What is a “Prepared Mind” and why does it matter?
By: Rick Zullo, Co-Founder & GP @ Equal Ventures
One of our core values at Equal Ventures is to have a “prepared mind” and I often get asked “what does that actually mean?”.
For us, a prepared mind is an informed point of view on a space, industry and/or business model that enables us to be additive partners to the founders we work with. We develop this point of view by 1) focusing on the spaces we think are most impactful to our thesis, 2) broadly researching (qualitatively and quantitatively) those spaces on a continuous basis, and 3) developing “prepared mind deep-dives” on individual ideas we find most exciting (see here for a redacted version of our “prepared mind deep dive” that we did on the commercial energy efficiency market prior to investing in David Energy).
In the olden days of venture, technologists who had built successful technology companies, invested in up-and-coming technologists building new technology companies. They were able to add significant value to founders by drawing from their own experiences in highly similar businesses to help those startups scale. VCs were able to add value because they had a prepared mind.
Today, however, venture has a much wider aperture. The legacy experiences of most VCs are less relevant to those building businesses that are out of traditional IT, than they are to those that are. If you are a founder building a security company, a mobile app or a consumer marketplace, the advice, expertise and network that most VCs can bring to the table is incredibly impactful. They have networks of customers and highly relevant experience achieving product market fit for companies in those spaces. Those are impactful offerings for a VC to bring to an early-stage founder looking to achieve product market fit.
If you are a founder building a company in the trucking space (for example), much of this value proposition falls short. The network of CIO customers and experience dealing with security software procurement cycles is less relevant. Developing a “prepared mind” for these sectors simply enables us to deliver the same product that VCs deliver to founders in traditional venture categories, but is largely inaccessible in the categories we invest in.
The experience that many VCs have scaling phenomenal companies is highly impactful when it comes to scaling companies, but experience with accomplished companies like Google, Uber, Salesforce or Facebook are likely less relevant (at least comparatively) to helping a founder figure out how to find product-market fit in an industry like trucking, energy or insurance where the competitive dynamics are incredibly nuanced.
This is where we play, pre-product market fit for companies deploying technology across complex sectors that are non-native to traditional venture (you can see more about our core industries here). We find that founders in these industries often struggle to fundraise prior to achieving product market fit and we’re not surprised. The industries they operate in are complex and its hard for an investor to develop conviction in something they don’t fully understand. Asking someone who has worked in the security industry for a decade to understand the nuances of the insurance industry and develop conviction to write a million-dollar check into a pre-revenue company in that space is equally outrageous as asking an insurance veteran to effectively invest in a security company at a similar stage. When there is ample data, investors can rely on their analytical prowess to determine what is and isn’t working, but pre-data is a notoriously difficult stage for founders building industry-based solutions.
We feel this is one of the biggest fundamental bottlenecks to industry transformation and why we’re so passionate about meeting founders where they are. We spend an immense amount of time researching these industries and developing authentic, collaborative relationships with incumbents to “prepare” us to be the best partner that we can to founders transforming their markets. We ask founders to skip the slides explaining the market and dive right into the nuances of their model and approach. We believe that the work we do BEFORE meeting with founders positions us to be a unique partner in an evolving landscape where founders are looking for investors with native experience, insights and networks in the markets they are transforming.
To be clear, we believe traditional, generalists VCs have an incredibly impactful role in industry transformation. When companies are ready for scale, these VCs can help implement leading best practices and attract amazing talent to ensure these companies operate at the same high standards of other venture-backed companies. I would go as far to say that generalists are even more impactful at these stages because they can apply lessons, learnings and networks across industries (rather than just the leading practices of that industry), often bringing new elements to a company that domain specific experts might not have thought of.
As Louis Pasteur once said, “Chance favors the prepared mind.” Venture is often a game of chance and the role of luck in returns is undeniable. However, we believe that the prepared mind enables us to have a greater chance of success than we would otherwise. We love sharing our passion for these sectors with the founders looking to transform them and hope that our “prepared mind” plays a small part in enabling them to overcome the odds and build category-defining companies.
If you’re a founder building a company in any of our areas of focus and looking for early investors who share your passion for those industries, please reach out. We look forward to meeting you!
