At New Media Ventures, we launched an Innovation Fund to invest in early-stage technology and media start-ups. We are learning so much about investing at the very early stage.
First, the need is there! We received over 100 applications to our open call! We narrowed this pool down to 16 thanks to the help of an expert screening committee and are conducting final diligence and discussing terms as we speak. We will likely invest in 4-6 companies in this round.
Second, finding scalable media (content) companies is challenging. The media and content companies we reviewed find it hard to develop revenue-generating business models. In addition, a number of media companies we saw shy away from the progressive advocacy we look for. Maybe we need to create a dedicated vertical in our next open call?
Third, conducting diligence on early-stage companies is very different. For many of these start-ups, applying to the Innovation Fund was one of their first times pitching an investor. We quickly realized we could not expect them to provide us with realistic growth projections, fine-tuned business models and thoughtful customer development strategy. In the end, the best start-ups were the ones who could answer a series of simple but important questions: Is anyone using your product? Are they happy with it? How much money are you raising? How will you use it? What are the biggest risks you face? What is your unfair advantage? One thing did not change: we look for and invest in exceptional teams.
Finally, should we start a testing pool for tech? Quite a few companies we reviewed are developing tools to improve fundraising and audience engagement through email and social networking tools – that is clearly a big pain point for the progressive movement. Most of those companies suffer from the same problem: it’s very hard to sell to non-profits and advocacy organizations. I am wondering whether New Media Ventures and its partners could come together to create a testing pool where emerging entrepreneurs could demonstrate their solutions (making their sales process easier), organization leaders could find the solutions they need (helping them improve their technology more efficiently) and we could invest in the best solutions (streamlining our diligence process). There is clearly more thinking to be done before we create something like this but it’s an idea we will be investigating further.