India is home to a thriving startup ecosystem, 84,012 entities have been recognized as startups from across the country (As on November 2022). That number really speaks something! (source: pib.gov.in/PressRelease)
But,
- 9 out of 10 startups fail (source: Startup Genome — the 2019 report claims 11 out of 12 fail).
- 7.5 out of 10 venture-backed startups fail (source: Shikhar Ghosh).
- 2 out of 10 new businesses fail in the first year of operations (source: Bureau of Labor).
- Only 1% of startups become unicorn firms like Uber, Airbnb, Slack, Stripe, and Docker (source: CB Insights).
- The success percentage for first-time founders is 18% (source: Exploding Topics).
(source: https://www.failory.com/blog/startup-failure-rate )
This makes investing in startups sound risky, and speaking with the facts, if not done with the right process and discipline, it might be.
Auxano follows the process through its playbook, developed over the years.
The below noted infographics share the end-to-end process.
A peek into the Playbook
Let’s deep dive.
The process starts at the very beginning, Auxano has curated sources for Deal flow, receiving on average more than 50 decks every month with innovative ideas and products. To filter out the ones we consider as investable, we have laid out more than 50 parameters to evaluate startups on.
But for this blog, let’s just discuss the parameters which come under primary evaluation.
Starting from: The product and problem statement.
- Yes the product is great, but is it a painkiller or vitamin?
There is no order a rank for the parameters, but this seems to be one of the most important ones. If there is no existing problem, the product won’t even be required.
If the problem requires urgent attention, the product being a painkiller could achieve its planned demand.
The problem should be big enough to be a market, and it should be something that people are willing to pay to solve — a disruptor !
- How is it solving the problem?
Is your product really solving the problem, and is it the next generation solution for the problem? The product should be a new and better way to solve the problem. If there is an existing solution, how is your solution a better deal?
Or it can be a new solution to a problem that hasn’t been solved before, being a category or a market creator.
In any case;
- Is the vision sustainable or far-fetched?
- How difficult is the implementation?
- Does the solution involve specific expertise?
- Would the solution sustain emerging needs of the problem?
- Are end users convinced of the appropriateness of the issue?
Tech Integration
Under our thesis, we prioritize startups with tech-Integration. Due to few reasons:
Technology can help startups to:
- Startups to reach a larger pool of potential customers.
- Differentiate themselves from the competition.
- To scale their businesses more quickly and efficiently.
Then, we like to pay close attention to the Founding Team
- A good startup needs a good team
We want to invest in founders who are experienced in their fields, and have complimentary qualities. We will be trusting the founders for the growth of the business, and therefore the founders should have the experience and skills to build the product, raise money, and grow the company. Moreover, are they transparent?
It is important to have the clear image of the Ecosystem of the startup: The market and existing competitors
- The market of the product
What is your target audience? And how much of it can you capture?
The market should be
- Large enough to support the company’s growth.
- Growing, so that the company can grow with it.
- Have a high demand for the product or service.
- Competitors
Are there any other similar startups, and what makes you better than them?
There are always other companies trying to solve the same problem. The competition should be manageable, and the company should have a competitive advantage.
While looking at competitors gives us a better idea of what we would be competing against, deep diving into the competitors’ trends can also help us understand the future for the startup as well.
- Regulatory aspect
To understand how the startup can be affected by government regulation. While it is of low importance, it should not be ignored.
Further, it is important to understand How the business model and revenue model come into play
- The business model and the Revenue model
This is how the startup will connect its product and the customer. The business model should be sustainable and scalable.
The revenue trend of the business could be used as an indicator for its future growth, but more importantly the reasons for the given trend will help you understand under what circumstances the business can grow or fall, which will further help in having a better idea of what to be careful about.
Way forward
Evaluating startups is a constant process of learning and unlearning. It’s not about “what” to evaluate, but “how” to evaluate those parameters.
As one of the players in the ecosystem, sharing information and best practices will allow all of us to emerge stronger.
Ultimately, the goal of evaluating startups is to identify those with the highest potential for success. By understanding the factors that contribute to success, you can make better investment decisions and help to ensure that your startup is one of those that succeeds.
As this ecosystem is maturing , the playbook will get updated .. Change — the only constant .
Author:
Meemansa Suri
