Startup Scouting: What is it, and Why is it Important?
Startup scouting is not a new concept, but it may be a new venture if your company has just started to see a lot of success. Investing in startups can be a great way to boost your revenue if you know what to invest in.
It can seem like a daunting task, but it will ultimately be worthwhile to start investing in startups.
The amount of startup companies out there is increasing every year, which makes it harder for businesses to choose what to invest in. With that many options flooding the market, most of them are bound to fail. So, how do you find the right startups that align with your business, and how can investing in a startup help you to scale? This startup scouting guide will help you answer all your burning startup scouting questions and lead you in the right direction to get started with investing in startup companies.
Startup Scouting Explained
A startup is a company in its initial stages of operation. They will still be trying to find their place in the market and will be working to find investors to back them and support their innovative ideas. So, what is startup scouting? Startup scouting involves investors like you finding these small companies and providing funding for startups. This way, they can develop their product or service and you can see some of those returns on your startup investment. Investing in startups is a great way to make business connections, increase brand awareness, and earn more profits.
People and companies who are regular startup scouts are on the lookout for the next unicorn, which is a startup company worth over 1 billion dollars. The market can be unpredictable, but it is possible to pick the right startups that have the best odds of making it big. Investing in startup companies is all about understanding the trends, predicting what will sell, and knowing what types of entrepreneurs to put your faith in.
Why Invest in Startups?
When a company is in its early stages of development, it may only be backed financially by the founders. Even if a startup company has a really great idea for an innovative product or service, and the intelligence and capability to create it successfully, the product or service will never make it to the consumer without the right investors and the right amount of capital backing the project.
But that’s just how it benefits the startup. There are also many potential benefits for the investor. Every investor wants steady deal flow. It is the best way to keep capital rising consistently. To ensure that healthy income of deal flow, it is important to have a large number of high-quality investments to pull from. Startup scouting is a great way to ensure a lot of potential deals as well as the right avenues to find quality investments.
There is a rise in new startups to invest in, and the number will continue to grow. It is all a matter of getting on board with the right ones that will provide you with great returns.
So, to summarize, here are just a few reasons to invest in startups:
- Diversify your investment portfolio
- Getting in early can lead to greater returns
- Participate in markets that matter to you
The Power of Startup Companies: Success Stories
As we already know, many small startup companies stay small, and many others fail. But, some of your favorite and most commonly used tech companies began as simple startups. Here are a few examples with a bit about their start as a small startup:
Kevin Systrom was a recent graduate of Stanford who wanted to make a simple photo app with his new friend in tech, Mike Krieger. With the help of venture capitalist investors, Instagram raised $7 million in February of 2011. They created what is now one of the most widely used social media apps, being acquired by Meta, formerly known as Facebook, Inc, for 1 billion dollars.
A former PayPal employee named Reid Hoffman wanted to create a social media platform and created the website LinkedIn from his living room. He invited his friends and coworkers to be the first members. The first round of funding for his startup got him 4.7 million in November of 2003. In 2016, Microsoft paid 26 billion for the website. LinkedIn is a powerhouse in the business world as a place to connect, network, and an important avenue for lead generation and sales prospecting.
Uber was a revolutionary idea, one that many would have said was unrealistic and destined to fail. But, Travis Kalanick and Garrett Camp created the app in 2008 In 2010, they received only 1.6 million in funding. Now, Uber is worth over 12 billion. They were so successful with their startup venture that they have since been able to buy out some of their competitors, such as Postmates.
Getting Started With Scouting: Simple Steps to Follow
It is easy to just Google “Startups to invest in” and sift through the results, but where do you go from there? How do you know if these are startups you can trust and should start a dialogue with? Here, you will find these answers.
Find your niche
The startup companies you are investing in should align with your ideals. You should be looking for startups that spark your interest first and foremost. Seek out innovations in a field you care about or that aligns with the goals and objectives of your own business. Also, it may be beneficial to look for startups that offer something your business could directly benefit from using. Here are some examples of niches you can be looking for as tech startup investors:
- Healthcare innovation
- Delivery applications
- Mobile banking and lending
- Virtual communications
- Online education
Weigh your options with your team to determine how to narrow your focus while looking for startups to invest in. Finding the right niche is the best way to start looking for startups. Otherwise, the options are too vast and you will get lost trying to navigate all the choices. You will first want to think about what you need in a startup before you even begin searching.
Study the numbers
Whether it be the niche as a whole or a specific startup you are investigating, you will want to do some research and find out how profitable this venture could be. See where consumers are investing their money right now, and see where they are projected to invest in the future. Things that may have seemed like crazy startup ideas in the past may be the businesses that are making it work in the modern-day. While you are looking into the data, you may change the focus of your search or pick up new niches that you didn’t even know existed. Research is always an incredibly important part of investing. It is good to trust yourself and your mind, but there will always be so much more to learn.
Consider the human factors
The success of a business is not all just numbers, graphs, and projected earnings. There are real humans behind every sale. Put yourself in the shoes of the consumer, and consider the following:
- Is the startup selling a need for anyone?
- If this is purely a want, will the desire sustain over time?
Considering how clients and potential consumers will interact with the startup and how those interactions could evolve over time is an important aspect to consider. This ability to predict the trends and the desires of the people is what causes investors to find their unicorns.
Start a conversation
Startups that interest you and your brand may already be asking for you in your inbox. Starting a dialogue and directly connecting with the leaders of the startup companies will get you the answers to all your burning questions. On top of that, you will learn much faster if this is a company you would be interested in working with based on the quality of conversations you have with them.
Listen to their market strategy
Once you get into a meaningful conversation with a startup, discuss with them their plans to grow. How far along are they on their journey to become a full-fledged business? Where will they go from here? What is their plan to enter the market? Do they plan to expand globally? If so, how will they go about that? There are a lot of questions about their strategy you will need to discuss with these startups. If they seem to know what they’re doing and how to grow, they will be a much safer investment than a company that is not ready to see growth.
Strike a mutually beneficial deal
If you feel that investing in this startup is a good decision for you, your team, and your brand, then it’s time to seal the deal. As with any business deal, negotiations will take place. You should work with an experienced legal team to ensure your investment is worthwhile. If all goes well with the negotiations, a deal will be forged and you will officially be a startup investor.
Get Startup Scouting Done For You
For help with quality scouting and deal management, turn to Startup Scout. The process is simple- you enter in the tags you are looking for with your startup niche, and the advanced AI technology of Startup Scout locates the best startups for you to invest in, even startups that won’t show up in any other database. You can connect with startups directly from the results Startup Scout displays, making scouting and investing simpler than ever. If this sounds good to you, use the form below to get a demo.
Whether you’re an accelerator, innovation lab, or VC/PE fund, we cherry-pick all the startup leads you'll ever need, so you can focus on what matters. Let us find you the next unicorn!