5 principles of venture investors that will be useful to everyone

5 principles of venture investors that will be useful to everyone

Perform your Due Diligence Due diligence involves verifying all information provided by a business founder to an investor or fund. In the early stages, due diligence may involve assessing the team's capabilities, the founder's vision, and the content of a 10-slide pitch deck. More mature startups may require legal, commercial, tax, and technological expertise. Poorly executed due diligence can result in problems for both the investor and the business, as exemplified by the case of Frank and JPMorgan, which lost millions of dollars due to inadequate due diligence.

Diversify Your Investment Portfolio The Pareto principle suggests that 20% of a portfolio's most successful projects yield 80% of the returns. Consequently, investors typically prefer to diversify their portfolios to avoid putting all their eggs in one basket. Experts disagree on how many projects should be in a portfolio, with some suggesting a minimum of 10 and others recommending 80-100. Investing solely in one project or having an insufficiently diversified portfolio can lead to loss.

Invest in the Founder and Team, not the Idea The value of an idea lies in its execution, which is dependent on motivated leaders who can build teams and convince investors of their project's potential. Therefore, assessing the team during the due diligence phase is critical. People, rather than the project itself, underlie any business or project, and building relationships with them is crucial for investors and individuals alike.

Focus on Painkillers, not Vitamins or Candy Investors prefer to invest in projects that solve a real problem rather than those that are simply nice to have. Projects that can alleviate pain are particularly attractive to investors because they have a high probability of generating revenue. Professional investors usually invest in projects that align with their expertise and interests. The candy category for the user includes, for example, games or TikTok - generally useless, but extremely addictive and engaging. Vitamins are services and products that are pleasant to use, these are content and communication services that cover the need for choice/format of communication.

Users are willing to pay for painkillers in the form of shut up and take my money — Grammarly , Canva , Figma , for example.

Invest in Smart Money Professional investors often invest in projects they understand, and some accelerators provide expertise, connections, and access to customers in addition to money. Such investments are known as smart money and are highly desirable because they contribute to a project's growth and success.

So, venture is not a science and there are no rules. But these principles, along with intuition, allow you to build successful investment strategies - both in business and in yourself.