The Problem
A VC approached us to find a high-quality investment opportunity that would fit its tech-start-up portfolio. We located a promising startup in post-seed stage that was building a platform based on advanced cryptography to enable new collaborative services in the banking industry. Would it be a winner?
The Analysis
We began our journey by examining the basics.
- How compelling is the value proposition? The new collaborative services appeared beneficial and timely for the banking industry. It was more likely the banking industry would organize around an emerging platform than risk building its own.
- How good is the team? The founders had a wealth of business experience in finance. The technical team included talents in cryptography and engineering and had potential to attract more.
- How large is the market? The global nature of the platform and the transaction fee structure suggested the market size was very large.
- How strong is the business model? The platform had economies of scale and network effects that could sustain an ecosystem.
- How smooth is the go-to-market? Large banks have already started experimenting with services based on advanced cryptography. However, convincing banks to fully onboard would take time.
All this looked reasonably promising. On the other hand, VC portfolios are filled with promising opportunities and only very few are winners. Deeper insights were needed to assess whether this startup was likely to be a winner.
The Solution
Our solution was to put the startup to a number of tests without their knowledge. The tests were designed to gauge business culture characteristics, such as negotiation approach and diversity of opinions in decision making, that can significantly impact the chances of success of a startup of their kind. The tests were low-tech, involving plain leg-work and conversations, yet they provided us with insights that no high-tech approach could.
The conclusions from the tests were encouraging. The startup exhibited many of the characteristics we were looking for and we were ready to recommended the investment opportunity to the VC.
The Impact
The startup ended up doing quite well. They established a suite of collaborative services and brought several large banks to their platform. Their next round of investment saw a significant jump in valuation, exceeding $100 million.