As a startup investor, you need to understand that the investments you make are highly risky and illiquid for 5-10 years on average. With big risk, however, comes the potential for incredible returns. To give you an idea of what’s possible, if you would have invested $1,000 in Facebook in 2005, it would approximately be worth $624,500 today, which is a 62,450% return on investment (ROI). Or imagine you invested $1,000 into Airbnb in 2009, which today would be worth $589,667- not a bad ROI. Granted, only approximately 15 companies per year reach that success level out of hundreds of thousands, but there are still smaller scale successes that result from acquisitions.
Charles Rotblut, CFA, Wall Street Journal expert panelist, and VP & Editor for the American Association of Individual Investors, recommends that 5-10% of your total investment portfolio be allocated in high risk assets, such as buying equity in early stage companies. But now the question is, where should you look for deal flow? Unless your name is Peter Thiel or Dave McClure, high quality investment opportunities are not likely knocking on your door, though now, there are a few equity crowdfunding platforms for startups that are very useful for sourcing deals. In addition, here is a compiled list of 6 useful digital tools that will help you in the due diligence process:
Crunchbase is a great source of information to use while researching a particular company. The platform is operated by the popular tech blog, TechCrunch. Via this platform, one can track all the important information from a startup, such as team members, core information of the business, names of prior investors, video tutorials, etc. The only problem with Crunchbase is that the information is not always accurate since anyone can go on Crunchbase and modify the content. Regardless, it is a useful tool to provide background information on the prospective company you are looking to invest in. Plus, Crunchbase is free.
If you are looking for something more advanced then you might want to look at VentureDeal, which offers a great product at $25 per month. What I like about VentureDeal is that in addition to information on a respective business, which is usually pretty accurate, it also provides you with the emails of the core individuals, simplifying the process in the event you want to connect.
Zendesk is a customer support tool. As seen in this post on Quora, some angel investors use it to treat startup investment requests as tickets. Via Zendesk, you have the option to set follow ups in order to track the progress of the startup over the course of time. As explained in the post from Quora, this investor normally gives himself 3 to 6 months before pulling the trigger to invest in a particular startup.
With Alexa, you will be able to see what type of traffic the platform is receiving. Especially if the startup’s primary business is online, it might be a useful data point to know. Alexa offers important information such as from where the site is receiving traffic, the user profile visiting the site, and the other websites that are referring users (or linking in). A good alternative to Alexa could be Compete.
You might be surprised to see this micro-blogging tool cited here, but the power of Twitter is incredible. By typing the name of the company on the search bar you will have the opportunity to obtain a front row ticket to the level of engagement that customers have with the company. It is also a fantastic tool to track the news and press articles that have been published about that particular startup.
This professional networking site is a wonderful tool to verify the background of the founding team. With Linkedin, for the most part, you can gain access to individuals associated with the company and dive into their background. Another way to gain value from Linkedin is finding individuals who are mutual connections with the founding team members. This allows one to get references and obtain a better understanding of the founding teams’ character traits, which is a key factor early on.
This platform brings all the elements of a business transaction together and provides all the necessary tools for managing and closing a transaction. CapLinked provides the opportunity to invite others into the process, and offers control accesses where you can view all the paper work. The company states on their website that their goal is to streamline the process of the transaction, and offers deal rooms where both sides of the transaction are able to share information. CapLinked is a paid service where the price varies based on the profile of the customer.
All that being said, CapLinked is most useful for bigger acquisition deals. If you are looking at pre-revenue startups still in the seed stage, this platform may not be the best fit.
RockThePost is an online investment platform that connects accredited investors with startup companies. The company was founded in 2010 and since then it has helped in raising millions of dollars for startups.
Mattermark is a tool that helps to quantify the growth of privately owned companies for investors. The company has a newsletter that showcases the hottest deals in the private market. The goal of Mattermark is to help investors in making informed decisions.
by Alejandro Cremades http://www.alleywatch.com/author/alejandro-cremades/