Cento Ventures’ investment process follows a structured and rigorous approach which is designed to align us well with the teams we invest in. All early-stage investment blends hard data with an amount of intuition. Our evaluation of new deals digs into information provided by the company, validates it to the extent possible, and also considers less tangible factors such as team dynamics.
As part of our evaluating any investment, we spend a considerable amount of time looking into:
Market and business model
Market potential is about more than academic approaches to sizing. Identifying a hypothetical need for a technology product or service is not the same as having validation that people or companies are prepared to pay for it. We generally ask for proof in terms of actual, and repeatable, sales that grow consistently each month and exceed $50K per month.
Beyond common questions of whether a particular model is sustainable and can build competitive barriers, we ask potential investees about their plans for expanding/replicating their business internationally. This is a sometimes challenging question for early stage companies – particularly when they are still grappling with all manner of challenges in their home market. However, we prefer business models that address a sector inefficiency present across multiple countries, and look for founders who think the same way.
We have a strong preference for founders who come with strong experience from the industry or category in which they are building their startup. Identifying inefficiencies often benefits from an insider’s view to figure out how to fix them. Even when we invest in younger teams, the founders should demonstrate that they know their chosen market inside out.
An additional requirement that we look for in all cases is the ability to get things done – of course it is a common characteristic among all successful entrepreneurs to achieve a lot with very limited resources – we simply value this characteristic very highly in emerging markets where often resources are even more limited and the obstacles sometimes greater.
Technology must be present in each of our investments – what we attempt to do is validate the scale and ambition of the technical component of any plan. In many cases we avoid investments that depend on development of ‘deep’ technology. This is simply a case of optimising for the resources that are available. Any startup needs massive or specialised engineering resources must explain where they will be obtained, and how they might be paid for, in a market where competition for good developers is increasingly intense. In most cases our preference is to invest once much of the core platform has been built and the company has started to focus on improving its capabilities in areas such as marketing, business development, and customer service.
We learn a great deal about how a startup views its own future by examining their financial plans and the assumptions that underpin them. Among the most critical of these is the capital trajectory. Many founders underestimate the challenges they will face in raising capital, and while one of Cento’s strengths is our ability to raise follow-on capital, we also make sure our investees hear and appreciate our view on the availability of later stage capital. On occasion this has helped founders re-think their expectations, to understand Cento’s conservative view compared to other investors, yet still choose to partner with us.
We aim to complete much of the evaluation work before we get to the point of proposing a term sheet for an investment. Once a term sheet is accepted by the company founders we proceed with full detailed due diligence which can involve many members of the Cento team as well as external advisors who can assist us with specialised skills. Our Investment Committee will then meet to review findings and make a final investment decision.
The process of investment is designed to set up channels of communication between Cento and the founding team. We try to expose founders to multiple senior members of the team, whose collective expertise they can call on in future. Post investment, each investee has both a senior and junior member of the Cento team allocated to it.
In line with the objectives we agree with founders during the investment process, we get involved with helping operational teams implement the company’s goals. The most common areas where we help are recruiting, strategy setting and adjustment, establishing scalable process in areas like marketing and sales, acquisitions, ongoing financing, and exits. In particular, we focus our help at times when a company is making its initial forays into a second or third market.