Young companies share some common attributes:
- No historical performance data.
- Small or no revenues with probable operating losses.
- High failure rate. Many don't survive.
- Investments are illiquid. A significant portion of the equity is usually held by the founders.
Revenue growth: This show how much growth potential the firm has.
Reinvestment for growth: A young company can (or even should) lose money in order to make money in the future. The managers / owners / founders should aim for long-term goals.
Survival skills: For young firms to become valuable, they simply need to survive. This requires talented management.
Key people: Young companies, especially in service business, are often dependent upon the owner or a few key people for their success. Focus on firms that have built up a solid bench to back up key personnel.
Corporate success: Sometimes success in one business or market can be a stepping-stone to success in other businesses or markets.
Exclusivity: Success attracts competition. You want young firms that have products that are difficult for others to imitate (patents, technology, or brand name).
