In our previous blog, we explained how you can scope and search for companies. The process we described results in a longlist of potentially relevant companies. M&A teams and investment teams will perform these searches continuously, but when you are looking for a collaboration partner or an innovative supplier, you might want to take the same approach.
When you have built your longlist however, you need to bring it back to a shortlist. How do you do that efficiently? Read below how we do that at Venture IQ. It is not that dissimilar from how your high school history teacher will probably have scored the class’s history exams. Here the stakes might be a bit higher though.
Why start with a long list?
You want to engage with the number 1 in your field based on objective criteria, not because someone happened to know the CEO. To find the best company, you want to start with a list that is as complete as possible and rank it on all the criteria that matter to you. Moreover, you want this list fast, because there is always someone in your team that knows someone and before you know people might have built a preference for a company that they happen to know and it will be difficult to change their mind even if you objectively find a better company. Trust me, this happens a lot.
“You want to engage with the number 1 in your field based on objective criteria, not because someone happened to know the CEO.”
Step 1: Make a list of criteria
Brainstorm with your team to create a list of criteria. Criteria could relate to the business model, the client base or the technology that is used by a company. It might also matter where in what country the company is based, or in which countries it is active in. Are you looking for new emerging startups, or can companies also be larger established players? Each criterion should directly link to anything that determines relevance to you.
Step 2: Quick criteria vs time-consuming criteria
Divide your list into criteria that can be checked quickly and criteria that probably take more time. More time can be required for criteria where data is not standardised and requires interpretation. Location, number of employees and funding status are typically easy to find. On the other hand, the quality of the team, technology or value proposition generally is more subject to interpretation and requires more time.
Step 3: Hygiene criteria vs cumulative criteria
Break your criteria down into hygiene criteria and cumulative criteria. With hygiene criteria we mean criteria based on which companies should probably be dismissed when they are not met. On the other hand, companies that score well on multiple cumulative criteria are more interesting. For example, if you are a European company looking for a partner to collaborate closely with, it might be best if companies are also based in Europe. Companies that are based in the US are not in scope and should be dismissed on that basis. That we call a hygiene criterion. On the other hand, you might be open to several business models and technology solutions. This we call cumulative criteria.
Step 4: Attach scores to criteria
Attach relative scores to all cumulative criteria. This way, you create a rule-based point system, where you do not dismiss any company yet: if it is based in Italy, assign 50 points; if it is based in Poland, assign 100 points. If it sells its technology to the food industry, assign 100 points; if it sells to the oil & gas industry assign -100 points. Don’t try to be perfect at this stage, just go with your gut. You are not excluding anything (other than companies that do not match your hygiene criteria) yet and therefore can always adjust the scores later on. If you do not want to not even use hygiene criteria for dismissing companies you either set yourself up for a lot of work by searching for evidence and scoring everything, or you are using Catalist that can auto score companies for you. Read more about how you can automate this process in Catalist below.
Step 5: Start scoring companies based on the easiest criteria
Build a spreadsheet (or use Catalist) to score each company on all the criteria in your sheet. You want to start with the hygiene criteria that are easiest to check, to avoid having to score all the companies on all the criteria. Then you continue with other criteria that are easiest to check, so that you do not lose time on companies that do not really matter in the end. Make sure to save comments with evidence with all the key criteria, so that you do not forget why and how a company matched a certain criterion.
You can automate this process in Catalist
Instead of a spreadsheet you could also use our software platform Catalist that automates this process. Based on your criteria, Catalist can score all the companies for you. For each score Catalist suggests, it will give a probability score of the correctness of the assessment and the evidence that it found, for you to check if needed. This saves you the time in finding evidence for each criteria. As a bonus, Catalist keeps all data up to date and updates your scores automatically when new data is found.