Transforming Venture Evaluation
“All of the financials that we were given by the startups looked good – but the analysis we’re doing on the financials is clearly not picking up important signals.”
The Problem
Investment criteria used today aren’t working well enough
For today’s investors, evaluating early stage ventures remains the proverbial black box, and on the whole, the investment criteria used today just aren’t delivering.
As the numbers below illustrate—and these are for ventures that get investment—the results are jarring: more than 99% of capital and time is going to waste.
90% of startups fail completely
Only 1.5% reach an exit of > $50 million
Less than 1% achieve profitability
MCL Initiative
Next generation venture evaluation using IVE
Requirements-driven
Integrative Venture Engineering (IVE) was developed over the last 25 years to address the extremely low success rates of market creating ventures. IVE has been used on the builders side for dozens of corporate incubators and startups, but also to perform deep venture and portfolio analysis by the IFC, Shell Foundation and others.
At its heart are 10 core requirements that every market creating venture needs to satisfy in order to achieve sustained profits, which can also be used to probe the viability of a venture’s strategies and its overall commercial robustness.
Financially-focused
IVE treats profitability as a core engineering requirement, specifically net present value—a measure of profitability used by CFOs that accounts for the time-value of money and the opportunity cost of capital.
Using financial modeling and simulation, IVE enables venture builders and investors to assess the opportunity space in which the venture resides, as well as calculating potential at-scale revenues, costs and required price points, coalescing around a north star metric: the Market Creation Margin, a measure of a venture’s robustness and its ability to absorb variability in operational performance as well as completely unforeseen costs.
Developing with partners
As part of the MCL’s Evaluating Early Stage Ventures working group, MCL members and investors from partners like the MIT Alumni Angel network are researching and developing next generation due diligence and venture screening tools to power their own investment decisions.
Initiative members collaborate to apply IVE to their own investment cases and portfolios, while also observing and learning from EIRs building live ventures as part the MCL’s Venture Training Studio.
The results and tools from the initiative will be published by the MCL for the broader investment community to benefit from.
Want to take part?
Are you an investor, corporate development professional or analyst interested in joining this initiative? Contact us using the button below or via the MCL community.