication between investor and founder allows for more rapid growth and more opportunities to leverage the network for better partnerships and, of course, more funding as needed.
Investing in startups is a high-risk proposition. These simple 5 M’s help demystify the most important aspects to consider and at least start the due diligence process with a business seeking funding.
This is modified and expanded (with examples) from a NAWMBA blog post submitted by Silvia Mah in response to an upcoming talk about entrepreneurship and funding at the annual NAWMBA conference on October 19-21, 2017 in Lombard, Illinois.[/vc_column_text][/vc_column][/vc_row]
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