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STARTUP

This Startup Investor Knows How to Pick Winners. Here’s His Secret.

As an entrepreneur, it’s often hard to know whether a new idea will work. This expert CEO shares how he analyzes new opportunities.

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BY Kevin Daum - 28 Jul 2018

This Startup Investor Knows How to Pick Winners. Here's His Secret.

PHOTO CREDIT: Getty Images

Entrepreneurs are always looking for new opportunities. It’s a part of their brain they can’t turn off. But how do you know if an idea is good or bad? What if it’s in a market you don’t know well? Entrepreneurs need to be careful about the businesses they pursue.

YPO member Yariv Cohen has learned to be comfortable being uncomfortable in business. It’s no surprise, then, that along with an MBA, he also earned a Masters in Negotiations from the London Business School. His career in clean energy and impact investing has brought him to Israel, Africa, Europe, and Asia. Currently, Cohen is the Chairman of Kaenaat, an impact investment firm focusing on socio-economic betterment around the world, and the CEO of Ignite Power, which seeks to develop and finance clean energy solutions across Africa.

In an episode of my podcast YPO 10 Minute Tips from the Top, Cohen explained how he decides which ideas are worthy of funding, and how he encourages entrepreneurs to grow. Here are Cohen’s tips on selecting new ventures and helping them succeed:

1. Viability

Talking about socio-economic betterment and clean energy is great - but actually doing it is much harder. Sometimes, proposals simply won’t work. “The first thing,” he says, “is commercial viability. We see hundreds of solutions. Most of them don’t really have a business case that underlies it.” Cohen asserts, “Whether it’s in the long term or the short term, the business has to make sense and it has to create a profit.” After all, the product or service can only help people if it can actually stay afloat itself.

2. Affordability

Cohen operates in areas of the world where the ability to access, and then afford, electricity is not a given. Therefore, any company he considers must account for this in the price of their product. “When costs go down, our serviceable market grows, and we can get a return on capital,” he says. They also work to make their product the most desirable. Cohen explains, “We make our power cheaper than any other source, such as candles. That way, the affordability is never far off.” Cohen’s goal is to improve access, not limit it.

3. Infrastructure Awareness

In parts of Africa, large infrastructure is in its infancy. Ambitious ideas are great, but they require a deep understanding of what is practical in the region. Cohen, however, is encouraged. “The infrastructure in the world has improved,” he states. “We don’t see the change much in the first world, but you can see it much more in emerging markets. Cell phones, financial systems, IT communication to control a workforce, it’s all transformed where you can reach and what the cost of that would be.” This has had a huge impact on his ability to reach customers. He explains, “If you have cell phone access, I can control the system. And once you’re connected, I can provide many more services, and make commercial solutions viable.” One access point opens a world of possibilities.

4. Creative Business Models

To make products work in a market where costs need to be low and infrastructure is lacking, Cohen has had to get creative. “We’ve needed some new, creative, or unusual business models,” he says. “Some of the water and solar power we provide are pay-as-you-go systems, like a pre-paid cell phone. The consumer pays over time. So suddenly, the consumer has a way to finance it.” And if the customer can’t afford power one day, they’re not forced to go without power for long stretches.

5. Commitment

Providing access to power is a wonderful achievement, but for Cohen, it’s not enough. He believes power is the start of a longer-term relationship. “It becomes very local,” he says. “We choose carefully where we go, because we’re making a commitment to the place. Once we’re in a location, we offer as many services as we can,” he explains. Above all, Cohen seeks to make a difference. He shares: “There’s a lot of discussion about the conflict between impact and return. The thought is that if I want to have impact, I’m going to have less return, and the other way around. We don’t agree with that. When we work with an entrepreneur, we invest a lot into making them better, more efficient, and more effective. When you do that, you can both create impact and create high returns,” he says. It’s a win-win.

6. Looking Beyond the Borders

Cohen has found that some entrepreneurs in emerging markets think only of their local economies. Cohen encourages them to look far beyond this limited pool. “You have to think outside your border. Look at the markets in other countries and ask how you can conquer it,” he instructs. Cohen goes on: “If the local entrepreneur found something that worked really well in their home country, what we can add is helping them replicate that. If you’re dominating your market in one area, you’re probably doing something right, and you may have a competitive advantage in the next market.” Build on your own success!

7. Effort

Cohen and his team make a real investment into the local entrepreneurs. “For us, impact investing is not just about the time - it’s about the effort you put in,” he says. Cohen admits, “If you just invest capital, then yes, your impact might be limited and you might find fewer opportunities. But if you put in the capital and the effort, those businesses usually outperform expectations.” The difference is the effort!

Each week Kevin explores exclusive stories inside YPO, the world's premiere peer-to-peer organization for chief executives, eligible at age 45 or younger.

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