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Who do you consider as the right investor for your business?

Angel Investors (Individuals)

Strategic Investors (Corporate Ventures)

Institutional Investors (Investment Banks, VC Firms)


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Table of Contents
1. Foreword
2. The Venture - A Profit Machine
3. Assessment Elements
3.1 Market Opportunity
3.2 Product/Solution
3.3 Execution Plan
3.4 Financial Engine
3.5 Human Capital
3.6 Potential Return
3.7 Margin of Safety
4. Mathematical Model
5. Score, Confidence & Weight Criteria
6. Disclaimer
7. Acknowledgements
8. Author
9. Copyright
10. References


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3.  Assessment Elements









- 3.1  Market Opportunity - Is there a real opportunity?

"I like opportunities that are addressing markets so big that even the management team can't get in its way." ~Don Valentine from Sequoia Capital

Many businesses fail, not because the entrepreneurs didn’t work hard, but instead because there was no real opportunity to begin with. There are many different definitions of what a market opportunity is, but generally speaking a market opportunity is need or want that is not being met by the current competition in the marketplace. A business cannot simply add features a customer does not need, or solve problems that were not problems to target customers.

A market opportunity has to be large enough and exist for a long enough period to be attractive. For a true market opportunity, the opportunity must continue in a sustainable way to allow for profit and continued success of the investment.

Not every market opportunity needs to be in a market where there is no competition. When Google entered the search market in 1998, there was already a dominant search engine, Yahoo, as well as other competitors. Google’s market opportunity was instead making a search engine that greatly improved results over the competitors and allowed more people to turn to a search engine to find what they needed on the web.

The market opportunity a business plans will take advantage of must be analyzed to determine if it is real and substantial. The following sections assess the viability of a market opportunity.

3.1.1. Vivid Pain or Desire

Unless there is a clear description of problem on hand, the company will easily become distracted from their mission. If this occurs team members will start working as individuals and on different aspect of the problem. A clear problem description will keep team members focused on the goals of the company. Also if the pain is not understood, customers will not understand the value an entrepreneur is adding with their solution. Also, as business has to be able to clearly articulate the problem to customers so the customers understand why they should invest in the product or service offered.

Companies that do not focus their efforts on the pain or desire faced by a company can often run into problems. Many startups founded by engineers fall into a “creeping elegance” trap. They keep developing increasingly better features, without first selling the more-than-adequate initial products. That can easily push small technology companies into bankruptcy, as all their money is spent on tweaking the product, rather than selling it.

It is important to know:
How big is the pain/cost of not having a solution?
Those who have the problem, are they aware that they have the problem?
Will those who have the problem accept a solution?

3.1.2. Lack of Suitable Solution

Other solutions in the marketplace must be investigated in order to both evaluate the size of the market opportunity, as well as to understand the strengths and weaknesses of the competition which customers will ultimately compare to a business’s solution. The value of a solution can also only be measured by comparing it to its potential substitutes and their degree of fitness. No matter how far the current solutions are from being a remedy, they will all be considered as reference points and competition in the customers’ view.

It is important to know:
How is the problem being solved today? (Maybe using one or a multiple of already existing solutions)
If many, are those new or mature solutions?
What are the differentiators?

3.1.3. Clear Target Market

There has to be a clear description of target customer and users. It is important to differentiate between the customers who pay for a service and the users who use a service. While they often are the same, in some cases they are different. A clear example is Google, who has users that use their google search engine, but customers who pay for the adds which appear from their searches.

The customer and user have to be understood so that their needs, wants, and problems are understood. Also, it is important for a business to understand a customer and user’s views. Same product can have different tangible and perceived value for different markets.

Even if a product/solution would fit the needs of multiple market segments, it is not practical for a startup to try capturing all those market segments right away because they do not have the resources to do so. Clear targeting helps in better planning and more accurate projections.

It is important to know:
Is there a clear definition and well-defined profile of the target user and customer in place?
Who pays for it? Who uses it?

3.1.4. Demand Validation

There should be a clear distinction between what potential customers want and what the founders (or engineers) “think” the customers should have. Regardless of how good an opportunity seems, until there is a validation, everything is based on an entrepreneurs assumptions. While common sense may qualify an idea as an opportunity, market conditions may reject it for various reasons.

Market research is crucial for evaluating opportunities. For evolutionary products, if research data exist the market might already be too mature for startups to enter. For revolutionary products however, there is no market data, as the market does not yet exist. The most reliable way of conducting market research is by living and breathing the market itself – by interacting with customers and other market participants.

It is important to know:
Is there a validation that a market demand exists?

3.1.5. Sustainability

Startups are betting on market stability or a positive trend. Unless the trend lasts long enough for the startup to profit from, there is no point of going after it. This is another aspect of market research. A business must determine that their customers will stay with the company and be customers into the future. Also, a business must evaluate if the economy is fit to keep paying customers willing to buy their products and solutions.

It is important to know:
Is the target market stable or growing?
When and why is the market window open?

3.1.6. Market Timing

Market timing is everything. A great product is worthless if the market is not ready to buy it or if the market has become saturated. It is crucial to be ready when the customer is ready.

Once the market for a new product is established, its window of opportunity opens, and new entrants flow in. At some point, the market matures, and the window of opportunity for new entrants closes.

There are specific challenges for being the first in a new market or last in a mature market. The Company has to be aware and prepared for the challenges. If an entrepreneur is entering a new market, they have to be prepared to convince customers or users the product or service is needed, worth the money, and worth the time to use. If an entrepreneur is entering a mature market, they have to be able to convince customers they have something new and innovative such that it is worth it for customers or users to switch.

It is important to know:
Are the target customers ‘ready’ to buy without any aggressive demand creation requirement?

3.1.7. Mission and Vision

Startups are formed when people come together and choose to invest for greater return. There is time, money, brainpower or reputations that is invested.

In startups every single contributor counts and if aligned "the whole is going to be greater than the sum of individuals".

Regardless of good intention lack of direction may neutralize othersí efforts. Imagine people in a boat paddling in opposite directions!

Every company has to be set with a clear and resonating mission, following a vision. It has to be understood, agreed and followed by all involvees. A clear mission statement also includes a clear idea of what the startup will NOT do.

It is important to know:
Is there a clear vision and mission statement in place that targets the opportunity?