EHK Talks to NEST Investment Team ‘What is an investable startup’
NEST Investment Team shares with EHK about ‘What is an investable startup’
This interview with NEST was conducted and condensed by EntrepreneurHK (EHK).
1. What are the common characteristics of an “investable” startup for NEST?
There are six key characteristics that we look for in a startup at NEST:
1. A disruptive concept
3. A tech element (this goes hand-in-hand with scalability)
4. A co-founder – doing a startup on your own can be very tough!
5. Global market potential (the Hong Kong market on its own is too small)
6. A good economic moat (see Warren Buffet)
2. How do you differentiate between a good product and an investable product?
An investable product will have all of the above six characteristics, whereas a good product will only show some of them. Most importantly though, it’s crucial to have a founder who is dedicated to their business and is going to persevere.
3. What is the one thing that you always look for when you evaluate startups?
The most important characteristic that NEST looks for is scalability. This is why tech products are particularly attractive as they can immediately reach a global market.
For example hand-made products can be very difficult to scale if there is a sudden surge in demand, whereas software can be reproduced millions of times almost instantaneously.
4. What are the big “red flags” that indicate you should pass up on an idea/start up?
For us, red flags include ideas that appear to be directly stolen. It’s okay if you have a similar idea but if it have clearly ripped-off an existing business, then we may question the ethics of the founder.
Founders who are only focused on the exit can also be a concern. To make a business thrive, the founder has to be passionate about what they’re doing. From our experience, if it’s only about the money then the motivation can quickly dry-up the moment hurdles begin to arise (which, in the startup world, they inevitably do).
Finally, lack of a clear proposition is often a reflection of insufficient research and unclear thinking. While it’s okay for startups to pivot, they need to have a clear proposition from day one, otherwise there is a danger they may become distracted and lose their way.
5. The founder’s personality vs. the startup idea, which one is more important?
It’s really a combination, but the earlier the stage of the startup the more important the personality, skills and experience of the founders are. Frankly, ideas are easy, but on the other hand, finding great people with the right personality, skills and experience can be a real challenge.
From left to right: Simon Squibb (CEO), Jennifer Carver (CIO), Luca Deplano (mentor), Lawrence Morgan (COO), Guy Parsonage (mentor), Will Ross (board advisor)
6. A lot of startups/people are reluctant to talk about their ideas, whether it is with investors or friends, fearing that their “unique” idea will be copied. How important is it to share such ideas at an early stage?
Anyone can have an idea and from our experience it’s very unlikely that they will be stolen (while just in idea-stage). It’s really the execution of the idea that matters the most.
It also depends on whom you’re sharing your idea with. If it were with potential customers to test the market then I would say it’s very important. If it’s with friends or family then I would say it’s less important.
The only time I’d recommend keeping your idea confidential would be if you were discussing it with a direct competitor. However, even then, you may find a way to collaborate, rather than work against each other.
7. Give me one piece of advice for startups.
Read the Lean Startup! You will hear this time and time again in the startup community. It’s a very important book that has really changed the way people do business.
The idea behind the lean startup is to test your product and target market as soon as possible. Don’t bother with questionnaires as they rarely show accurate results, instead try to create a Minimum Viable Product (MVP) and take it to market as soon as possible. Once you know you can gain market validation, you can then start building fancy websites, finding office space and raising capital.