5 Investor`s Questions To Blockchain Startup

At the same time, a high level of business risks requires a high level of elaboration of responses to challenges. In this article, we will talk about our experience in risk management in the framework of some of the main business issues of interest to a potential blockchain startup investor.

1. Is your team really strong?

Startup investors generally agree that the most important factor in assessing the success potential of startup companies is the entrepreneurial team. It is based on the assumption that prior startup and working experience, product knowledge, and industry skills can be used to predict adequately the success of a new venture.

Clear methods of teams assessment can help startups to strengthen a position and for investors - to make more accurate decisions. Team analysis helps identify risks and to propose management solutions for successful funding. The main question that requires an adequate answer in relation to the team - is it really the most effective team for such a project?

2. Is your product good?

There is no single method to understand the prospects of a particular blockchain product or service. Investors who are trying to understand whether the product is really good are guided by different principles. And although the main feature of a good product is a detailed and highly justified financial model, while trying to understand whether the product is good, we also focus on the concept of a customer's problem or market pain, engineering and technical characteristics, the value and adequacy of the proposed solution, the readiness of the product for market and more.

Besides, especially important are the parameters specific to the industry in which this product is planned to be applied. For example, an important question for blockchain startups is whether the blockchain is really needed in this project or the use of blockchain is impractical.

3. Is there really a market for your solution?

While assessing the prospects of the market, the greater the amount of investment required for a startup, the more reasonable market research should be. For a small grant, short reports are okay if they cover most basic key points such as Total addressable market size (TAM), "target" and "persona", market growth indicators, competition assessment, etc.

However, for larger financial proposals, the market hypothesis requires confirmation in the real world, such as having a paying customer base, signed agreements or conducting comprehensive practical testing of the market hypothesis.

4. What is your competition management strategy?

At the stage of approaching an investor with a proposition, the package of documents must necessarily contain a vision and specific steps to address major and potential competitors. This question will certainly arise. If you work with blockchain, an investor targeting the blockchain market is likely to know your competitors. You need to know them better.

5. Are business and financial models adequate?

The lack of an adequate financial model, a vague idea of a business model and profits prognosis often become reasons for the failure of startups focused entirely on creating the product. How does the company plan to deliver value to the market? What are the profitability metrics? Is capital currently working efficiently and will it after expansion?

Regarding financial calculations, attention should be paid to the correctness, accuracy, adequacy of calculations, comparison with similar industry financial indicators, confirmation of the business plan and commercialization hypotheses. At the same time, the issue of valuation of a startup worries both sides of the venture financing process. For the author of the project, as well as for an investor, it is important to assess the current cost of the project, its expected market price and capitalization of the project to choose the most promising conditions for cooperation.

Other risks

Important to note is that in the process of negotiations, the goal of a venture investor, despite the presence of the word "venture", is to weed out the riskiest proposals. Therefore, although the list of five questions can be a nice starting point for some projects, a prerequisite of effective cooperation with the investor is comprehensive testing of the maximum number of possible risks, including the results of the main hypotheses, market research, building business models, evaluating financial model with all underlying metrics and many more depending on the specifics of the business.

Thanks for your attention! 

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