By guest authors Irina Patterson and Candice Arnold
Irina: At what stage of a company’s development do you usually invest?
Alan: Post-revenue. To be a little bit more precise, it’s post-revenue but probably before they have a sufficient customer base to interest the venture funds. Venture funds look at companies at various stages but tend, today, to be looking at companies a little bit later than they were five or ten years ago. And that may be three years of revenue, a couple years of revenue. We like companies normally in their first year of revenue.
Irina: When you invest, do you think about the total available market (TAM)?
Alan: Not really. It is a very common metric for venture teams, there’s no question about that. What we tend to look at is what the addressable market is and the competitive advantage the company has. Taking those elements together to then analyze what we think a logical exit would be, which is normally an M&A. There are certain sectors, certain segments, where that actually could be a small addressable market. So, we don’t really use that as a factor. That having been said, still we will pass on companies because the market is just too small.
Irina: What level of experience do you expect teams to have?
Alan: There’s a couple of things. There’s not a requirement that we have for experience, but things we look for are, I’ve got about three of them. One is industry sector experience.
Whether it’s the founder or people who are very close to him or her, maybe his angel or friends and family investors, board members, other people on the management team, there’s got to be somebody who’s from the industry. That’s a criterion we laid out four or five years ago. There’s got to be somebody who understands the industry. What I’m saying is, we don’t invest in teams in where no one has personally been in that industry.
Second, we look for people who have entrepreneurial experience. Whether it’s successful or unsuccessful is immaterial, but people who have been through the minefield and know how difficult it is to create a business venture.
Those are the two primaries, but they’re backed up by a third one, which is much more subjective, and that has to do with the attitude of the founder.
There’s a very difficult balance that we are absolutely looking for: a great deal of passion for what it is they’re doing – that’s the ability to work until three o’clock in the morning every day – but a passion that does not become bullheadedness, where they retain a receptiveness to other ideas and guidance and suggestions. That’s what we call balance defined, but that’s magic when that occurs.
Irina: Do you invest only in complete business teams?
Alan: No, but it would be highly unusual to see a company that has initial revenues that does not have a team. Having management holes in the organization is very normal and it’s almost expected. In a lot of cases, that’s where we can help the company by introducing them to people who might be able to fill those holes.