Our Investment Approach
We seek to invest in a handful of very early stage companies each year prior to their first priced equity round. This allows us to keep our check size small ($250k or less) which, in turn, increases the number of investments that we can make. Because of our check size, we also need to be certain that any company we invest in has a high probability of being able to raise significant equity capital across multiple rounds. We accomplish this vis-à-vis the two core strategies detailed below. By running our consulting business and observing how a team operates during an engagement with us, we are able to gain significant insight into their competence and likelihood of success. Therefore, with very limited exception, we will only invest in former clients.
Strategy #1: Fast Follower
Double your runway. Our preferred strategy is to immediately follow an investment from a top-tier accelerator by offering you the same dollar amount invested by the accelerator, but at 20% better terms. Here’s an example: If you have accepted $125k from an accelerator in exchange for 7% of the equity of your company, then we would offer you the same amount ($125k) using the same instrument or structure used by the accelerator, but for 20% less equity, or 5.60% in this example.
Why is this appealing? While getting accepted into a brand name accelerator significantly increases your odds of raising your first priced equity round, it is not a panacea. By doubling your runway, we are extending the amount of time you have to raise the capital you need.
One important caveat. The most promising startups are fully-funded in advance of Demo Day. To avoid the potential for adverse selection, we only follow accelerator investments for 15 days following the start date of your cohort in an accelerator program. We will not make any exceptions as doing so may cause us to overweight investments in companies that have been passed over by everyone else. Remember that our primary consideration aside from investing in the idea and the team is whether a company has a high probability of attracting the large amount of capital that is required to become a market leader.
Our investment process. At the end of your engagement with us, you will be provided with instructions on how to apply to us for investment if you wish to do so. We will need to see proof of acceptance into an accelerator, fully-executed funding documents, and proof of receipt of funds. We will not consider investments after the 15th day following the start date of the accelerator program. Therefore, you should submit your application and accompanying documentation to us as soon as possible. Once we receive your application and authenticate your documents, we will make a decision within 5 business days. If we decide to invest, funding documents will be sent within 2 business days following our decision. Because we need to avoid the potential for adverse selection and time is of the essence, once the funding documents are sent to you, they will be valid for 72 hours, after which they will be rescinded if not signed. Once the documents are fully-executed, funds will be wired to your account the next business day.
Strategy #1: Fast Follower
Double your runway.
Why is this appealing?
One important caveat.
Our investment process.
Strategy #2: Traditional
We always follow. In a select number of cases, companies who have successfully secured interest from investors will want us to be involved in their financing. Because we cap our check size at $250k, we never lead funding rounds. Typically a company’s desire for us to be involved is a function of the insight and assistance we have provided to them in the course of their engagement with us.
Pedigree matters. Because we never lead a funding round, we only participate in financings where the investors involved are well-known in and well-respected by the startup investing community. While it may be tempting – even advisable in some cases – to accept investment from your rich uncle or your wealthy friend’s family office, accepting such investment does not meaningfully increase your odds of raising subsequent rounds as many VCs may be cautious about investing alongside such investors.
Our investment process. Once you have secured a lead investor and have a term sheet, make them aware that you would like to involve us in your round. If this is acceptable to them, then send us the term sheet. We will review it and provide a response in a timely manner. If we decide to invest, we will do so on the same terms as all other investors in the round.