For all the excitement and potential of early stage companies, they possess one, distinct disadvantage when pitted against publicly traded companies: they do not have a body of research and analysis for investors to draw upon in order to inform their investment decisions. It is a flaw that has long plagued these companies, and the solution remains ever evasive. VC firms have attempted to combat this problem via the due diligence process. Unfortunately, this method often leaves angel investors out in the cold because private companies have too few guidelines and very little infrastructure by which to guide an angel’s journey. This is especially true when investing in a science and technology startups, where an investor not only needs to assess the business merits, but also the IP it’s built on.
Propel(x) is dedicated to providing a means of analysis that succeeds where due diligence fails. Our deal evaluation process helps angel investors effectively assess early stage startups, especially those in the science and technology sphere, in a thorough and accessible manner. We’ve outlined this framework in a recent post by our CEO, Swati Chaturvedi.
We encourage investors to evaluate deals not only because it’s the prudent thing to do, but also because, unsurprisingly, doing your homework works. The Kauffman Foundation found “an overall multiple difference of 5.9x for those with high due diligence compared to only 1.1x for those with low due diligence.”
To give you a deeper look at the Propel(x) evaluation process, we’re kicking off a series designed to make the “due diligence” process a lot more efficient and substantive and to show you how to make better investment decisions. Today’s blog will feature our Ask a Question functionality, which is at the forefront of the unique Propel(x) evaluation process.
The Power of a Network
When Propel(x) instituted the deal evaluation process and streamline it, “Ask a Question” became the first feature we tackled, and it is now front-and-center in our 3-phase framework for crowd-sourced evaluation.
In Phase 1 of this framework, Propel(x) users who are interested in investing in a startup can pose questions to be answered by the startup management, their contacts (e.g., customers, scientific advisors), and third-party industry & technology experts.
How it works – you can follow along in the below screenshot
- All users can access this functionality in the Evaluation Tab associated with each deal (i.e., a startup’s live fundraising round).
- The Questions section is the first section users see after clicking into the Evaluation tab. Users can easily navigate back to this section from anywhere in the Evaluation tab by clicking on Questions in the docked sub-menu on top of the page.
- Users can then specify who their questions are intended for by selecting from one of these categories in a dropdown menu:
- Scientific Advisors
- Industry / Technology Experts
- Once the user clicks “Submit,” his or her question will appear in the corresponding section on the same page below.
- At the end of the question collection period – usually one week– all questions from each category (Management, Customers, etc.) that are deemed relevant and non-duplicative by the Propel(x) team will be dispatched out to be answered.
Next Time, Learn Where the Questions Go to Get Answered
Some other crowdfunding sites do allow forum-like engagement between investors and the startup. To us, the missing piece is the third-party voice, and that’s why our evaluation infrastructure places particular emphasis on getting answers from unaffiliated industry & technology experts as the final piece in a three-way dialogue.
Of course, questions are only as good as their answers, and the obvious question to ask is: how do we ensure the quality of the third-party voice, i.e., more Quora and less Yahoo! Answers? This will be covered in my next piece, Referring an Expert. We will also take a look at what happens in Phase 2 & 3 of the Propel(x) evaluation framework.
Until then, I invite you to explore the Profile and Evaluation tabs of a startup you find interesting and start asking questions. After all, there is no aspect of evaluation more personal than asking questions – there are a million angles to dissect a science and technology startup, why not make your own cut?