Dear Startup Founders
We need to talk.
“Starting a company is like throwing yourself off the cliff and assembling a plane on the way down.” -Reid Hoffman, co-founder, and chairman of LinkedIn.
Starting a business from scratch, serial entrepreneurs will tell you, is a daunting endeavor rife with pitfalls, no matter how many times you’ve done it, successfully or otherwise.
Each business comes with unique challenges, in addition to the run-of-the-mill difficulties — from finding and training talent and validating concepts, to achieving product-market fit and managing company culture. Failure to overcome one or more of these can directly contribute to the demise of a company.
With many years of experience building companies, running businesses and advising dozens of startup founders, Rokk3r Fuel ExO’s team has seen numerous facets of these issues. Thus, in our dual role as investor and partner, we quickly recognize patterns, identify problems early and help founders efficiently and effectively.
As our fundraising comes to an end, we intend to commit our full focus toward identifying new investment opportunities, as well as curating the current portfolio companies. Therefore, as we dive into a new year, we would like to speak with you, startup founders, directly, in the hopes of opening a dialogue that might bring us together.
Sand Hill Road immediately comes to mind for most when venture capital or technology startups are brought up in conversation. The region has gained and cemented a reputation as the world’s tech capital, attracting entrepreneurs and deep-pocketed venture capitalists and angel investors of all stripes in droves. The results have been tremendously prosperous, in some regards, with the collision of these two groups leading to the birth of some of today’s most ground-breaking products and services. Yet in other ways, the tremendous success of Silicon Valley has also been a burden. Top of mind today, especially as various civic initiatives unfold in the early days of this new year, is the exorbitant cost of living and working in the San Francisco Bay Area.
An article by the San Francisco Chronicle published Jan. 12, 2019, reports that the average asking rent for all sizes of apartments in the San Francisco, San Jose and Oakland metro areas today stand at $3,335, $2,789 and $2,302, respectively, according to RealPage. The only pricier area, the data show, is New York City, at $3,571.
What about business operating costs? Running four times higher than the average American city, Silicon Valley boasts the nation’s highest burn rate. It makes you wonder how cash-strapped startups in the region survive at all.
Meanwhile, successful late-stage technology companies, such as Google and Facebook, which are clustered in or around the Bay Area, have taken to compensating their employees very handsomely, making it that much harder for founders of early-stage ventures to compete for talented employees. But there are alternatives to this fate.
There is mounting evidence that founders can attain success outside of the Silicon Valley bubble.
In a world of tech abundance, tech democratization and globalization, startup teams have gained the resources necessary to communicate productively with individual team members across cities and time zones, gain access to technology from anywhere in the world, approach any client, and connect with any investor. In lower-cost emerging tech hubs, cost savings give founders a better start, a longer runway, and more time to get off the ground.
With that in mind, Rokk3r Fuel has set out to actively seek companies outside of Silicon Valley, where capital can be more directly allocated to revenue-generating activities.
Where to Find Us
Promising entrepreneurial hubs supporting the establishment and growth of tech companies have cropped up all over the U.S. Miami is one of them.
In recent years, Miami has been repeatedly recognized for its thriving startup scene. In 2017, for instance, the Kauffman Foundation, a nonprofit that tracks entrepreneurship, ranked Miami №1 in startup activity across America.
A global city with unique access to Latin America and Europe, relatively low cost of living, and zero state income tax, Miami is gradually becoming a no-brainer for aspiring startup founders deciding where to launch their ventures.
At Rokk3r Fuel, our goal is to take Miami to the next stage in its journey of becoming a world-class hub of tech innovation. To that end, we are affiliated with Rokk3r, a venture builder also headquartered in Miami, to gain access to a global ecosystem where we have more resources to help founders from idea to exit.
We have also aligned ourselves with the city’s most influential figures and business groups, whether in tech or real estate, to strengthen and grow the regional startup ecosystem. (Announcements detailing some of these strategic partnerships can be expected in the upcoming weeks.)
We see every relationship and interaction as integral building blocks to shaping Miami into a magnet for engineering experts, seasoned investors, promising businesses, and respected incubators and accelerators.
We are proud and active evangelists of Miami’s tech ecosystem.
How to Reach Us
One of the first projects we completed internally was the design and launch of a Founder Submission Portal (FSP), where entrepreneurs who are interested in receiving funding can reach us and submit their company information for our due-diligence process. We understand that not every startup has a VC connection and specifically knows someone from our network, but that should not serve as the reason for them not to partner with us, or for us not to know about their exciting startups. The submission platform allows us to screen quickly any company that does not align with our investment criteria and only moves ahead with companies that have potential as exponential organizations. (To gain access to our FSP, email email@example.com.)
What Appeals to Us
We receive about 5,000 investment opportunities annually. At the end of the year, only eight or ten companies, or .1 percent of submissions, are approved for deal flow.
We follow a rigorous, multi-stage due diligence process to identify high-potential companies. Instead of relying on 20 percent successes on the back of 80 percent failure, as many VC funds operate, we aim for 80 percent success rate. To us, every company counts.
Also: We are not passive investors. After investment, we roll up our sleeves and get ready to help founders with their challenges, including software development, financing, everyday business operation, sales, and marketing.
