The Pre-IPO Checklist
Hi folks this is Kevin Harrington,
I want to start off by saying in order to make consistently successful decisions about money and investments you’ve got to be looking at the overall value of the project.
Take it from me, a small initial investment can turn into something significant. I’m talking about pre-IPO startup companies. That’s why there’s no better way to grow rich than being early — as early as possible to the start.
But the rules change when you’re confronted with a startup company…
So what do you do?
Just blindly throw money and hope for the best?
Of course not!
It’s easy to look at investment opportunities and immediately assume that because they’ve got a lot of money potential they are a great option for you. But I’m here to say this isn’t always the case…
A successful millionaire knows that it goes beyond the surface.
So listed here is what I look for, my checklist if you will, to properly vet and assess startup companies:
Criteria 1. — The company must have a product people love…
Think about Apple and the iPhone. Apple was on the verge of collapse back in the late ’90s. They were just another hardware company.
Then, Apple released the breakthrough product of a generation… the one and only iPhone. It was a magical transformation that started a love affair with consumers that continues to this day.
An innovative, customer-friendly product people love is the surest way to grow a business like wildfire.
When I invest, I need to see a product that could have mass appeal. A product people are going to use, talk about, love and keep for a long time.
I want to see something with that “magical transformation” potential.
Criteria 2. — The company must solve a real problem shared by millions of people…
The product itself is just Step one, that product has to solve a problem real people have.
You know, I was once pitched a startup that was an alarm clock and toaster oven in one. Yes, a concept, but how many people would replace both those items in their house with one item that did both things? There was just no demand for it.
I place a great deal of value on my time. When I look at a project or pitch and I look at the scale of it – I need to know just how many hours I’ll spend on it in the upcoming days, weeks or even months that I might be involved.
I want to look at what my upside potential is based on how long something is going to take.
Meanwhile, look at a company like Walmart, why is it everywhere and so successful?
Walmart solves a problem shared by EVERY person: The desire for quality products at affordable prices.
Because of Walmart’s ability to meet REAL demand, they were able to become one of the most powerful companies in America. They do hundreds of billions in sales every year.
Criteria 3. — The company must be led by an experienced team…
Starting a business isn’t easy, some of these companies fail, and it results in loss of investments. It’s natural in business.
Having a company that’s well run by an experienced team can make or break a startup.
Just think about it, building a business to hundreds of millions in sales is hard! And that’s why I invest in companies led by folks who have either done it before or have access to experienced advisors who can help them is key.
The temptation of putting your hard earned money into startups is huge. But, by doing that you’re taking a risk, make sense right?
If it works, sure you’ll be in the money, but if it doesn’t, you’ll be in some trouble.
That’s why when I put my own money on the line, I want to be buying talent.
Someone like the founder of the billion-dollar company Roku, Anthony Wood, who had the experience, the moxie and the vision to build his DVR concept into a national business.
Or, if it’s some young kid with a breakthrough idea, I want someone with the same statute as Anthony… someone who knows the business so I can be certain there’s experience on the team.
Criteria 4. — The company must have a real advantage over the competition…
The final criteria might be the most important of all. This is what Warren Buffett calls a “moat,” which means a company must have truly unique positioning.
It’s an advantage that protects a business and makes it hard for others to copy it.
As an example, think about Marvel Studios, which is owned by Disney. No one, and I mean NO ONE, is going to make superhero movies that big and that expensive to compete with the latest Marvel movie.
Marvel owns the rights to the stories, the characters, the merchandising, you name it. No other company on earth is going to release a superhero movie that can compete.
The moat advantage can come in all shapes and forms — sometimes it’s a unique patent. Sometimes it’s a production process, or legal rights to a name or a specific material.
All Criteria Considered
Like I mentioned, if and only if a private deal I’m weighing meets all four of these criteria do I continue.
So, I’m always monitoring, researching and asking myself the most important questions when considering a potential investment…
Two out of four is no good — there’s too much that can go wrong. I only ever keep working on a private deal if the company goes 4-for-4 on this checklist with flying colors.
For Technology Profits Daily,
CEO & Entrepreneur