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3 Most Important Criteria for Technology Startup Investment

According to literature, you will find many different stages for a technology startup company; however, only 3 of them are distinctive: (a) explore/validate (pre-seed and seed), (b) build/launch (series A), and (c) growth/maturity (post series-A). Pains and gains are completely different in these stages. This is the first part of a trilogy on technology startup investment mostly in the explore/validate stage.

The analysis framework explained in this article can be used by startup founders and investors. If you are a startup founder, you can evaluate your ideas before spending much time and efforts using this framework. If you are an investor, you can use this framework to distinguish between companies with high potentials and those with high risk to invest. Let’s jump into the water. 

According to this framework, 3 main aspects of an idea 

  • need significance,
  • market attractiveness, and
  • execution challenge

must be assessed using standard metrics. Each of the above factors also has 3 sub-factors that will help break it down into more measurable scores. If an idea shows a high score in the need, the market attractiveness must be considered otherwise there is no point of going to the next step.  And, so on.

Do users really need that?

The first criteria are to measure the significance of current or future “need” for the potential service. A need may currently exist as pain to be removed or gain to be achieved. Or, sometimes a need doesn’t currently exist and will be step-by-step created by the vision of founders.

Is the market attractive?

The next step is to measure the attractiveness of the market. The attractiveness score can be measured based on 3 major factors: (a) market size, (b) monetization time, and (c) market trend. The best product without a reasonable market size is worth nothing. If the monetization time is long, a small company will find lots of challenges to finance the project. In the end, you can’t fight the market. If the market goes in direction A, even a great product will have a hard time to show its value prop.

If you end up having high scores in the need and market sections, don’t get excited yet! An important step still remains.

What about execution challenges?

This step also has 3 major factors: (a) technology, (b) team, and (c) value proposition. The underlying technology must be well developed before the industry starts spending money on it. If the technology is still in its infant stage, it couldn’t be used in the industry. A successful product always has a AAA star team behind, so if there is no great team thinks twice.  In the end, the proposed product must have a very clear and strong value proposition. If it is not clear, something is wrong!