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6 tools used by startup investing insiders to identify -- and invest in -- the next Facebook

Jan 6 2014, 7:36am CST | by

6 tools used by startup investing insiders to identify -- and invest in -- the next Facebook
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When news hit in early 2011 that Goldman Sachs (NYSE: GS) was giving its clients the opportunity to invest in (then private) Facebook (NASDAQ: FB) shares, investors knew something big was afoot.

FB shares have since tripled (Goldman invested at a $50 billion valuation), making Goldman Sachs and its clients, richer.

This deal, which came a few months before the massive social network went public was seemingly a no-brainer: Facebook’s revenues were ramping, an IPO was imminent, and there was clear demand to invest in the next big Internet winner.

This got me thinking: outside of being a Goldman Sachs client, are there other insider tools investors can use to identify the next big IPO? The next Facebook?

I came up with 6. Here they are:

  1. Identify potential investments with lots of private transactions: Leading up to Goldman Sachs’ investment in Facebook, millions of shares of FB had already changed hands on private markets like SecondMarket. Facebook and another 11 companies saw $400 million worth of transactions in the year the company went public. Though Facebook’s departure to public markets spelled a big decrease in activity on private markets, there’s no doubt that with the proliferation of angel investing, more investors and entrepreneurs will turn to secondary markets for early liquidity. SharesPost (another leading secondary market) and NASDAQ OMX recently signed a deal to help consolidate and focus trading in private shares. Investors can get a feel for how exciting an IPO will be by watching these markets closely.
  2. AngelList becoming the Android of venture capital: Guarav Jain put it aptly when he called angel investor social network, AngelList, the Android of Venture Capital. That’s because it’s becoming a one-stop-shop for private companies to raise money by meeting and connecting with some of the top angel investors in the world. Semi-pro investors in private companies are already using this platform to identify, track, and invest in some awesome early stage companies. You can get a good feel for the business and funding momentum of all classes of private companies. Other investors who are looking for more guidance and pre-vetted deals look to professionally curated angel communities like those employed at my firm, OurCrowd, and other equity crowdfunding players like CircleUp and FundersClub.
  3. Crunchbase is the database of private companies and investors: If private investors can find opportunities for investment on equity crowdfunding platforms like AngelList, they can find tons of data and information about those very companies on Crunchbase. Crunchbase has quickly become the default repository for data on private companies: who’s invested, how much they’ve invested, when they invested, who’s joined the board or management, etc. Crunchbase has its own API that interested and motivated investors can use to help make their next informed investment. Learn About Tableau
  4. Get your Bloomberg for startups on: mattermark bills itself as where “big data meets venture capital”. The company (which has a must-read free newsletter, by the way) tracks 200,000 startups around the world by profiling them, tracking millions of data points including location, stage, investment history + the more valuable traction metrics (web traffic, mobile downloads, social media following and engagement). It’s not cheap — at $500/month/seat, it’s a tool for very active and larger investors in startups.
  5. Want investments? Look local: One of the best ways to identify startups is by tapping your local business network. StartupDigest is a great newsletter, chock full of local startup events, curated by a local expert. You can subscribe by industry but the real power of this newsletter is to plug into local events showcasing top talent.
  6. Startup ecosystem analysis: It may take a village to raise a child but it takes a whole ecosystem to foster a successful startup. StartupGenome is an interesting project that addresses startups at their geographical level to identify support mechanisms, influential people and statistics about active startups and investments per geography.

Of course, none of these tools can tell for certain if a startup you’re looking at is going to turn out to be the next Facebook, but they can all help in the calculus whether to invest or not. As these tools evolve and access to new deals improves, new angel investors should be able to make better — more informed — investment decisions.

And that’s good for everyone.

What tools do you use to help with identifying new startups worthy of your investment? Let me know in the comments.

Source: Forbes

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