Mistakes, We Made A Few — Lessons Learned From Our First Year

In late May 2015 we launched Make in LA, in August 2015 we drafted our fund documents, and in September 2015 we launched our first cohort. On this journey, things were not always easy. We had some steps backwards, many of which can also be spun into wins as we have grown from them. Here are a few of the things we learned …

On founders:

1. Hustle trumps capability, and capability trumps ideas. 10 years ago a strong idea would get you to a Series A. However, these days ideas are democratized across the interwebs. Even hardware prototypes are cheap. The ability to execute the idea turns out to be the compelling asset on the team. This is one of the reasons why a prior exit nearly guarantees additional funding. Our founders with the best ideas were not always the ones who fared the best in our program.
2. Most early stage startups think they have product/market fit. Very few do. Too often an early stage company is chasing the wrong idea. As an accelerator, we tip-toe around this issue to say that we want to “stress test” a founder’s product/market fit. Course correcting early and often requires a founder/leader who is confident but not stubborn. If that person is not the CEO, the challenge is that much greater.
3. Gold hunting in niches yields more than in crowded gold mines. Access is vital. We have portfolio companies from China and India and Greece, mentors from Brazil and Germany, and speaking engagements in Omaha, Fargo, and New Orleans. Our community is like a massive scouting program, going hunting in areas where Silicon Valley may not be looking. To be a capital partner that resonates with these underserved communities means investing in face time and building the network..
4. Solo founders at accelerators need to be uber coachable (and have multiple personalities). It is far too easy to dismiss a view point when you are solo, but having someone to bounce ideas off of helps accelerate growth.
5. Dilution and valuation take up too much mindshare. All founders are worried about dilution, but they mistake a high valuation as their ticket to not being over diluted. We work hard with entrepreneurs to find the right investors who are on the same page.
6. Music matters. Cohort 1 worked in silence. Cohort 2 had a PA system with streaming music. The flow and energy is tactile, and much better than clicks on a keyboard.
7. Flakey scores must be measured. We have numerous metrics and we focused a lot on grit initially. However, there is a flakey epidemic in LA and until we measured it we were unable to stay immune. We didn’t realize that you can have high grit and still be flakey. It may start out a few minutes late because of “traffic,” an innocent slip up by LA standards but not one that we want to be tolerant of because we know how these epidemics spread. Time is a valuable resource; but, reliability trumps time because it builds trust. At the seed stage, developing trust as quickly as possible is key, so , timeliness is a core standard that we weave into the program.

On fundraising:

1. Raising money takes a loooooonggggg freaking time. And the LP world is fascinating, complex, and inconsistent. Most LPs we met were generous with their time and advice. Many LPs are hard working people with strong analytical skills and beautiful minds. Some LPs are vultures. None are angels. We originally did not plan on being patient in the process, and when under the gun the vultures came out. We since have pivoted our mindset to a long fundraising period.
2. Phones and podiums. While the life of a GP includes much dialing for dollars, there is a surprisingly large amount of public speaking. Panels, keynotes, and medium posts help establish our credibility to entrepreneurs and investors.
3. Likewise, it became evident that we needed to bring on the right people as early as possible. We found people with track records that can support the process, add systems in place, and give us both credibility and notoriety.
4. Past performance is not indicative of future returns, and being an emerging manager we have no strong footing for past or future to rest an IRR upon. Yet every investor and LP will view us through the lens of past performance! Sector differentiation and geography became our leading hypothesis and strategy, which occasionally was seen as a strength.

On strategic networks:

1. Magic happens when you have an accelerator. Amazing talent and partners flock to you. We would often go to twitter to find our dream team, and we would get responses more often than not. In general, the people we think of as competitors are actually some of our best allies. When our founders start their raise, we advise them to ask for VC intros from fellow founders even though they are chasing the same pile of capital. Similarly in VC fundraising; LPs are a small group of individuals and a warm intro seems to be equally effective. Being a value-add partner like an accelerator has been a good ice-breaker.
2. We need to step up our game in being stewards of the community. We have hosted community events, hackathons, and more. However, we acknowledge there is an opportunity to up our game. Stay tuned.
3. The longer we survive, the more credible we seem. Founders trust us more the second time around and hence move quicker. That doesn’t mean they clean up the kitchen or take ownership. They don’t fear us, but they do respect our slight experience edge. Credibility is earned every minute on the job, and with great credibility comes the assumption that we will have all the details like kitchen management under control.

What we still believe:

1. Los Angeles is the mecca for hardware innovation. We are at the heart of the space coast, the automotive design center of the US, the ultrasound capital of the US, and numerous tinkerers coming out of our local university systems. The center of this entrepreneurship will be the ecosystem we are creating.
2. A portfolio strategy makes sense for double black sectors. Early stage startup sectors like pharma, hardware, materials, chemistry are difficult to navigate. The experts tend to see the best deal flow and get the best returns. We tell many early stage investors to stop investing in hardware startups, because often times the deals they see were passed on by the experts for a good reason. We are targeting 46 hardware startups in our first fund.
3. A long term outlook is good karma. Some things are optimized for the short term. For example it is possible to fail early and often in hardware startups and be better for it. However, building a business and picking partners needs to be a long term play. We had a few mentors not work out because their incentives were not aligned with the long term POV. We said no to numerous hires and partners because of this misalignment. However, focusing on the long term is already paying ividends in being perceived as fair, focused, and ethical.