What to consider when investing in an idea?

    We publish a note by Nick Brisbourne, Managing Partner at Forward Partners, a serial investor and an expert in the field of venture investment, on what to consider when investing in a project at the idea stage, taking into account the risks of investing in the early stages.


    Our readers know that Forward Partners invests in companies at the stage of the idea, when there is nothing but an entrepreneur and his business plan. I am often asked how you can learn to do this and get huge returns, given the risks of investing at this stage.

    The answer to this question is ambiguous, not the last role, of course, is played by the product itself and the presence of an experienced team to turn entrepreneurial ideas into successful companies, but today I would like to talk about how we evaluate the idea from the point of view of the possibility of turning it into a business and making a profit.

    The following is a list of criteria from a post by my colleague Matt Bradley on the Forward Partners blog .

    1. There is a great idea - usually an interesting option for using something, or an interesting solution to a complex problem, confirmed by some objective research.
    2. There is a deep understanding of the market — consumer behavior and motivation, supply channels, pricing, and market entry.
    3. The competitive environment is very favorable - competitors are properly studied and their spheres of influence are clear (pay attention to the phrase “properly”)
    4. The main indicators are unshakable - forecasts of profit, cost of attracting one client, value of the client for the entire time of cooperation with company.
    5. There is reason for a long-term competitive advantage - there are no barriers to entry into the market, at least large-scale ones.
    6. Have the necessary skills - the founder is suitable for his role.
    7. There is a solid plan for the first year.

    We did not immediately appreciate the importance of the last point. Venture capital is most effective with rapid project implementation and rapid progress. All the founders of the companies go through the research phase, which in most cases is, as I call it, a period of aimless wandering - new ideas are being studied, information is being collected, contacts are being established, but in fact there is no definite progress. Then (if, of course, it gets lucky) the stars converge, a clear idea and plan appears. It is at this moment that it is worth investing in a company and helping it accelerate its development. Of course, we will help the founders to reach this stage, but investing in a company without a clear idea that can turn into a plan is very risky, since there is still no understanding how to turn a theoretical vision into a business,



    Nick Brisbourne is a managing partner at Forward Partners and has been working in the field of venture capital for 13 years. Prior to joining Forward Partners, he was a partner in the leading venture capital firm DFJ Esprit. Nick worked and invested in London and Silicon Valley, led investments in more than 25 projects, and several times quite successfully left the investment project, including buy.at (purchased by AOL for $ 125 million) and Zeus Technology (purchased by Riverbed for $ 140 million) . Nick's articles can be found here at AlwaysOn or his blog The Equity Kicker .

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