Venture Capital And First Principles

Building companies from the scratch is never an easy task and at times having an idea or vision is never enough. Capital is a very important factor (No Caps). Venture capital has helped in making innovation easier by providing startups with funding with the intent to nurture it till it becomes so big an institution that a big corporation could buy it or the startup could grow to the extent where the public can buy into it.

While VCs have different terminologies that guide how they invest in startups or determine viable startups, this is like a not so technical review of how the theory of first principles affects investments in startups. The theory of first principle posits that in reasoning, we should examine issues from fundamental truths and build it up from the ground up as opposed to reasoning by analogy. First principles allow you to question every assumption you have about a given problem or scenarios and building your knowledge about it from scratch. So basically we’ll be looking at investment in startups from the viewpoint of a baby(only if possible).

So if you are an entrepreneur with the next big thing or a VC partner, here’s us reinforcing things you should look out for before you invest in that seemingly exciting venture.

Management

You have to know the quality of the person you’re entrusting with your money. Do they have a history of meeting goals? which teams have they led, where have they worked etc Investors should conduct exhaustive due diligence on the management of startups they intend to fund.

Examine their values and motivations behind the company they’re building, though these seem like vague metrics, you can actually feel someone’s motivation about something in their expression and enthusiasm about it.

Dynamism of Solution

This is probably the part where first principles come into play the most. You have to dispassionately look at the solution or business the company is trying to build. Question the most basic of truths about it, why would this algorithm work or why do you feel i would want to part with money for this product. And for the entrepreneur seeking investment look at your business from an external lens, scrutinize your product offering and its ability to win market share.

Market Share

One key critical success factor in startup investing is their ability to win market share and the momentum to keep the business as a going concern and scale up from there. Another key metric is to examine the financial performance of the company. Ensure you have proper documentation of the financial activities of the company.

A strong factor that you should watch out for is the capacity of the startup you’re investing in to take on their competition and as an aspiring entrepreneur, you should have a concise idea on how you want to take on the competition.

Impact

How is the solution devised by the startup affecting the quality of life of people? Can the impact be replicated? , these are crucial questions to ask when designing solutions and looking for viable investments.

In asking the proper questions, Also you need to prioritize the following qualities to evaluate a startup and startup also need to ensure the pics the following qualities:

• Talent
• Experience
• Passion
• Adaptability.

In recent times VC have started placing a high premium on inclusion and diversity in funding startups and encourage pitches from black-owned companies and racially suppressed ethnicities.

The essence of every startup is to proffer solution to people’s immediate needs. According to VC’s myth “they invest in good people with good ideas” it is important for all start-up to adapt the first principle model. Start-ups need to possess the following; talent, experience, passion and adaptability for VC to invest in their ideas. Also if you intend to be a VC partner, management, the dynamism of solution, market share, Impact, should be the key things to look out for before investing in the startup.