How do you screen for investment opportunities?

Defining an investment thesis is a pivotal step for venture capitalists in the startup screening process. This thesis serves as a strategic focus, aligning investments with the mission of the investor, thereby fostering efficiency and productivity. It acts as a clear indicator of the investor's goals and ensures alignment with the corresponding ecosystem, facilitating mutual growth and success. In essence, a well-articulated investment thesis streamlines the investment process, saving time, and yielding more fruitful engagements. It will results in productive work from both sides as goals are aligned.

Especially important otherwise most opportunities will appear exciting when most opportunities should be a pass. Some places to start — what’s your or your team’s unique skillset where you can add strategic value to the start up. Anyone can put in the dollars.

Building a strong relationship with founders and earning their trust is crucial for securing the opportunity to participate in the round. Great startups always have a competitive round, so building and nurturing a network of founders, advisors, and other investors is crucial. This is done through social selling, attending events, public relations, and word-of-mouth. Investors known for opening doors and helping move the needle will always be presented with great deals. So, being honest, adding value, and saying no to deals where you can't add value builds up your investor reputation long-term. Diversify your deal flow channels to increase your chances of discovering hidden gems and avoiding missing out on great opportunities.

It’s about building relationships. This comes from a deep passion for the area you are focused on. Them truly work is not work. You’ll naturally be connecting with people and your energy will be infectious. How many meetings have you been to where you see an arrogant VC investor, a know it all, or one lacking any skills to get to know you better. By being passionate and humble, start seeing how your network expands.

The top VCs see a huge number of deals, 200, 500, or 1000 per year. It can be overwhelming. There are so many good founders and companies. One piece of advice I hear from a managing director at a tier-1 fund is to have a checklist of what you are looking for or what would exclude a company for you. If the company does not fit your criteria ... you might want to keep the founder in mind for your network, but you are done with due diligence as soon as you know this. Giving a quick response like this is respectful of both your and the founder's time.

Having evaluated over 20,000 deal opportunities in my VC career, I became 200% more efficient at managing a pipeline of thousands of deals by operating from a checklist derived from my thesis, investment criteria, and fund strategy. The top-of-the-funnel deals must pass the funds deal-breaker questions. These questions quickly weed out many non-fits and allow me to focus on deep due diligence for the remaining companies.

I like to see traction in whatever the business is in. For example if a consumer product, what’s the trend for this business and industry. Is there an opportunity for disruption. I was a student of Clay Christensen at Harvard Business School. The biggest aha studying under him was a disruptor does not have to have an amazing product. Does it solve a need? Look at Kia. It was a terrible car in the 1990s. They offered an okay affordable car. Then they kept improving. Now look at them.

One interesting strategy for due diligence, on a company where you are uncertain, is to have a couple of the CEOs in your network meet with the founder. Those CEOs will likely have a different perspective than you. And their thoughts are likely to be complementary to yours. As long as you do not overwhelm them with requests, the CEOs will appreciate your respect for their thoughts.

Often you won’t have much on the company (and likely the start up may change direction) So here are a few ways I like to diligence. I’m investing in the founder. What’s her vision? What are her values? What has she done before? Everyone will be chasing the serial entrepreneur. You stand to make the biggest multiple on someone who’s had a few a failures. But how did they reinvent?

As an institutional investor, I run a 160+ step deal flow and due diligence process. To determine investment readiness, every deal must pass a 120-point yes/no questionnaire. If I can confidently answer each question about the company, I know I've performed adequate due diligence and can make an informed investment decision. I created a repeatable, scalable, and proven deal flow management and due diligence process that has allowed firms I work with to more than double their deal flow and increase their win rate due to efficiency and quality of due diligence with a customer-centric, founder-focused approach.

Seeking other points of view is important. This is for two reasons. One is bias and the other blindspots. First is a tendency to fall in love with our ideas. Second is having the humility to acknowledge everyone has blind spots. When you seek opinions from your partners your view expands. You can either see something you hadn’t or you’ve just been offered an alternative point of view and you can stay the course after carefully considering it.