Last week, we shared what we are learning from the Innovation Fund. This week, we summarize how we chose the startups we will be investing in. Stay tuned for the upcoming announcement!
Clearly, the first thing we look for are technology or media startups who create progressive change via scalable, revenue-generating business models. But beyond that, what kinds of startups and entrepreneurs are a good fit for our Innovation Fund?
1. Far along enough to demonstrate proof of concept
The Innovation Fund is dedicated to investing in early-stage start-ups. Nonetheless, we look for start-ups that can prove that actual people are interested in paying real money for their product or service. A start-up that has one or two customers who are using a rough prototype of the product is much more attractive than a start-up with 1,000 potential customers who have expressed interest or a polished product with no real customers. We look for these proof points because many entrepreneurs build solutions and then go looking for the problems these solutions address falling into the proverbial “if you build it, they will come” trap.
2. Strong, diverse team
Obviously… But what does that mean? To us, it means the startup has both the technical and business talent to create something and then sell it. As a result, we are wary of start-ups that have outsourced their technical team, only have developers as co-founders or have B2B experience but want to build a consumer-facing solution. In addition, we look for teams who understand their customer base intimately. Ideally, the entrepreneur could be a customer for the product s/he is developing. The strongest teams also have an extensive network of potential customers, advisors and investors that will be there to help them succeed. Finally, we look for teams that are diverse in gender, race, experiences and backgrounds because diversity reduces group-think and builds resilience.
3. Momentum, of a different kind
To us, momentum does not mean hockey-stick like growth projections. At the early-stage, when your business model is unproven and your technology is still full of bugs, we take these projections with a big grain of salt. That said, there are other ways to demonstrate your startup has momentum. We look for entrepreneurs who are focused and have the hustle to get where they want to go. We judge this by what they have accomplished each time we talk to them, and whether they follow through on their commitments.
While we strive to conduct rigorous diligence, we also know we will make mistakes. We might pass on a start-up that goes on to be tremendously successful or we’ll invest in something that will implode and fail. But through it, we’re committed to learning what it takes to invest at such an early-stage and sharing what we learn with you.