Investing in early stage companies is hard. Firm criteria for making good investments shouldn’t be.
Every investor has a different flavor of how he or she invests. We like to keep it simple at Promus Ventures and focus on basic blocking and tackling. Because we take a long-term view and like to invest in and support founding teams through multiple rounds, we have to get it right early.
From the back of the napkin to the investment committee meeting, for us it all boils down to three areas: people, product and potential.
People:
- Does the two/three member founding team have a history of working together and having fun?
- How do the founding team’s industry/life experience, technical expertise, and startup past fit together?
- Is the team making the product for themselves to hack a problem they are deeply passionate about?
- How has every member of the team dealt with personal strife and hardship in their life?
- Is the team tenacious, smart, curious and of high character?
Product:
- Is the idea simple to understand?
- Is the product fun with naturally high viral coefficient, usability and retention ratios?
- Does the complexity of the problem and industry create barriers?
- What is unique about the design and build that makes it sing?
- How could the product monetize?
Potential:
- If the team executes well, can the company change the world?
- Do millions of other people want this painful problem solved yesterday?
- Can the product scale globally and quickly?
- Is there optionality to the platform being created?
- Is this a team and product that we are excited about working with long-term and can be strategically helpful?
Early-stage investing is a long trip. Better make sure the bus is well tuned for the long haul with people you like hanging out with before making the journey.
And make sure you always bring some extra sandwiches.
Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment in any fund.
