For an angel investor, especially a serial one, it is not always easy to understand all the nuances of a project except when the project centers on his/her core competencies. However, even in this concatenation of circumstances, it is necessary to be greatly aware of all current trends, adjacent markets, hidden and evident competitors and other important things
Any wrong evaluation can lead to a need to “re-invent the wheel”, or to underestimate the necessary resources
How can we correctly evaluate technological prospects, implementation opportunities and corresponding project risks? Let’s take a closer look:
The project, which is offered to the angel investors for investment, can position itself as a unique and highly competitive start-up. However, this competitor-analysis may turn out to be incomplete by mistake – or even by intention. The competitive advantages indicated by the entrepreneur may not contain any real benefit to the end user. The angel needs to be knowledgeable of the project area of expertise and have a general insight of its industry; the angel also needs to consider timing, patents and other limitations. An incorrect approach to the evaluation can lead to a technological non-realization of the project, unnecessary extended deadlines for entering the market or for making an exit, financial problems, patent disputes or the unsuitability of the technology itself.
Unsuccessful project example: A service for teaching students (elective course).
It has a unique methodology and great user reviews. One would think that its attractiveness is practically assured, but during the course of the detailed analysis, it turns out that the vending of licenses to schools can hardly pay for itself because there are many legislative restrictions presented, and, all in all, this process can prove to be barely cost-effective. Thus, even when the project becomes profitable, it is still extremely difficult to scale.
Successful project example: A service that can find a professional for swift legal assistance.
The service has a small user base, but also a sufficient number of professionals that provide their services, and a stable demand from the market. The project is at the point of break-even; its positive economic situation shows that investing in the expansion of the client base can allow scaling a profitable project.
How to choose a good project for investment?
It is important to understand the basics. If you are not experienced investor or not experienced in tech and startups investments, you should consult with an expert or invest together with other Angel investors or professional body.
The writer is Igor Ryabenky, Managing Partner of AltaIR Capital
AltaIR Capital has founded AltaClub a co-investment platform designed to allow any accredited investor to search through carefully selected startup ventures invested in by AltaIR.