Why the heck would Google invest $250 million into a start-up that’s basically a taxi service?
Or here’s another one for you: Why would one man invest hundreds of millions of dollars trying to send ordinary citizens into space, or building a car company from scratch?
We generally assume that professional investors are trying to make a return on their capital, but sometimes we can’t help asking: What were they thinking?
One of the benefits of equity crowdfunding platforms is that they allow us to see which start-ups the professionals are investing in. But wouldn’t it be amazing if we could see why they made these investments, and exactly how they came to their decision?
This visibility would make it so much easier to decide whether to invest alongside them. Even better, it would give us a ringside seat to see how professionals assess deals. By understanding the framework they use, gradually we could learn to become more professional ourselves.
Actually, a handful of crowdfunding platforms do offer this visibility. Today we’re going to tell you about one of them.
Introduction To OurCrowd
is a mix between a venture capital fund and a crowdfunding portal. Basically, after they identify a promising start-up, do their due diligence, and negotiate the terms, OurCrowd writes a check with the fund’s own money
– and then they offer us the ability to invest alongside them.
Like any venture capital firm, OurCrowd dedicates time and resources doing hands-on research and fact-finding. But the best part – the most exciting part for crowdfund investors – is that they share those findings with us. It’s like being a fly on the wall at the secretive meetings that occur at these firms everyday.
Let’s look at an example.
The Company: MST
One of the companies OurCrowd is currently involved with is called MST.
MST is a surgical robot. It focuses on the market for laparoscopic surgery, which is a way to make surgery less traumatic and less invasive to patients.
When we first looked at MST, we were intrigued. But from a technical perspective – Robots? Laparoscopic surgery? FDA approval? – it was over our heads, too daunting.
A Blueprint For Assessing Any Early-Stage Investment
Then we read through OurCrowd’s research. After quickly explaining the technology in layman’s terms, they dove into why MST was a strong potential investment. Only then did our trepidation turn to excitement.
Let’s take a look at a few of OurCrowd’s research highlights, keeping in mind that each highlight is a good lens through which to assess any early-stage investment.
1) Addressing a Major Pain Point in a Large Market
OurCrowd’s research determined that the U.S. market alone for laparoscopic surgeries is worth over $3 billion a year: that’s more than 2.7 million surgeries a year, taking place at over 5,000 hospitals.
Is there a major pain point in the market? One doctor OurCrowd interviewed reported that performing laparoscopic surgery with the existing solution is like “trying to tie your shoes with three-foot-long chopsticks while someone else is holding your glasses.” Sounds pretty painful to us.
2. Differentiated Product That’s Already Cleared Regulatory Hurdles
But it’s not enough just to identify a problem. A start-up also needs to create a solution – one that meets the needs of the target user, is difficult to replicate, and complies with any legal regulations.
With MST’s solution, a robotic camera follows a surgeon’s instruments, making tiny adjustments in real-time so surgeons always have a consistent, stable image.
OurCrowd interviewed various experts and discovered that MST’s solution makes surgery easier for doctors, and is economically attractive for hospitals.
To ensure that MST built defensibility into their business, OurCrowd researched the patent situation. While patents don’t provide an ironclad guarantee, they mitigate the risk that a competitor can copy your process or technology. OurCrowd confirmed that MST had taken the correct legal steps.
And finally, OurCrowd researched the regulatory environment. There’s no sense investing in a world-changing product if the government doesn’t let the product see the light of day. OurCrowd was able to determine that MST had received regulatory clearance in Europe, Israel, and the U.S.
3. Team / Advisors / Investors
One of the most important characteristics to evaluate when contemplating an early-stage investment is the team.
As we’ve written about in our report, The 10 Commandments Of Crowdfund Investing
, start-ups often change direction several times before finding the right formula for success. The right team will be able to make the necessary, and often painful, adjustments that separate success from failure.
You can learn quite a bit about a team by researching them online. But OurCrowd takes it a step further. They met face-to-face with MST’s team, and with their advisors and other investors – getting to know them, vetting them, and seeing how they interact together. That’s invaluable.
Learn While You Earn
These highlights from OurCrowd’s research show how a number of filters can be used to perform due diligence on a start-up – almost any start-up.
Over time, reading through a bunch of these reports will help you understand why professional investors make the decisions they do – and will help you formulate your ownset of criteria for making early-stage investments.
If you’re interested in seeing more of OurCrowd’s research on MST, click here
. (You’ll need to register for free if you’re not already a member.)
And please note: Crowdability has no official relationship with, and zero financial interest in, OurCrowd or MST.
Happy learning and earning!