Get inside the mind of an investor: startup investing best practices

SeedInvest sat 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?

1. Investing is not a solo sport. You need to invest with the best so you should co-invest.
2. If you are going to build a portfolio then build a portfolio and make investments.
3. Learn to let your losers die and build positions in your likely winners. The best investors have shown that it’s not the initial investment 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 arise. You need to figure out what are the platform plays and who are the key players in those spaces.

When analyzing a company, what do you look for?

 Market, team and product strategy, in that order.

1. 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 you won’t be able to get a big market share for a big eventual exit.
2. Team: While a good team might pick a good market, good teams might not pick a good market – markets can change but hopefully you have a team that can build a really good product and strategy.
3. Product & Strategy: Product and strategy is always iterating and can potentially pivot. If you have a great team they can pivot the product and strategy. Unfortunately a team can’t change the market.

What are common red flags to look out for?

1. Make sure companies are going into their market size. Focus on asking who is their true customer and make sure their true target market is quite large and growing.
2. Make sure there are other investors. It is unlikely that if it is the best new thing that you will be the only investor.
3. Understand the business; best investing usually happens when you are investing in things you know.

What advice do you have for conducting due diligence?

1. Create a standard way of doing due diligence to avoid favoritism from the start – create a best company evaluation sheet so you can ask every company the same set of questions.
2. On top of doing market research, talk with customers to gather insights. Talk with potential customers on whether or not they see value propositions in what the company is providing.
3. Talk with new investors that are investing for the first time in the company to decide if this is the best company to invest in or not.