Unlocking success: Extra-financial criteria in company assessment

Why it is smart to start investing in the stock market?

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Should I be a trader to invest in the stock market?

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What app should I use to invest in the stock market?

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Is it risky to invest in the stock market? If so, how much?

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Tell us if you are already investing in the stock market

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When it comes to investing in startups or tech companies, investors, whether bankers, business angels or institutional entities, understand that evaluation must go beyond traditional financial measures. In fact, at early stages of maturity, it is difficult to rely solely on the financial history of companies. That is why extra-financial criteria play an essential role in decision-making.

It is important to note that the extra-financial approach has always been part of EarlyMetrics' DNA. ScaleX inherits this approach, not only by adopting financial parameters, but also by focusing on extra-financial and ESG criteria.
Let's take a closer look at the importance of these extra-financial criteria and how they relate to a company's potential success or failure.

What do extra-financial criteria cover?

What exactly do we mean when we talk about extra-financial criteria? How can we go beyond the key indicators of business plans and financial projections?

Traditional financial indicators such as sales, profits and margins are not sufficient or relevant enough for companies that are still immature. Extra-financial criteria encompass a range of factors that can influence the growth and future success of a startup. They are the foundations of sound financial health in the future. They include the composition of the management team, its experience and commitment to the project, the technology developed, the innovative nature of the project, its international ambitions, etc. Without a human core and shared ambitions within the management team, it will be difficult for a startup to grow.

Putting together the winning team

One of the keys to a startup's success is its management team. Thanks to its AI, ScaleX gathers data provided by entrepreneurs to carefully dissect the background and expertise of team members. A strong, complementary team is better able to meet challenges and seize opportunities, by giving them precise, well-defined roles. Also, as it is common to have part-time partners at the startup stage, we estimate that this has a strong impact on the ability to effectively lead the development of the business. Another example is external support from investors and advisors. The best scenario is to have professional investors among the company's shareholders, with strong commercial synergies and market expertise. These essential factors also go hand in hand with a clear recruitment plan.

In the tech world, the team is central, as the project and the technology cannot be deployed without the ability to implement a well-defined technical roadmap.

Innovation and technology

Technology and innovation are at the heart of many startups. Investors are interested not only in the technology developed, but also in its potential to disrupt the market. Cutting-edge technology can create significant competitive advantages. A company's ability to remain competitive over the long term can be the guarantee of its success. Also, companies with scalable products and processes are more likely to grow rapidly and more likely to attract investors. The example of UIPath speaks for itself. The company publishes software that enables businesses to automate all or part of certain processes. Today, the company is worth more than 9 billion dollars, but it began by attracting the attention of investors thanks to its desire to automate repetitive and time-consuming tasks for employees.

That's why ScaleX's algorithms assess technical maturity based on the resources and assets mobilised: the number of employees in the technical team, the proportion of tech employees in the team, to determine whether the technology is part of the company's DNA and priorities, and the structuring of R&D partnerships with external bodies. These factors help to measure a company's ability to structure its resources and stay one step ahead.

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Don't confuse extra-financial criteria with ESG criteria

It is worth noting that extra-financial criteria extend beyond ESG (Environmental, Social,Governance).

While ESG criteria focus on sustainability, social and environmental impact, extra-financial criteria encompass a wider range of factors. However, ESG remains a crucial aspect of valuation as it measures a company's social responsibility and its alignment with broader sustainability goals. Investors today increasingly recognize that a strong ESG profile can enhance a company's resilience and long-term success, making it an integral part of the evaluation process for startups and tech companies. At ScaleX, giving ESG a special place makes it easier for our clients to read their portfolios and helps them to align their investments with sustainable values and objectives.

In short, extra-financial criteria play a central role in the evaluation of a startup or tech company. While ESG is an important part of this evaluation, it is only one facet of the extra-financial criteria. At ScaleX, we are committed to helping investors make informed decisions by integrating these extra-financial criteria into their investment process while pursuing sustainability objectives.

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