Guest post for The Accelerators
At the Webb Investment Network, we see about 20 deals on an average week and we end up investing in about one a month. Therefore, we have to say “no way” more than we say “yes.” What makes us decide where we place our bets?
When investing in a startup, the first thing I look at is the team. I consider the members’ backgrounds, their educations and their stories. I want to see that they are scrappy—that’s as important as being smart when it comes to building a high-growth company. I especially like to know when they started working. I love hearing that it was in high school, or before. I’m also interested in what have they have done and accomplished in the work world. Finally, I want to know what is motivating them. Is it making money? Changing the world? A drive to build something no one else has done?
The very next thing I look at is the idea, and I ask, how big is it? Scalable startups have one thing in common: an idea that is big. While there are lots of very interesting ideas that are cool, many of these—even if successful—will not be of consequence. Less than 1% of companies become household names; companies then can still chase a big opportunity rather than a niche.
Next, I also consider whether they have an “unfair advantage.” We want them to have that edge. For example, one of our portfolio companies is creating a service that ensures all the devices that employees have are appropriately secured. The founders were leaders at Citrix and VMware and they decided to strike out on their own because they saw such a huge gap—and an opportunity. They were very successful and had serious domain knowledge of a big, hot space, which I perceived as an unfair advantage. In another example, we invested very early in Okta, a San Francisco software company, whose founders came from Salesforce.com and have deep knowledge of how this has been done in a big way for the enterprise market.
In other cases, I am looking for traction. By that I mean relevance. We want to see that they have customers–see the service picking up and growing. We have invested in several mobile companies, including Tapsense, Local Response and Vungle, which are showing significant growth. It was clear during our evaluation process, even though it was early, that they had started to see some serious growth. Of course we all like to see growth for a prolonged period of time, but with recently formed startups, that’s not always possible. That’s why we always look ahead to determine how vibrant a space is or will become. We consider: how fast is the market growing, and how fast is it able to be disrupted?
We tend to only invest in products or services that we have implemented or supported so that we have some real-world experience and knowledge. But sometimes, we also have to be willing to throw all the rules out the window. We generally don’t do hardware, but we just recently invested in an exciting company that is entering the small cell long-term evolution market. Why? It goes back to the basics: The team was very accomplished, came highly recommended by networking experts, and we think this will become a big market. And thus, we think it has what it takes to scale.