We hope everyone is enjoying the fall season and ramping up for the holidays ahead. As Q4 continues, our portfolio companies have been making waves as Afore continues to invest in Pre-Seed companies with fantastic outlooks. In this edition of the newsletter we wanted to bring you a closer look at the stages of risk for investors in early stage startups and where Afore is placing our bets.
There are three stages in the life cycle of a startup when a venture investor can find an attractive risk / reward tradeoff. Here’s a look at those risks and how Afore is looking to invest in great gambles.
Pre-Traction or Product-Market Fit Risk
After two years of running Afore and assessing thousands of pre-traction, pre-product-market fit startups, our singular, non-obvious, insight is that the market consistently overestimates the risk associated with pre-traction companies.
The market ascribes uniform high risk to a lack of data in pre-traction startups. The moment a startup generates some traction, the market’s assessment of risk falls sharply correlated with a 2–3X increase in valuation. The market prefers to avoid taking traction risk and is willing to pay-up subsequently. Some investors find a risk “middle ground” preferring to commit smaller amounts of “option value” capital, where a complete loss in many companies is acceptable.
We have two big takeaways from all of this. First, that traditional rules of diligence oriented towards analyzing traction data simply does not apply at the pre-product-market fit stage.
We have developed a new diligence framework custom to Pre-Seed. One which is oriented towards analyzing the phenomenon that founders are describing — the lightning in a bottle they strive for.
Second, a higher than usual VC workload is necessary to identify the alpha in pre-traction companies and help them get to traction subsequent to our investment. Think of it this way, an investor investing $5M into a company will do an enormous amount of work to diligence and support a company. At Afore, we are willing to do the same amount of work but to write a check ten times smaller.
Continue reading the article on our blog…
Check out more portfolio news and updates below. Please share this newsletter with colleagues and founders who should be in the loop. And follow us on Twitter at @AforeVC for more insights, and upcoming events too.
Portfolio in Focus
Tech Startup Modern Health Brings Wellbeing to The Workplace
Portfolio company Modern Health was recently featured by CGTN TV on how companies are working with the startup to bring emotional wellbeing to the workplace.
1 in 3 employees, regardless of age, gender or race, struggles with a mental health issue. This is costing employers more than $210B in lost productivity. And there aren’t enough mental health professionals to provide the care that is needed. Modern Health solves this problem.
Portfolio News and Updates
Antibody search on BenchSci just got even more powerful. Read about their newest product release on the Benchsci blog now.
And CEO, Liran Belenzon has been keeping busy taking time to help other founders raise their Series A…
Get to know how to close your round in 3 weeks. From the CEO of BenchSci, Liran Belenzon. View the presentation on SlideShare.
Congratulations to Bulletin named one of CNBC’s Upstart100 for 2018. Learn more at CNBC now.
Petal has been named one of the 250 top FinTech startups of 2018. See the list and learn more about Petal at CB Insights. They’ve been sharing their story too…
Hear Cushion offer their best pitchon this Gimlet podcast. Listen in and learn more about this credit card, bank, and ATM fee fighting company now.
Winnie’s revolutionary child care discovery platform is now available in Los Angeles. Read about here.
Overtime Announces First eSports Series ‘The Gaming Life.’
Trendsetter GQ’s take on lab grown diamonds. Learn about Couple now.
From BetterUp, learn: ‘How to Fine Tune Your Gratitude Practice.’
Thanks for reading,
Gaurav Jain and Anamitra Banerji
Afore Capital’s portfolio companies are hiring.
Apply at AngelList now.