Skip to content

What An Investor Looks For In A Startup

Budding entrepreneurs are seldom short on innovative ideas; the biggest challenge is usually to attract funding to enhance execution capabilities, which is where venture capital (VC) companies come in.

A form of private equity financing, these VC firms fill the gap that many traditional financiers have been unable or unwilling to fund. However, while they are certainly looking for those innovative ideas, and are often inclined to take a calculated risk on ones where many others would not, those ideas are not necessarily the most important factor in the mix, says  Keet van Zyl, Co-Founder of Cape Town-based VC firm Knife Capital.

With operations today in both South African and the UK, Knife Capital was founded in 2010 by Eben van Heerden and Keet van Zyl. In particular, the company’s Grindstone Accelerator is a structured entrepreneurship development programme that seeks out and then assists high-growth innovation-driven start ups to get the fundamentals in place so that these companies can quickly become sustainable and/or fundable.

“The first step,” notes van Zyl, “is to work with committed nice human beings – it is all about the team.” After that, we assess whether we recognise scalability in the start up. Does it have what it takes to become a high-growth sustainable business in the first place?”

An important criteria for this, says van Zyl, is how big the addressable market would be that the startup is looking to serve, both today and in the future. 

“In other words, what is its potential? Does it have the ability to penetrate this market?” asks van Zyl.

The other is whether or not a start up can prove that it has a great product or service: “Presenting strong data and showing that your product solves a real problem in the market,” says van Zyl.  “Show that your idea really does have commercial traction. How will you be different to any other competitors out there? Is there a great product/market fit?”

Undertaking research is also crucial when it comes to ensuring that the VC being approached is a “fit” for the start up. Interrogate whether the VC has engaged with other similar ventures in the past and the idea being proposed is something that fits their investment profile.

“This is essential as it can lead to one of the final things we look for,” notes van Zyl. “That moment when there is a ‘click’ between startup and investor; an acknowledgement that we share common ground and experiences.”

Initiatives that have come out of Knife Capital’s own Grindstone Accelerator programme have included multi-award winning companies, such as augmented reality animation and gaming company Sea Monster, computer vision and radar startup iKubu which was acquired by Garmin and innovative transport data company WhereIsMyTransport, that recently raised $7.5m.

Another company that received Grindstone’s stamp of approval is online ticketing solutions provider Quicket, which ticked all the boxes for investment: A large addressable target market; a seamless ticketing product and a highly experienced team that have proven their execution capabilities.

Explains James Hedley, co-founder (together with James Tagg) of Quicket:  “Unlike your standard online ticketing solutions, Quicket was developed not only to assist a broad base of either individuals or organisations to market an event, but its highly adaptable platform has been built to do so many other things as well.”

For example, while it can be used to sell tickets to public events, it can also be used among a private group to plan everything from a wedding, a celebration or even to collect funds among friends for a special occasion, like a 40th birthday. It is this adaptability, flexibility and diverse user base that makes Quicket a versatile ticketing solution, and an attractive company for investors..

The Knife Capital team were also impressed by Quicket’s hands on approach to guiding users on how to use the system; for example, the company’s participation last year at the Independent Schools Marketing Association (ISMA) held in Stellenbosch, where Quicket demonstrated  to schools already using the Quicket platform how to decrease their admin and improve their school marketing.

“This type of user interaction is very important for an investor to see in a startup,” notes van Zyl. “And leads me to the most important factor: the greatest asset any company has is its people – their expertise in the field and a passion for their product. And, at the end of the day, it’s really the people  – the team behind the idea – that we invest in.”