Moneyball for Startups
More and more, investors are using the “Moneyball” model — an evidence-based, algorithmic approach — to make investments. The idea is that they can use analytics and success metrics to predict the future, and as a result, make better investment considerations. So far, it seems like it’s working.
Assuming you don’t already have close relationships with investors, which will ultimately foster the strongest engagement and investment opportunities, applying this moneyball approach can work for you as well.
The tools investors use to assess startups can be turned around on them, providing you with just as robust of an understanding on who will lead you to success. In fact, Mattermark recently released a new investor profile function to provide insight into investing patterns and portfolio companies.
But even without tools, you can still evaluate your best bets.
First, You Have to Understand That Your Probability of Investment Is Low
The entrepreneurial ecosystem is crowded, and opportunities for funding are extremely competitive.
Whether you’re looking for an angel, angel group, or VC, the odds are not in your favor. And simply choosing to focus on the less competitive angel investor isn’t necessarily going to breed better results. Once you accept that this is a going to be a hard slog, you can focus on improving your potential positive outcomes.
It All Comes Down to Choosing the Right Investor
Finding the right investor is critical. Do your homework and start assessing investors before you even ask for an introduction. Use their websites, their portfolio companies, and your own analytics tools like Mattermark and Crunchbase to evaluate these three factors: stage, industry, and location.
Stage
Does the stage of your business align with the investor’s profile? Many investors focus on investing in companies that are at a certain “stage.” That might include maturity of the product (prototype versus full deployment),number of customers (2 pilot customers versus 100 customers with annual contracts), and revenue ($25K of annual revenue versus $1M of annual revenue). Typically, the stage of the business is referred to as Seed, Series A, Series B, etc. We have reviewed investment stages before which can be seen in this blog post. Unless you have a previous connection to an investor and know they’d make an exception for you, stick to investors who invest in your stage.
Industry
Is your business in an industry that is aligned with the investor’s profile? Investors may focus on investing in B2B SaaS, but not consumer products or biotechnology. Again, unless you know something the data can’t show, pick investors accordingly.
Location
Is your business HQ in a location that is aligned with the investor’s profile? Some investors like Hyde Park Angels are typically focused on investing in a particular region of the country, usually the region where they are located.
When you evaluate those three factors, remember, if they don’t align with your business, your chances of investment drop. Let’s think about that from a mathematical perspective. Assume every time your startup matches the criteria, you get 1 point and every time it doesn’t, you get 0 points.
Per the above example, you’d want to keep researching “Angel 2” and “Angel Group 1” and take steps toward engagement. There are obviously other factors that you can assess to determine the likelihood of an investment and add to the table above, but stage, industry, and location provide a strong jumping off point for making smarter decisions about how you use your time.
Ultimately, as an entrepreneur, your focus should always be on building your business. By taking a strategic approach, you’ll increase your chances of finding a good match and limit the time you spend away from your startup.
This post is part of the Hyde Park Angels Entrepreneurial Education Series, which brings together successful, influential entrepreneurs and investors to teach entrepreneurs everything they need to know about early-stage investment through events, articles, videos, and more. If you are interested in learning more about similar topics, save the date for “Connecting Corporations and Startups” on September 24.
Photo via FXR, “Baseball”