What data should you prioritize when making investment decisions?

At The Proptech Connection, we sit in the middle of the Proptech ecosystem, and our role is to act as the bridge between all participants. With offices across 5 different continents, we have a unique lens into macro trends, how trends are impacting portfolios, how companies are pivoting to meet these new trends, the technology offerings that are aiming to help with these changes, and the leading tech companies meeting these needs. We have developed our own taxonomy and data dictionaries to distil our global database and the world of Proptech. We built our own digital technology with our own data mapping of the entire proptech ecosystem, giving over 10 million+ data points. This gives us a unique view of global market trends and the future.

To be honest, market size is more often than not a useless metric for early-stage startups. It is easy to find a number that fits perfectly into the story of a startup's future success. E.g. "The global B2B Fintech market will be at €200b in 2025". This metric does not really tell VCs anything. Rather, explains how your solution will solve the problems in a specific segment of the market and then explain how you can scale as a result of that.

Among Bankers a sentence travels that says: Market doesn’t lie. The same goes for VC, I am Never a big fan of these Market Potential of billions on the presentations, before proven at least a fractional success through any MRR.

Frankly, I do not believe that data related to market sizes are helpful tools for assessing the potential of an early stage startup on a disruptive journey. I completely agree with Adina Krausz. Such data require sound judgement. But it is virtually impossible for humans (and AIs) to pass sound judgements (which are always based on historic data) when markets are nascent. What startups need in such situations is powerful market makers that help them pave the way. Take AR/VR/MR: The tech was hyped since the early 2000. Many a startup ventured into this direction, yet, despite all the hype, hardly any b2c player succeeded. It took a META to pave the way. META did not look for PMF, it simply produces it with its cash, because it needs it.

It varies by the stage/domain of the startup: At seed stage: Team: The experience, skills, and track record of the founders and key team members. Market Opportunity: The size of the market, the potential for growth, and the company's ability to capture a significant market share are crucial. Customer Validation: Early signs that customers want the product, which could be in the form of letters of intent, pre-orders, or active user engagement metrics for a product in beta. 2. Series A: Growth Metrics: User acquisition rates, month-over-month growth, and customer retention rates. Burn Rate: How quickly a company is spending its capital before generating a profit.

Any investment I make must have the potential to repay the entire fund. If you are looking for safe deals, there are other options than VC. Only by taking big enough risks are you able to achieve extraordinary returns. Look for ambitious founders who want to change the world. Operate in markets that have the potential to grow for decades, not just years. Don't invest in declining technologies. Their time is running out, and even the best idea will stay the same. Consider what will happen in the best-case scenario founders may have and help them get there. Play for the win, not just to not lose.

Additional metrics have gained prominence in evaluating startups. For example, the Net Promoter Score (NPS) measures customer loyalty, while churn cohort analysis identifies segments with high churn rates, and the Customer Acquisition Payback Period (CAPP) gauges cost recovery speed. Financially, Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) matter for subscription startups, reflecting income and scalability. Customer Lifetime Margin (CLM) assesses profitability from customer retention. Monitoring product usage metrics like Daily Active Users (DAU), Monthly Active Users (MAU), and feature adoption rates offers insights into product effectiveness and growth potential.

I've learned that startup metrics like revenue and user base are just the tip of the iceberg. What really counts is the story behind these numbers. For instance, churn and acquisition costs reveal more than figures; they show the startup's potential for sustainability. I usually compare these metrics with industry benchmarks to understand the startup's standing and future potential, for a richer, more nuanced perspective on each investment.

Depending on the stage we invest in, the traction and metrics can be very different. Very-early stage deals (e.g., Pre-Seed) are chronologically difficult to assess with traditional traction metrics. We look at the first signs of customer adoption and the feedback our founders received from POC users.

Startup traction and metrics are the real pulse of a company's health: Revenue and user base gauge market acceptance. Retention and churn illuminate customer loyalty. Acquisition cost, LTV, and gross margin reveal financial sustainability. Burn rate measures runway longevity. Benchmarking against industry peers, these figures narrate the startup's true story, beyond the pitch.

When investing in a startup, I always invest in people. The team is the most important thing. A weak team will put down even the best startup idea. A good team can achieve excellent results from even the worst project. When evaluating the team, consider: - experience as entrepreneurs and in business development - the completeness of the team and excitement about what they do - their history of working together and dealing with crisis - the personal quest they have and where they are going When you come across a great team, you immediately feel this is it. Also, pay attention to the kind of people they surround themselves with and who they want to hire. If better ones than themselves, then you can rest assured about the startup's future.

