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What an investor looks for in a start-up

By Keet van Zyl Time of article published Mar 12, 2020

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Budding entrepreneurs are seldom short on innovative ideas; the biggest challenge is usually to attract funding to enhance execution capabilities, which is where venture capital (VC) companies come in.

A form of private equity financing, VC firms fill the gap that many traditional financiers have been unable or unwilling to fund.

Although VC firms are looking for innovative ideas, and are often inclined to take a calculated risk on ones where many others would not, those ideas are not necessarily the most important factor in the mix.

Knife Capital’s Grindstone Accelerator is a structured entrepreneurship development programme that seeks out and assists high-growth innovation-driven start-ups to get the fundamentals in place so these companies can quickly become sustainable and/or fundable.

The first step is to work with committed human beings - it is all about the team. After that, we assess whether we recognise scalability in the start up.

Does it have what it takes to become a high-growth, sustainable business in the first place?

An important criteria for this is how big the addressable market would be that the start-up is looking to serve, both today and in the future. In other words, what is its potential? Does it have the ability to penetrate this market?

The other is whether or not a start-up can prove that it has a great product or service. Presenting strong data and showing that your product solves a real problem in the market. Show that your idea really does have commercial traction. How will you be different to any other competitors out there? Is there a great product/market fit?

Undertaking research is also crucial when it comes to ensuring that the VC being approached is a fit for the start up. Interrogate whether the VC has engaged with similar ventures in the past and that the idea being proposed fits its investment profile.

This is essential, as it can lead to one of the final things we look for: that moment when there is a “click” between start-up and investor; an acknowledgement that we share common ground and experiences.

Initiatives that have come out of Knife Capital’s Grindstone Accelerator programme have included multi-award-winning companies, such as augmented reality animation and gaming company Sea Monster, computer vision and radar start-up iKubu, which was acquired by Garmin, and transport data company WhereIsMyTransport, which recently raised $7.5m.

Another company that received Grindstone’s stamp of approval was online ticketing solutions provider Quicket, which ticked all the boxes for investment: a large addressable target market, a seamless ticketing product, and an experienced team that have proved their execution capabilities.

Keet van Zyl is the co-founder of Cape Town-based VC firm Knife Capital.

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