Does investing at the idea stage work?
If it was easy, everyone would do it
These are scary, existential questions for us. At Forward Partners, our primary investment points are at Idea Stage and Seed Stage. The Idea Stage ventures and solo-founders that we’ve backed have had some recent successes. Appear Here are going from strength to strength. Snaptrip have just won the “next big thing in travel” award at the World Travel Market 2015. Lexoo have just raised their first big external round and have been making record months a habit. We’re feeling pretty good right now. But there’s a long road ahead for both us and our portfolio companies. Here’s how we’re planning to improve further and be the best partner for the entrepreneurs we invest in.
Earlier this week, I was going through my Quora digest as part of my morning reading and came across Andrei Kolodovski’s answer to a question concerning whether it is more difficult to succeed in Banking, PE, VC or Hedge Funds. He eloquently sums up the challenge that we as early stage investors face with a consideration of ownership risks alongside the difficulties posed by data asymmetries that are felt particularly acutely when dealing with nascent ventures. Basically, it’s not easy given the levels of uncertainty. Similar to a great entrepreneur, we’re looking to take calculated risks. We have built a business model, a thought framework and an origination strategy to improve both our calculation and the chances of success for the founders that we back.
First though: a definition. “Idea Stage” as a term presents its own challenges given its unfamiliarity. A good demonstration is Matt, the founder of Snaptrip, who came to us as a solo-founder with an idea, experience in holiday lettings and a spreadsheet. A year-and-a-bit later he has found a great co-founder, employed 8 people, raised two further rounds of funding, sent 25,000 customers (and 15,000 dogs) away on amazing last-minute cottage breaks and saved them £400,000.
The Business Model
Much like “integrity” is a value of almost every blue-chip organisation worldwide, it seems being “high value-add” is on the manifesto of every VC. Well, we like to claim that we’re a high value-add VC too, unsurprisingly. We have a few points of differentiation though. We provide office space to our idea stage ventures at our home in London. Beyond that, we have a team of engineers, graphic designers, a growth marketer, a recruiter and a Product Partner who work closely with the start-ups: giving them immediate access to world-class professional resource, eradicating the growing pains that many young ventures experience and succumb to.
A Thought Framework
Cumulatively we have a great deal of experience working with start-ups. We’ve spent a long time putting our thoughts into words and actionable advice in The Path Forward: a playbook for eCommerce and Marketplace entrepreneurs to build their business from scratch. It takes founders through idea validation, the building of a valued product and then the process of putting together a valuable business. Of course it is possible to achieve outsize success intuitively, but The Path Forward provides advice derived from the patterns that we have seen in the successful ventures that we have backed. It’s a guide for creating great, enduring businesses in the most effective way.
An Origination Strategy
A key part of our investment strategy is our focus. Similar to Jim Scheinman’s blog post last week we have a very tight focus. For us, that’s eCommerce, marketplaces and related software. This is absolutely necessary to ensure that we can be at the forefront of investors in our chosen investment areas. Furthermore, we put this knowledge to work in mapping markets to examine where opportunities may lie, then we seek out the best entrepreneurs who are working on solving these problems or wanting to bring delight to consumers. At the moment we’re looking for innovative investment platforms, phenomic health testing/monitoring and way to ride the wave of eSports (soon to be reclassified as ‘sports’).
So, does investing in solo-founders/ideas/at the idea stage work? Yes. It’s hard work but it provides us and our entrepreneurs with an unprecedented opportunity to create value. That’s what keeps us going and keeps us striving to improve every day.
This article was originally published on the Forward Partners blog on November 18th 2015