What we’re looking for in FY21

Written by Black Sheep Capital

One of the questions we at Black Sheep Capital regularly ask founders (both in our portfolio and out) is “what keeps you up at night?” In a time of ongoing economic uncertainty, the answer is consistently — “how will I continue to fund the growth of our business and where will that capital will come from?”.

For founders, finding capital and investors that buy into your vision has never been easy, and right now it is more difficult than ever. Black Sheep Capital, like most early stage technology investors, gets a large volume of deal flow which we review with our own unique lens, seeking opportunities that align with our focus and our values. Unfortunately, we have to say no more often than yes — and this isn’t even to making an investment, but to just taking a closer first look.

We often get founders of start-ups that we have passed on asking for feedback as to why the investment opportunity isn’t for us. Time constraints don’t allow us to respond in depth to everyone, so in order to give the broader community some context we wanted to outline some of the key things the team at Black Sheep Capital looks for when we are assessing deals.

The Company — Our sweet spot, the Seed Stage

At Black Sheep Capital our focus is on Seed stage opportunities. We believe this is the point in a start-ups journey where we can add the most value. The definition of these stages is different to each investor, but below is what we look for:

• Working product in market and a clear roadmap on next steps;
• Early indications of some level of product market fit;
• Early customer success with an engaged and active initial customer group; and
• Initial revenue traction, between $150k and $300k ARR, and trending in the right direction.

While the above is our sweet spot, we are comfortable investing in both pre-Seed and Series A opportunities slightly either side of this criteria.

The Start-Up Team — What we look for

As is the case with most seed investors, the assessment of a start-ups founding team is a key driver for our investment decisions. The founder/s and leadership team are one of the biggest contributors to success, so we closely consider team dynamics and composition. Generally, we look for the following:

• 2–3 Founders with complementary and differing skill sets. It is difficult to build a start-up without sharing the workload across a well structured team;
• Deep subject matter expertise, with founders who have experience and knowledge in the verticals and sectors they are targeting;
• In-house capability in Technology and Finance;
• Mission/vision driven companies with a high conviction vision for what the company will become;
• Diversity in background and experience within the team; and
• Founders who are 100% focused on the business

The Opportunity — Our Focus

Every investor has a strategy in terms of the types of opportunities they are looking for, based on a wide range of experiences, learnings, success and knowledge. We discuss our investment thesis regularly as a team to ensure we truly see the right opportunity for us when we see it. Right now, companies within the following categories are really interesting to us:

• A clear focus on your market — be it hyperlocal or global. Global day-one is great, as long as you are clear on the why and how;
• We like all sort of SAAS — Enterprise and SME-focused are preferred;
• We love marketplaces, excluding physical product/asset/infrastructure driven marketplaces;
• A well-articulated problem that has a clearly identified target market; and
• A product that is must-have, not just a nice-to-have. The product must be sticky enough to become ingrained into customers business or personal life.

If the above describes you or your company,

Get in touch well in advance before seeking capital. Although you might be thinking that it’s too early to begin reaching out to VCs, we actually love an early introduction to yourself and your company. It’s helpful for us to begin learning more about you and your plans for the future before you begin the capital raise process — we want someone looking for a partner, not just capital. Plus, it’s good for you to get to know us early as well to make sure that we’re the right partner for you in the long-term.

Please reach out on our website if you feel as passionately about the above as we do. And your start-up meets that criteria, we’ll book in a 30-minute meeting with you to chat.