Through our close up work with the founders we learn a lot about their team and culture, but also capabilities, time management, honesty. Basically we see it all, which later on in the investment process gives us a different level of confidence in the allocation

Absolutely, the team is key, and far more essential than the business idea. However: data on excellent founders might be available. What is not available is data on how teams will perform in future. I am invested in an industrial AI startup, where the two founders were perfectly complementary in terms of know-how and character plus super motivated, highly gifted and capable to draw in highly motivated new team members. They were best buddies as well. But as it turned out, because industrial AI in Germany was much hyped but not really tested by Mittelstand companies and concerns beyond innovation trials, both drew alternative consequences and eventually split up. Neither the market development, nor the split-up could be anticipated by data.

The team and culture of a startup are its backbone: - Founders' expertise sets strategic direction. - Team diversity fuels innovation. - Low turnover signifies a healthy culture. - Clear values guide decision-making. Engaging with the team offers insights into their: - Communication dynamics. - Collaborative spirit. - Approach to challenges. Together, these elements underpin the startup's capacity for enduring success and adaptation in a volatile business climate.

Competition runs the market. We worked with startups that were totally disruptive and therefore it was more challenging to find believers, while startups where we sometimes heard crowded space were still able to proof their USP

Especially in the early stage (Pre-Seed/Seed), this is crucial. There must be a technical moat that will be hard for other market participants to cross. Especially after the 2022 venture funding irregularity, we see many of our partner VCs stress-testing this innovation and differentiation criteria.

Innovation isn't just a buzzword; it's the startup's lifeblood, distinguishing it in a saturated market. Evaluating a startup's unique tech, IP rights, customer acclaim, and industry accolades offers a window into its potential to lead and disrupt. It's this creative edge that often predicts not just market fit, but market impact, turning pain points into growth opportunities

Depending on the stage, there will be inherently different risks and challenges. Early-stage - Founder break up - Slow/lack of customer adoption - Are the founders able to create a sticky product before running out of capital - Overall capital environment to finance follow-on rounds Later-/growth-stage - Does the product work in other markets - Can verticals be developed sufficiently - Are there sufficient M&A opportunities for the company to enhance their moat

Assessing a startup's viability extends beyond surface metrics to a deep dive into the ecosystem it operates within. Understanding regulatory paths, market dynamics, competitive landscapes, and internal capabilities is crucial. This holistic risk evaluation shapes an investor's foresight, ensuring informed decisions are made, not just optimistic ones. Such diligence is the compass for navigating the unpredictable seas of startup investment.

Data security and privacy are crucial in an era of strict regulations like GDPR—environmental trends, including sustainability, matter due to increased consumer awareness. Startups face competition from emerging players and should consider global supply chain factors. Internal culture and ethics are vital. Additionally, startups should proactively anticipate potential geopolitical challenges and changes in trade policies; those operating globally should consider diversifying suppliers or manufacturing locations to mitigate risks tied to specific geopolitical events, ensuring the resilience of their operations even in the face of unexpected geopolitical shifts.

??Investment Strategy Tips 1?? Practice “Buy Low, Sell High” VC business is simple - you have to buy low and sell high. 2?? Focus on Valuation Pay attention to startup valuation and check whether the company can raise a higher valuation in the future. 3??Stick to Your Policy Follow your investment policy, and avoid getting swayed by hot deals that require you to overpay. 4?? Think About Future Exit Consider the best-case scenario. How long will it take before it happens? How much capital will you have to add over time? What your final position on the cap table at the time of exit will be? 5?? Evaluate the deal Now, it is time to evaluate whether the investment is worth it. Ask yourself if the ROI is worth your time, capital, and risk.

When deciding what to prioritize in investments, I employ a simple decision matrix influenced by "Thinking, Fast and Slow." This method blends quick instincts (System 1) and careful analysis (System 2). In this matrix, ventures can fall into: Dual Rejection where both gut-feeling and analysis say "No." Cautious Consideration where intuition resists but analysis approves, leading to deeper evaluation. Risky Intuition where instinct says "Yes" but analytical insight declines. I'll monitor these closely. Balanced Opportunity where both instinct and study affirm the investment's promise. If both align positively and I avoid common biases, I invest. In essence, if I'm not 100% convinced, I usually pass on the investment.

Data is critical to the investment decision-making process. The most important data to evaluate before you dive deep into due diligence with a company is data required from your investment thesis, criteria, and fund strategy. You should move on if an opportunity doesn't align with those minimum requirements. It can be challenging to pass on an exciting opportunity for FOMO, but your Limited Partner base likely isn't keen on thesis and strategy deviations.