SeedInvest sits down with J. Skyler Fernandes, Managing Director of Simon Venture Group to gain insights on startup investing best practices.
What are your best practices for investing?
- Investing is not a solo sport. You need to invest with the best, so you should co-invest.
- If you are going to invest in startups, then build a portfolio and make multiple investments.
- Learn to let your losers die and increase your position in your likely winners. The best investors have shown that it’s not the initial investments that you make, but how you do your follow-on round investments.
When looking for big opportunities, look for new platforms. It’s where the next few billion dollar companies will come from. You need to figure out what the platform-plays are and who are the key players in those spaces.
When analyzing a company, what do you look for?
Market, Team and Product, in that order.
- Market: It’s not going to be a big opportunity if the market is not large or growing. If you don’t start with the market, then you won’t be able to get a big market share for a big eventual exit.
- Team: Good teams usually pick a good market, but sometimes a good team might not pick a good market or the market can change. But if you have a good team, then they can build a really good product and adapt to the market.
- Product: Your product strategy is always iterating and can potentially pivot into new markets. If you have a great team, then they can pivot the product and strategy. Unfortunately I don’t think even a good team can really change the fundamental market dynamics.
What are common red flags to look out for?
- Make sure that companies are thinking seriously about their market size. Focus on asking who their true customer is and make sure that their true target market is large and growing.
- Make sure that you know who the are other investors are. If this startup is the next big thing, it’s unlikely that you will be the only investor.
- Understand the business. The best investing usually happens when you are investing in things that you know.
What advice do you have for conducting due diligence?
- Create a standard way of doing due diligence to avoid favoritism from the start – create your own company evaluation sheet so that you can ask every company the same set of questions.
- On top of doing market research, talk with customers to gather insights. Talk with potential customers about whether or not they see value in what the company is providing.
- Talk with new investors that are investing for the first time in the company to help decide if this is the best company to invest in or not.
Learn more about J. Skyler Fernandes and his investment philosophy below:
Startup Investing 101 is a web series dedicated to educating investors about the world of startup investing.
This post was written by Alexandra Tynion on August 11, 2014
Startup Investing 101 with J. Skyler Fernandes of Simon Venture Group