How to select the first investments?
I want to tell you how you should select your first investments. Look for a project that you like, whose business you understand easily, and then visualize the disinvestment (i.e. what potential buyers you might have). If you can do this easily, then start by reading the executive summary, studying the financial projections and getting to know the entrepreneurial team (preferably with their video pitch).
My advice is that in your first investments it is important that you know the sector in which you are investing, prior to the financial analysis that you must make of the investment. Once you are an experienced investor in Startups you do not need to be familiar with the sector.
In order to understand the investment proposals it is convenient that you become familiar with these words commonly used in a round of Equity Crowdfunding:
- Equity: is the share capital of the company.
- Minimum ticket: minimum amount that is allowed to be invested (in Euros).
- Price of participation: in limited companies, instead of shares, shares are issued. The price includes the nominal value plus the issue premium.
- Share premium: this is the additional value given in a capital increase that does not form part of the nominal value of the company shares.
- Pre-money: this is the valuation given to the company without taking intoaccount the amount for which the capital is to be increased.
Within financial analysis, the basic indicators vary from one sector to another, although there are some indicators that you should always bear in mind:
- Cost of acquisition per customer (CAC)
- Customer length of stay (LTV)
- Operating margin.
Look for these indicators in the first year’s financial projections to makesure they are achievable. The five year projections can be very volatile butthe first year projections should reflect the reality at the end of the first year.