The purpose of this article is to provide startups that may be interested in presenting to the Skok123 group a few insights into how we go about analyzing a company before we invest. By no means does the article cover all the aspects and depth of the process, but it should give the reader a directional idea.
sportreact(tm) is a Zagreb, Croatia based company innovating the sports industry with its IoT and analytics software platform that helps all levels of athletes measure and improve their performance.
I met the sportreact team, Anto Siric and Ivan Josipovic, in November 2021 when visiting Ante Medic at Zicer in Zagreb, Croatia. Ante’s company PulsarLabs is a strategic technology partner producing the sportreact IoT platform, and he is also an investor in sportreact. After about a 5 month long due diligence (DD) process, twelve of the seventeen Skok123 members invested into sportreact in August 2022.
Why did we invest in sportreact?
Reason #1: sports are a huge industry that has been lagging in tech / digital innovation.
Having spent 14 years as a volunteer youth soccer coach in the USA, I understand the need from a training standpoint, and I also have witnessed first-hand how much money parents are willing to invest into prospective athletes.
Professional, collegiate, and youth sports in the USA is a huge industry. Starting from the NFL, NBA, NHL to college football and basketball tournaments, all the way to regional and local youth leagues, sports are the cultural fiber of Americans, especially those living in the suburbs, where it’s for many the main weekend event and social fix. In other words it’s a huge market
Reason #2: In our network, the investment group has access to professional, collegiate and youth sports clubs in the USA and Europe.
Nothing is easy when starting and growing a company, but one of the hardest things is closing a sale, more specifically even opening doors to prospective clients. Skok123 group can act as a global business development team for sportreact.
Reason #3: Reasonable valuation and win-win deal terms
An investor’s main goal is to maximize Return on their investment (ROI). To do that, the price at which the investor “makes a purchase” is one of the main variables that determines the future ROI. The more favorable the price, the better is the prospect of a good ROI. We felt that the valuation we agreed upon is fair and gives us a good chance for a solid ROI.
Since as an investor, we are entering into a long-term relationship with the founders, it’s important that both parties feel they got a fair deal going into it. If the company founders feel that they were “forced” into an unfavorable deal, it creates resentment, that in the future will inevitably make difficult situations worst. We all want to avoid that.
Reason #4: Positive outcomes from the due diligence (DD) process
During the DD process we look at:
Founding team
Do they have the right background? Yes
Does the team have complimentary skills? Yes
Do they understand where their capability gaps are? Yes
Are they “coachable”? Yes. This is one of the most important characteristics of a founding team. Their ability to recognize where their knowledge and experience gaps are and to leverage their investor network to help them.
Do we trust them? Yes. We have come to that conclusion in the extended period we interacted during the DD process and by talking to our network of locals who know them.
Do they truly welcome our involvement? Yes
Are they confident but humble? Yes
Market opportunity: Large
Pro-forma financials: What’s mostly important here is that the team demonstrates an understanding of the mechanics of the business, and the ability to build a financial model around it. The assumptions are most likely wrong, but as the team learns more, they can update them with in-market actual data.
Product / service
Does it work? Yes
Is it a good user experience? Yes
For IoT is there a core competence? Yes, via PulserLab partnership
Customer / user interviews: We conducted 5 user interviews in USA and Croatia that were very positive.
Skok123’s Network Strength in the Industry: Good
Reason #5: Founders embracing of the value we add beyond the money
This has been evident throughout our interaction with the sportreact team.
Everything is great when things are going well, but there are going to be moments where things don’t always go well and we as investors want to know that we are getting “married” to a team we can work with and trust both during bad and good times.
Reason #6: We like to invest into individuals and teams who have, at some point in their life, performed at high levels of sports, arts, etc..
Anto told me his personal story and the story of how sportreact came about. Anto is a world class competitive kick boxer. Having had experience at the highly competitive levels youth soccer and volleyball with my kids, I have seen first-hand the positive impact sports can have on the person’s development in terms of organizational skills, discipline, determination, developing the emotional ability to deal with wins and losses, and much more. We believe that this is true for anyone who has demonstrated excellence in any hobby, work, or activity.
Not all companies we evaluate and invest in match the above list perfectly. Some companies may have less and some more “points” in their favor that make them an attractive investment. This process is not an exact science and there is some “art” to it. We hope that this list does not discourage you in the case you don’t have gotten as far in your company but rather informs you on how to approach investors.
Skok123 provides companies with “smart” money and “know-how” to enter the US market and beyond. Our members provide companies such as sportreact with operational, marketing, legal, strategic, and other expertise that can help a startup company move forward.
sportreact Investors
Ted Chan | |||
Confidential | Kevin Johnson | Confidential | |
Confidential |