With that out of the way, here are five characteristics we look for in prospective investments:
- High-quality team makeup
At the early stage of a startup, investors are betting more on the founder and the team around him or her, than on the idea itself. Even if the idea is unique or disruptive at inception, without an exceptional founder to execute on it, or know how to pivot it, it counts for very little. Rokk3r Fuel’s job is to help founders play to their strengths, remain aware of their weaknesses, and build a team to fill the gaps. There are three desirable traits that we appreciate in founders:
- Big vision but small focus. Founders with world-changing vision always get our attention. However, vision means little without a clear roadmap for timely execution. Founders should demonstrate their big dreams and passions with priorities and granular focus. Think big, but know what small steps need to be taken. From small offerings, big things will grow.
- Energy and passion. Founders with energy and passion are able to bounce back from setbacks. Jeff Ransdell, founder and managing director of Rokk3r Fuel, encourages founders to “work as though success is not a guarantee.” Founders should demonstrate grit to inspire trust not only from their team and their initial customers but also from future investors.
- Unfair competitive advantage. Founders should provide sound reasoning why they are the best people to start their particular business. Advantages may include skills, background, knowledge, and experiences that the founders have accumulated from prior jobs, key connections or unique insights. The more unique the advantage, or advantages, the better chance at success founders will have.
2. Landscape of Opportunity
It is common for founders to throw a multi-billion dollar Total Available Market (TAM) figure on their pitch deck to convey the massive opportunity their startup is pursuing. We often find that figures less-than-useful, given that, in many cases, founders cannot justify it or connect it to their business plans. A better approach is to segment target markets into three groups: Total Available Market, Serviceable Addressable Market, and Serviceable Obtainable Market.
Understanding deeper market dynamics allows the founders to identify target customers, gauge their demands, and then devise a targeted marketing spending plan and a go-to-market strategy. As a VC fund, it is important for us to assess the financial potential of a startup from its market size. Thus, we value founders who are focused on getting the most accurate numbers, rather than the biggest possible figure.
3. Exponential Potential
“Exponentiality” is the foundation of our investment thesis. Rokk3r Fuel ExO strives to identify and fund exponential companies.
By definition, exponential companies must leverage accelerating technologies, pursue a Massive Transformative Purpose, and exhibit a set of internal and external characteristics. These factors allow them to outperform competitors by an estimated 10x. Our General Partner, Salim Ismail, dedicated an entire book, “Exponential Organizations,” to discuss the exponential thesis. We encourage founders to familiarize themselves with his concepts, as well as attributes or practices that exponential companies should implement.
4. Traction Metrics
We generally advise founders to know their metrics and prove some level of traction as evidence of market validation or early product-market fit before contacting us to stand the best chance in competition for our funding.
Company traction is evaluated on a time horizon, among the peer group, and especially against the milestones that a company needs to achieve before raising a certain financing round.
Several periods of consistently growing key metrics, usually higher customer growth and consistent revenue growth, is ideal to show company momentum. But, it is not the only way. Traction is a reflection of what customers think about the company’s products or services. Therefore, pre-product or pre-revenue companies can use other metrics, including user engagement, website traffic, sales cycle, and market survey, etc.
5. Potential Acquirers
As a VC fund, it is never our intention to maintain investment in a lifestyle company. Therefore, we seek to understand if founders have identified their potential acquirers, as well as the strategic reasons for the acquisition.
After investment, one of our first tasks is to leverage our network and introduce our portfolio companies to potential acquirers, then guide the founders to win over those enterprises as customers. We believe that a partnership between the startups and the enterprises will facilitate the acquisition path since products have already integrated, trust is already established, and innovative gaps of the enterprise are already filled. Therefore, if we can find a company who is working with its potential acquirers, the decision becomes a lot easier for us since that founder is ahead of the game.
Why Partner with Rokk3r Fuel ExO
You know where to find us, how to reach us, and how to attract our interest. So when is the best time to create, build, disrupt and make progress?
The time is now.
This post was authored by Rokk3r Fuel ExO General Partner and Chief Investment Officer Maggie Vo, CFA. Maggie is responsible for managing investment activities, leading due diligence for potential new investments and performing valuation analysis for portfolio companies.
Information provided in this paper is for educational and illustrative purposes only. The material presented represents the opinions of Rokk3r Fuel ExO, as of the date of this report. The information and opinions presented have been obtained or derived from sources believed to be reliable; however, the accuracy and completeness of such information expressed herein cannot be guaranteed. Opinions are subject to change without notice, and Rokk3r Fuel ExO assumes no responsibility to update or amend any information or opinions contained herein. Keep in mind that past performance is not indicative of future results, and there can be no assurance that the Fund will achieve comparable results, achieve its investment objective, implement its investment strategy or avoid losses.
Nothing set forth herein shall constitute an offer to sell any securities or constitute a solicitation of an offer to purchase any securities or any other product sponsored or advised by Rokk3r Fuel ExO or its affiliates, nor does it constitute an offer or a solicitation to otherwise provide investment advisory services. Any such offer to sell or solicitation of an offer to purchase shall be made only by formal offering documents, which include, among others, a confidential offering memorandum, limited partnership agreement, and related subscription documents. Such formal offering documents contain additional information not set forth herein, including information regarding certain risks of investing, which is material to any decision to invest. Performance data presented herein is provided for illustrative purpose only, is not indicative of future returns and is no guarantee of future results. Investments of the type described herein may involve a high degree of risk and the value of such instruments may be highly volatile. Investors may lose some or all of their investment. This brief statement does not disclose all of the significant aspects/ risks in connection with investments of the types set forth herein, including relevant risk factors and any legal, tax, and accounting considerations applicable to them.