In the startup world, there are no analyst ratings.
No audited quarterly earnings.
No P/E ratios, insider buy signals or technical analysis either.
Researching, investing in and tracking private startups requires a different set of tools.
Fortunately, there are a bunch of free and valuable services I’ve discovered over the years.
Let’s get started.
Tool No. 1: AngelList
Useful for: Due diligence, investing online, research, fundraising
AngelList combines elements of sites like LinkedIn and E-Trade. But it focuses exclusively on private companies (mostly early-stage startups).
One of my favorite uses for AngelList is evaluating co-investors. In other words, researching the other investors in a deal you’re looking into.
Say you’re considering an investment in a fictional startup we’ll call NewCo.
NewCo is raising $1 million. The deal’s “lead investor” is a fictional venture capital firm called Ludicrous Ventures. (The lead could also be an angel, or individual, investor. The process for investigating both is the same.)
The lead investor is important for a few reasons. First, they negotiate the terms of the deal. Second, the fact that they’re leading this round shows conviction. They believe in this deal. So our goal here is to figure out whether that conviction means anything.
The first step is to look into Ludicrous Ventures’ track record. The easiest way I know to do that is using AngelList. So we head to the AngelList homepage, search for “Ludicrous Ventures” and click to its profile page.
You can learn a lot about an investor’s history from their AngelList page. Their portfolio is displayed, along with other background information.
Let’s say Ludicrous lists 50 investments on its profile. Look for familiar names.
If you see names like Uber or Snapchat or Dropbox, that’s a very promising sign. The more recent their big-name investments, the better.
If you don’t recognize any of its investments, that’s not necessarily a bad thing. It simply requires more digging. Start clicking on its investments and looking at the profile pages of its portfolio companies.
One easy way to judge the success of a startup is its funding history. A typical “unicorn” fundraising history will look something like this:
- 2011: Seed round, $750K
- 2012: Series A, $6 million
- 2013: Series B, $30 million
- 2014: Series C, $60 million.
A funding history like this indicates quality and traction. If a co-investor has multiple investments that fit a similar pattern, it’s a great sign.
There are countless other ways to use AngelList. And the best way to learn is to register an account. Then start following anything that looks interesting. News related to anybody you follow will pop up right on your homepage feed.
Tool No. 2: Owler.com
Useful for: Tracking private startup news and developments
Tracking stock market investments is pretty straightforward. Read your statements, check Yahoo Finance, watch Bloomberg, etc.
It’s a little trickier in the private world, but things are improving thanks to sites like Owler.
Owler is new, but it’s quickly become a favorite of mine. Simply create a free account and start tracking all your startup investments in one place. You’ll receive a daily email update on what’s happening with companies you follow.
Whether it’s a new round of financing, a news story or just a blog post, you’ll know. This may not sound like a lot, but in the secretive startup world, it is.
If you don’t see your company listed, add it as a suggestion. Every company I’ve suggested has been added to the database so far.
Side note: Owler is also great for tracking what your competitors are up to. In fact, that’s what it was built for. It just happens to work great for startup investors too.
Tool No. 3: App Annie
Useful for: Researching startups with apps
Investing in mobile app-based companies can be notoriously tricky. Consumers are fickle, and there’s only so much room for apps on each phone.
But when app companies hit it big (especially in social networking), they hit it big. Recent examples include Snapchat, with close to a billion users. It’s valued at around $19 billion today. (Check out Snapchat’s funding history on AngelList here.)
There’s also Tinder, the “dating” app for singles. And many more.
So if you find yourself considering an investment in an app-based company (whether public or private), I highly recommend App Annie.
Using a free App Annie account, you can find out all sorts of information about how an app is faring in the market. You can see where it ranks in its category today (No. 22 in U.S. social networking, for example). A free account will also get you historic data on its ranking, keyword research and much more.
Naturally, you need to upgrade to a paid account to gain access to all the data. But the free offering is quite useful by itself.
Also, check app reviews. But don’t necessarily let a few bad ones scare you away. Are they updating frequently? Fixing bugs? Then there’s a good chance things will get ironed out. In general, if an app maker is issuing frequent updates, that’s a very good thing.
In general, investing in early-stage tech is more art than science. But using the tools I’ve described today makes research and tracking easier and more productive.
So whether you’re tracking a large number of startups (100-plus for me), or just looking to learn more about the space, I encourage readers to dive into these tools.
Now that equity crowdfunding is live, you can use them to start tracking and evaluating startups.
Even if you’re not ready to invest yet, you can build a “fantasy football” style portfolio using Owler. Track your hypothetical investments, and see which companies stand out over time. Take note of the companies that go on to make noise and raise more money (usually a good sign) and which ones fade out of view (usually a bad sign).
Eventually you’ll start to recognize the characteristics that make a good startup investment.
As Naval Ravikant (one of the best early investors around) recently tweeted, “Being an experienced angel investor is like knowing one of the six winning lottery numbers in advance.”
Taking the time to become knowledgeable about early-stage investing is truly one of the best investments I’ve ever made.
Founder, Early Investing