11 Ways To Determine When a Purpose-Driven Startup is a Good Investment

What is one tip to consider when determining if a purpose-driven startup is a good investment or not?

To help investors decide if investing in a startup with aspirations to serve others is a valuable decision, we asked experienced startup leaders and investors this question for their best advice. From knowing their story to being passionate about the startup, there are several considerations that may help you in your investment decision for future ventures.

Here are 11 considerations for deciding if a startup is a good investment:

●     Review Their Teamwork

●     Analyze the Business

●     Check-In With Your Intuition

●     Know Their Story

●     Establish Your Niche

●     Assess the Market’s Demand

●     Research the Company

●     Be Passionate About It

●     Possess Strong Leadership

●     Ensure a Scalable Business Model

●     Explore Barriers to Entry

Review Their Teamwork

The team matters. Does the team really research and talk with each other about what will work and what might not? Does the team believe in honesty over compliments? Does the team have a diversity of thought, background, experiences?

-Kim Allchurch Flick, Mighty Epiphyte

Analyze the Business

Consider whether or not you're ready to put your purpose front and center — basically, does your startup have all its ducks in a row? Leading with your purpose is always a good investment, but timing is key. Don't go down the rabbit hole until you've figured out if your startup is viable. (You can always practice good business without the recognition.) Do your market research. Meet people, ask questions. Figure out if you have a niche. Once you find it, consider how you'd like to present your purpose, and budget smartly for that investment according to your means.

-Erik Croswell, Bridge City Media

Check-In With Your Intuition

Ask yourself a series of questions. Is the communication with the representative easy and high level? Do you enjoy interacting? Are you going deeper every time you are in touch? Do they specialize in what you need at a mastery level? Are they personally available to you?

-Charles Ramsay, Metro PDX Homes

Know Their Story

A good way to determine if a purpose-driven startup is a good investment is to investigate their story. You want to understand why they want to break into the market now and what exactly they are bringing to the table that will give them an edge and define their commitment to something greater than themselves. They should be experts on questions like, "Why now?" "Why this product or service?" "What's your previous experience that will aid you?" Businesses crop up all the time, but the true test of longevity will be rooted in the purpose of business and what makes them unique compared to the competition.

-Eric Blumenthal, ZoePrint

Establish Your Niche

Get specific! One reason why some startups fail is that they are in too broad of a market. The same can be true for investors! As an investor, it’s important to narrow down your search to a market niche with a well-defined purpose. A niche targets a distinct industry segment in which investors are much more likely to find startups and businesses that solve specific, under-served areas or overlooked problems. There are “riches in the niches” — carving out a solid niche is a good way to determine if a company is a good bet for your investment.

-Grant Ferguson, Unsecured Funding Source

Assess the Market’s Demand

Investing in a purpose-driven startup is certainly a risky business, but it can also be incredibly rewarding if you do your homework and take heed. One tip to consider in assessing if a startup is a good investment or not is market validation. This can be determined by first analyzing if the problem selected is worth solving. If you believe the problem is worth solving, you can shift your efforts to determining if the startup venture’s intended product, service, solution, or purpose settles that problem in an effective and scalable manner.

-Patrick Crane, Love Sew

Research the Company

It usually takes a while for most startups to get off the ground, but it could be off to a good start with a great vision, strategy, and purpose. For example, Apple was once a startup, and it took some time, many changes, and a strong vision to get to where it is today. So do your research to find a good startup with goals you align with and stick with it. With some good SEO and Digital PR to develop organic traffic, there’s no telling just how far your startup investment can go.

-Rronniba Pemberton, Markitors

Be Passionate About It

Investing in a purpose-driven startup is always a risk. You want to be passionate about or interested in the product or service you are investing in and see how their overarching purpose drives them. Get to know the business and the company founders, gather insightful information about the market, and gauge how the company will stand out from its competitors.

-Harris Rabin, R3SET

Possess Strong Leadership

When investing in startups, you're investing in the model, the founder(s), and their purpose. One of the things I look for when evaluating startups is if the founder or founders are coachable. To be clear, I don't want to change someone's business model. I do, however, want to learn how good of a listener a founder is. I want to see how a founder applies new knowledge to their work, how they develop as a leader, and how their purpose guides their leadership.

-Parissa Behnia, Sixense

Ensure a Scalable Business Model

If a startup has a scalable business plan, then the return on investment can be considerably high. This makes it a potentially worthwhile investment. A startup is only scalable if it is repeatable and able to solve a particular problem or meet a particular need effectively for a large number of people, even better if the startup has a meaningful and valued purpose. The business model should also be able to add more customers without proportionally adding costs. This makes the business more profitable as it expands.

-Carol Tompkins, AccountsPortal

Explore Barriers to Entry

Most startup pitches do a pretty good job of explaining the opportunity size and the product-market fit. So if it looks like there's nothing in the way of building a successful product, it's worth asking what would prevent an imitator or incumbent from coming along and doing the same thing. There's some advantage to being the first player in a given market or to differentiating with a distinct purpose, but if there are no barriers to entry, competition will be sure to follow.

-Elliott Brown, OnPay Payroll

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