According to statistics, even Silicon Valley startups show that out of hundreds of startups, there will be only a few successful ones. Most projects fail at the initial stage. There are plenty of reasons for this: unoriginal idea, weak management, lack of developing and scaling plans. All this leads to a lack of funding and prospects. Before receiving funds, each young IT project undergoes serious scrutiny by investors. Ruslan Tymofieiev (Ruslan Timofeev), the founder of venture capital fund Adventures Lab, spoke about what components include the analysis of a startup seeking funding.
First, it is legal expertise. It aims at finding similar projects around the world.
“At this stage, our specialists check whether other founders have a patent or other kinds of intellectual property protection. We determine how similar the concept and algorithms are for other similar startups. At this stage, the main task is to anticipate potential legal risks and possible copyright infringement on intellectual property objects. If you miss these issues, there is a great threat of further legal problems, litigation, and penalties that take a lot of time and money,” says Ruslan Tymofieiev.
It is also important to study carefully other similar projects on the market in order to avoid mistakes they have already made.
“Sometimes, it happens that some factors cannot be eliminated at all. Then, it is better to study the negative experience and transform the project to minimize the negative impact. Sometimes, it is better to abandon some of the projects if they raise too many doubts,” notes Tymofieiev.
Another component of the expertise is marketing research and forecasting. It includes analyzing the startup’s business attractiveness, its financial plan, and the possible reaction of competitors. The specialists also hold focus group meetings and assess the opinion of the target audience. It is also important to audit the first sales when the team has an MVP (minimum viable product) and launch it on the market. Analysts determine the risk of non-recovery on investment and ways to avoid such scenarios. Everything is considered, including the mentality of consumers, their habits, and stereotypes of behavior.
A distinctive feature of any startup is an innovative idea that serves as the base of the startup. This is what allows you to successfully promote and sell the project. How fresh the idea is, whether the technology embedded in it solves an urgent problem, whether the innovation satisfies the needs of the target audience—all this is covered by scientific and technical expertise. In addition to determining innovativeness, the expertise includes auditing the technologies used, verifying structured code and software architecture, assessing internal processes, etc.
“The founders always praise their product, call it unique, innovative, and capable to revolutionize the industry. The reality often turns out to be much more prosaic. The scientific and technical expertise allows us to determine how much the project really meets modern trends,” says Tymofieiev.
In addition to the technical component, investment fund analysts carefully study the project team. In the case of Adventures Lab, the analysts focus rather on the founders and their expertise than on the startups themselves. Ruslan Tymofieiev believes that creating a community of strong managers in the orbit of the fund directly affects the success of projects.
Note: Adventures Lab is a venture fund founded by Ruslan Tymofieiev in 2019. The main activity is investing in promising startups in the early stages. Adventures Lab systematically invests in IT projects related to marketing, education, and video technologies. One of these projects is the Ukrainian startup Reface.