Discovering and Funding Hidden Opportunity
We at SuperCollider enjoy discovering new ideas and opportunities, especially ones that are obscure at first. It’s partly why we are focused on early-stage investments in Cleanweb companies operating at the convergence of digital technology and resources.
For our purposes, “early-stage” means companies with little or no revenue, incomplete or very new products, and teams that are comprised of few people outside of the founders. They may have raised capital, but have closed no more than one round of financing involving institutional investors (venture capitalists), and may have raised no money beyond what the founders have invested. These are “seed” or “pre-seed” stage companies.
We have chosen to focus on these companies for a few key reasons:
- Entrepreneurs have an acute need for early-stage capital;
- SuperCollider is well-positioned to attract and execute quality early-stage Cleanweb investments;
- SuperCollider’s model is more impactful for early-stage companies;
- Early-stage investments have historically provided the best long-term returns compared to other assets;
- It’s fun.
An Acute Need
When founders first decide to raise capital beyond friends & family, they typically have little sales traction and a lot of bills. They need to find investors who are knowledgeable about the market that the company is entering, be able to trust them, and be willing to bear the risk involved. With AngelList and the expansion of the micro VC market, entrepreneurs have more options for seed funding, but it is still difficult to find the right match at the early stages.
“Over the past year, many micro VCs have continued to migrate toward seed and post-seed investing. This trend has resulted in a challenging environment for pre-seed companies.”— Samir Kaji of First Republic Bank — The Past, Present, and Future of Micro VC (August 2015)
Finding these first “outside” investors can be harder still for Cleanweb entrepreneurs, whose businesses are often in industries that early investors do not focus on, like energy or agriculture. Some startups in our space like Shuddle or Birdi can fit into more popular themes like “the sharing economy” or “connected home,” but other quality opportunities fall under the radar of most angel investors and micro VCs.
For example, Radiator Labs, founded by Marshall Cox, offers a hardware and software solution to enable better control of steam radiators, which is an expensive problem for real estate owners in New York and many other cities in North America and Europe. HEVO Power, founded by Jeremy McCool, deploys wireless charging hardware and software for EV fleet operators who deal with cumbersome cords that offer them no data or control.
Both companies have great teams, compelling value propositions, and large markets where they have demonstrated early traction. While they’ve raised money from angels (including one of our partners) and family offices, they’ve had to bootstrap and be more creative by leveraging non-dilutive grants and prizes. These are potentially very successful companies, but there are not enough early-stage investors who focus on or understand their opportunities. This challenge has made them resilient and resourceful entrepreneurs, but it has also created a near-term impediment to growth.
Supercollider is well-positioned to help founders like Marshall and Jeremy. Our multi-disciplinary team combines capital with an ability to help them apply human-centered design principles to all aspects of their businesses. This application helps to sharpen the product focus, clarify the story for investors and, where possible, reduce the need for capital in the first place. We have worked with and invested in early-stage companies numerous times in these capacities — advising on product, go-to-market, and financing strategies.
Our experience particularly extends to companies focused on resource issues like energy, water, air quality and waste, among others. As a result, we have a keen insight of resource markets and highly relevant relationships with private companies and government agencies. This experience and network allow us to be helpful to early-stage Cleanweb companies and also to determine which companies are most likely to be successful with our assistance and capital.
SuperCollider’s investment model is more impactful for early-stage Cleanweb companies than it would be for later-stage companies. From a certain perspective, our design focus and team, resource expertise, and successful business development track record would help a Cleanweb company at any stage. But our goal is to do more than help with a product design or to make an introduction here or there. Our objective is to help point the company in the right direction at the outset, and arm the founders with the tools to succeed over time.
Foremost among these tools is a human-centered design perspective and disciplined customer development framework to help teams tackle problems and opportunities of all kinds throughout the lives of their organizations. (More on this in later posts). As an analogy, if founders are starting on an adventure in uncharted territory and pursuing a specific goal, we try to help them assess the direction of the goal at the outset and equip them with a kind of compass for course correcting along the way. This orientation and preparation saves much more time and effort when applied early in the journey as compared to later.
Over the long-term, early-stage investments have a better return profile than other assets. According to Cambridge Associates, the returns for early-stage venture capital beat those of every other major asset class (public equities, bonds, other private equity) across nearly all time periods (from 1- to 30-year cycles) other than those (10 and 15 years) that overweight the market crash of 1999–2000.
Finally, as anyone who has worked in or with a startup knows, it is always a lot of work but is rarely boring. We look forward to the challenge and the excitement.
