Founder Notes
How to Measure Startup From An Investors Perspective
There has perhaps never been a better time to invest early in technology startups.

On the one hand, we are living through a time in which digital-first startups propel new social trends. In the past few years alone, companies like Uber and Airbnb have gone from pitch deck ideas to multi-billion dollar companies, bringing tremendous ROI to their early investors and radically re-segmenting established markets.

On the other hand, recent data from the VC industry shows that early stage deals account for 50% of the total deal market. It could be even higher if more individual investors understood the dynamics of the startup ecosystem better and invested early in new companies.


If you are thinking about investing in technology companies, and want to become fluent in the tricks of the venture capitalists trade, I encourage you to attend the "Fundamentals for First Time Tech Investors" at the 2019 Synapse Summit. I have the distinct privilege of moderating a panel with some of the brightest minds in Florida's early stage investor ecosystem - namely Rachel West, Jon Levy, Thomas Cardy, and HJ Yang.
As a passionate investor, entrepreneur, and operator, I'm very excited to hear what advice and guidance these distinguished panelists have to give first-time tech investors. After all, it is incredibly difficult to project the potential success of a startup!

VCs have made an industry out of trying to get these bold predictions right more times than they get it wrong. Although the failure rate of startups is high, VCs understand the implications of the Pareto Principle in how it relates to startups, which is that, generally speaking, 20% will outperform the other 80% combined. This is partly why VCs invest in diversified funds of at least 10 companies. Just like in the stock market, you must be prepared to experience loses on some companies but, if your analysis is sound, you should also make some big wins that bring in 10x returns.

Understanding how important it is to invest in a diversified range of companies is one fundamental of tech investing. Another fundamental is to study and implement the tools that established players use to measure startups.

At Morgan Hill, we have put together a data-driven Investment Assessment to help us and our VC partners objectively measure the status of a company and determine the best investment strategy going forward. Built around our Path to Value methodology, the Investment Assessment acts like a scorecard for understanding:

  • How aligned the company is (based on the five pillars of a successful startup)

  • How mature the company is as a whole (done by mapping the company along the continuum of growth, from Discovery to Validation, Efficiency to Scale)

  • What type of funding it is ready for (based on its alignment and maturity score

Investment Assessment Chart: How You Can Measure Startups
These criteria apply to startups from every industry and stage of growth. The output from the Assessment is a score that shows you (the investor) whether the company is ready for your stage of investment yet, or if it's still working through inefficiencies, wasted effort, or misalignment.

In order to accurately complete the Assessment, you will need to familiarize yourself with every dimension of the business - call it "due diligence". Evaluate the talent, analyze market dynamics for problem-solution fit, review the product and go-to-market; come to as full a picture of the company as you can before filling out the Assessment. The knowledge you procure will guide your future investment decisions!

Rounding It Up

Whether your goal is to buy a healthy chunk of equity and stick it out until the IPO, or invest in convertible notes and exit when you have made a decent return, the Investors Assessment will surface a realistic picture of the company and help you make the most informed investment decisions.

If you aren't able to attend the "Fundamentals for First Time Tech Investors" panel, be sure to visit the Morgan Hill Partners team on ice level at the Synapse Summit for more information about the Assessment and other materials for founders and investors alike.