We get it. You just want to get that deck out so that investors can see your company for the rocket ship that it is and immediately go for that proverbial seat.
But we urge you to take a step back and consider who you really want in that seat. Is it your best friend? Your mom? Someone risk-averse who hedges their bets at any given chance? Or maybe someone hellbent on reaching the outer spheres of our galaxy, fast, breaking everything in their way?
Probably none of the above.
Deciding who you want with you on your company’s journey should be a careful, deliberate process, and you should consider their past, present, and future.
What do they bring to the table in the form of previous experience, skills, knowledge, and network? Do they have conviction in you as a founder and your company? Are they willing to set aside the required time and resources to help you succeed? What are their motivations and objectives and are they aligned with yours?
Just like you, we as investors need to consider what rocket ships we should opt for a seat on. In this post, we are outlining how we structure our thinking when evaluating companies.
The purpose of our 8 T framework is to structure and clarify our thinking about your company and the opportunity it represents. It is not a checklist where you need to tick off every box, however, we encourage you to consider how you can best address each of the Ts outlined below.
A great founding team is at the core of our thesis. As we invest at a company’s earliest stages, it is essential for us to understand why you are the right group of people, in the right place, working on the right thing. Convince us that you are knowledgeable, skilled, and smart enough to tackle the problem that you specifically are solving.
Although we may fall in love with an idea, we invest in founders.
Ideally, the members of the founding team have complementary skill sets and backgrounds. We love to see industry experience and a profound understanding of its drivers and dynamics.
Worked together before? Even better. We know first-hand the road ahead is long and winding, so we try to gauge the co-founder relationships. Are they strong, and do you have the necessary empathy towards each other to get through rough patches together? In the words of Sam Altman:
The number one cause of early death for startups is co-founder blowups.
Finally, we look at your team through a realistic lens. There are a number of extremely talented people you’d like to hire but haven’t been able to yet. We want to be confident that you have what it takes to attract them.
Will they share your (and our) conviction in your company? You need to be able to paint a vision that is too compelling to ignore. If you can involve them as advisors or otherwise convince them to spend time helping you before formally entering your company, that’s a great signal to us that you have what it takes.
So you’ve gathered a great team, and you’ve found a problem worthy of your time and efforts to try to solve it. Well done! 🙌
While this might be enough to get you going, we need a bit more. Specifically, we need to understand how big this problem is. How many people face this problem every day? What do they represent in terms of potential revenue?
In other words, what is the scale of the problem you’re tackling? What is the size of your commercial opportunity?
As a venture fund, we need to focus on massive market opportunities, and very often those are the opportunities of tomorrow, not of today. Large markets are good; emerging markets even better.
Help us understand the dynamics of the market you are addressing — what does it look like now and in the future?
Bottom-up analysis beats top-down studies in our view. A very simple, yet revealing, way to think about market size is the total number of potential customers times the revenue you can command per customer. This forces you to think about the size of the problem, customer segmentation, product offering, and pricing all in one formula. Bonus point if you can argue for future expansion on both sides of the equation.
TAM is notoriously the hardest thing to gauge when evaluating early-stage companies. Nobody really knows how big nascent markets may become. All we can do is make an educated guess, so it’s a good idea for you to help us do that.
On this note, plenty of viable and lucrative companies tackle problems that aren’t “venture scale”. You should consider carefully whether taking VC money is really the best fuel for your growth.
But let’s tackle that in a separate post. 😉
Closely related to the size of the market is the question of timing. Why now?
If you’re having a hard time showing the “hard” numbers proving a huge TAM, you might just be on the verge of entering an untapped opportunity. However, entering a new market first does not equate to winning it. Founders tend to “live in the future” — for better or worse — and we sometimes see the vision of founders collide with the realities of the market. To succeed, there’s a need for a complementary appreciation for when the timing is right. One way to think about this is why nobody has succeeded with this before. What has changed or is about to change now relative to then?
Help us see the potential by pointing to the inflection points you believe we’re nearing that will give your company its “lucky” break.
Skype is an example of a company that benefited massively from such an inflection point. It wasn’t first with VOIP, but their timing was spot on. Internet pricing changed to flat rate and processing power accelerated, enabling peer-to-peer vs. client/server architecture combined with incredibly strong network effects.
We’ve seen this up close and would love to find more startups that can do this.
We understand it’s early days, and you might not even have a product in the market. However, any proof of traction will strengthen your case.
This could be early adopter feedback, initial paying customers, highly engaged beta testers, super users, and evangelists in the making. By showing us this, you help us visualize your path toward major success.
Naturally, the level of traction is tied to your maturity stage as a company and we expect to see different things at pre-seed and Series A.
Whether you are pre-traction or have acquired the first users already, we would like to see you addressing your Minimum Viable Distribution strategy: do you understand who your customers are, where to find them, and how to reach and convert them?
Do you have a technology edge that is hard to copy or an unfair advantage that raises the bar and keeps competitors from entering your space? In most realms, we are way past the “blue ocean”. Building conviction around the future success of your company is, therefore, easier if you embody the characteristics above, in the face of fierce competition.
The reality of most software companies is that they are relatively easy to copy. Most of their success depends on execution and thus team and other parameters are more important. This is why transparency and concepts like “building in public” are so prevalent these days. Investors don’t want to sign NDAs and founders rarely demand it. Defensibility, therefore, should be clearly articulated (but be careful not to over-promise on this front).
For many companies, especially marketplaces, data is the primary moat.
Companies like Amazon, Spotify, and Vivino are reaping the benefits of their incumbencies in this way. In the early days of your company, however, this is not helpful to know and so facing the “what’s your moat?”- question can be frustrating.
The good news is that we’re now in the era of community-driven products and companies.
Building a community — thereby owning your audience — before even launching a product, makes for a natural competitive advantage, while securing early traction.
Beyond that, you’ll do well to outline what will become your moat down the line — they can emanate from sources like brand, partners, ecosystem, integrations, and more. Tell us about yours!
Venture scale successes aren’t built on incremental improvements. We are looking for companies that will fundamentally transform industries.
Think of Skype, Zendesk, Spotify, Trustpilot, or Unity, each defining a brand new category that allows them to dominate for decades.
Among our portfolio, you’ll find companies like:
Show us how you will make a difference.
We coined the term “ugly slide,” and guess what: we still want to see it.
Deep-seated trust and compassion are fundamental to a productive founder-investor relationship and the only way we can achieve this is by being honest and transparent with each other.
We don’t want you to gloss over patchy areas of your business or product: this is where we can help you. If everything is perfectly smooth sailing, you don’t need us. But we know from experience that’s rarely the case. With all the great founders and operators in our collective, you are most likely not the first to have this issue. Show us your ugly slide and we will empathize and help you find the right solutions.
We recognize that great challenges represent great opportunities, and as a fund, we want to reap the opportunities of investing in startups with a positive impact.
This is because we believe superior financial returns will come from investing in companies contributing to a better Tomorrow. Either through their product or service or by how they run their business. Ideally both.
It’s therefore paramount to us that you as a founder have a conscious approach to the impact of your company. We do not invest in companies with a net negative impact and we need to see that you continuously strive to do better. Your impact comes from both what you sell and how you run your business.
Are you a “traditional” B2B SaaS company that cares about running your business in the most sustainable way? Then there’s room under our umbrella.
If you can give succinct answers to these eight questions — well, then your company is right up our alley 👋