When it comes to investing in startups, screening potential candidates is essential to ensure you’re making the right decisions. A strong startup screening process can help you identify high-potential startups that align with your goals and provide a good return on your investment.
Here we will show you key steps to developing a rigorous screening process. All the steps are relevant to both angel investors and VCs screening startups at any stage of development.
1. Defining Criteria for Evaluating Startups
Having clear criteria for evaluating startups is the key to a thorough screening. With defined criteria, you make sure to screen the startup from multiple angles, relying less on gut feel. Moreover, it gives you the chance to compare the startups against one another and their peers in the market.
Criteria may include team experience, market potential, business model, traction, … etc. Check out our article here for criteria for evaluating early v.s. late-stage startups.
2. Developing a Screening Application Form
Application forms are highly effective for receiving startup deals. Forms make it easier for you to collect all the information you need and store them in a clear structure for analyzing them later.
Make sure founders know where to find your application online. This gives you exposure to more deals all year round.
Develop an application form that gives you as much critical information as possible without making it too long for the founders. Check out our key questions article in the screening process.
3. Pre-screening Applications Using Automated Tools
Relying on automated tools for initial screening can lead to more efficiency and less bias. Check out the available automated tools or build your own.
VeFund’s AI Screening Tool
We built an AI Survivability Index to measure the startup’s survivability likelihood in the market. The AI uses the founders’ experience, the startup’s social media, funds received, and Google Trends to evaluate the startup’s survivability.
You can use the Survivability Index as your pre-screening tool by signing up with us.
4. Conducting Due Diligence
After filtering startups in the screening phase, it is time to dive into the due diligence. As you probably know, the due diligence process takes a lot of effort and time. That is why routinely screening startups first saves you from wasting effort and time on startups that don’t seem initially promising.
Take as much time as you need in the due diligence phase, even if other investors did their due diligence on the same startup.
At VeFund, we support investors in the screening process with AI and automation tools. Check out our services on scouting, screening, and portfolio management.