How do you screen startups for your investment thesis?

1 Define your screening criteria

Before you start looking at startups, you need to have a set of screening criteria that are consistent with your investment thesis. This will help you filter out the startups that are not relevant, attractive, or feasible for your fund. For instance, market size and growth potential, problem-solution fit and value proposition, team composition and experience, traction and validation, competitive advantage and differentiation, scalability and unit economics, funding history and valuation, and exit potential and return on investment can all be criteria to consider. You can create a scorecard or checklist to apply to each startup you encounter and assign different weights or thresholds to each criterion depending on your preferences and priorities.

2 Use multiple sources and methods

To find startups that match your screening criteria, you need to use multiple sources and methods to source and research them. You can use online platforms, databases, newsletters, blogs, podcasts, and social media to discover and track startups in your target market and industry. You can also leverage your network, referrals, events, competitions, accelerators, incubators, and co-investors to get access and introductions to startups that may not be widely known or visible. You can also use tools such as web scraping, data analysis, and artificial intelligence to automate and enhance your sourcing and research process.

3 Conduct initial screening and shortlisting

Once you have a list of potential startups that you want to explore further, you need to conduct an initial screening and shortlisting process to narrow down your options. You can use your screening criteria and scorecard to evaluate each startup based on the information you have gathered from your sources and methods. You can also use qualitative and quantitative methods such as SWOT analysis, market mapping, benchmarking, and financial modeling to compare and contrast different startups. You should aim to select a manageable number of startups that meet your minimum requirements and show the most promise and potential.

4 Conduct deeper due diligence and validation

After you have shortlisted the startups that you are interested in, you need to conduct a deeper due diligence and validation process to verify and validate their claims and assumptions. You can use various techniques such as interviews, surveys, customer feedback, product testing, legal review, financial audit, and reference checks to gather more information and evidence about the startups. You should also use your own judgment, intuition, and experience to assess the fit and alignment between the startups and your investment thesis. You should look for signals that indicate the startups have a clear vision, a strong team, a viable product, a large market, a competitive edge, a scalable model, and a profitable exit.

5 Make your investment decision and offer

The final step of screening startups for your investment thesis is to make your investment decision and offer. You should review and analyze all the data and information you have collected and synthesized from your screening and due diligence process. You should also consider the risks and opportunities, the trade-offs and alternatives, and the expected outcomes and returns of investing in each startup. You should then select the startup or startups that best fit your investment thesis and offer them a term sheet that outlines the terms and conditions of your investment. You should also be prepared to negotiate and finalize the deal with the startups and their co-investors.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?