There is often a lot of “heat” around a company that is growing very fast. There is most likely a lot of growing pain that comes with hyper-growth but generally that is a high class problem (assuming the growth is authentic).
Founders, employees, investors and press will look at the metrics and combine it with a growth forecast and a reasonable scaleable business model and the mind makes the heart race.
But often times there is an opportunity to invest in a company (as a new investment or inside round) where the data isn’t obvious. The numbers look confusing. The metrics don’t present a compelling story. The chart can look boring or even scary.
In todays world where there are no shortage of startups being formed, the question is why would you fund a company that has been operating or a year or more and doesn’t have compelling metrics.
And in some cases the answer is you won’t. In that scenario the mind takes over and the logical conclusion says to move on. Find a new investment.
But there are times when the heart overrules the mind. That happens to me and some of my favorite venture capitalists out there.
For me, it’s when I see the founder(s) completely obsessed about the thing they are building. You can just tell that they are working on the product they have been dreaming of their entire lives. These founders obsess about the details of the product. They obsess about the quality of the team working on their ideas. They strive for perfection. They use their products intensely and actively. They are working on the one thing they want to see in this world.
One thing I always look out for in any new or existing investment is how often does the founder actually use his/her product. The answer can be extremely revealing. (actually the opposite is a red flag for me: compelling data but a founder that doesn’t use his/her own product is a big concern).
So in the absense of data, we get inspired by the founder who not only believes they can make it happen but they are designing, building and shipping products that get them closer and closer.
It doesn’t always work.
But that passion and obsession is one way to make the heart overrule the mind. And it makes it easier to give the company more time to win.
We have seen a ton of seed rounds completed over the last 24 months where the start up raises less than $2M of initial financing and has sometimes 4 (or more!) traditional venture firms participating plus a half dozen angels (or more!) in the same round.
Many smart folks have commented on that strategy and whether that is a good idea of traditional venture firms or entrepreneurs. For this post, I’m not going to comment on that topic (1)
But contrast that to the capital intensive investment opportunities. We are often asked to evaluate a Series A round of a capital intensive idea where the company needs to raise $5-$10M before knowing any real data. Those investments are challenging for a whole host of reasons.
In our partner mtg last week I brought up the idea/question: why can’t we have large syndicates for seed/Series A in capital intensive ideas? I think we should and my partner Santo wrote up a good post today explaining the logic.
I’d much rather see 4 VCs funding a capital intensive idea than 4 VC funding a capital efficient seed round.
And hopefully we can together fund some crazy bat shit ideas along the way that take years to figure out.
* * *
(1) OK, I can’t help myself. i don’t like to see more than 2 VCs in a seed round. The important thing for the lead VC and the founder to agree on is how much capital is required. Stage the capital properly and pick angels that will help. And choose VCs that have a track record of leading/following on their seed investments. Ask them specifically what their history looks like with seed investing and follow on. The answer will be quite revealing.
Basically I can only get coverage if I’m in a few rooms at best. The vast majority of my inbound calls go to voicemail. (Maybe that’s a feature not a bug – especially on weekends!) My primary mobile phone is an iPhone on Verizon’s network.
I’m a Google Voice user but I don’t want work calls routed to my home number. That would drive my wife crazy.
I’ve tried various micro-cells over the years and they don’t work for me either.
A few weeks ago I picked up a HTC One S. It’s a beautiful Android phone. I love it. Best Android powered hardware I’ve ever touched. I use the One S and my iphone 4s interchangeably. The only app I miss on the Android is Hipstamatic.
My absolute favorite feature on the One S is Wi-Fi calling. Basically when my phone connects to our home wifi network it automatically turns the cellular network off and I can make & receive calls with my own number over Wi-Fi.
I realize that this is an old feature to many of you t-mo users out there. But I can tell my fellow VZW and ATT friends, this feature is amazing. It just works.