At GSV Ventures, we look to invest in the best companies that are bending the arc of human potential. Leveraging decades of investment experience, founding members of the GSV team developed the “5 P’s” investment framework — a simple tool we use as part of our evaluation of the thousands of entrepreneurs we meet each year. First shared publicly in (GSV co-founder) Michael Moe’s business best-seller “Finding the Next Starbucks”, the GSV Ventures team continues to leverage this powerful framework daily.
By far the most important “P” when evaluating investment opportunities is “People”. There is no shortage of interesting ideas, but it’s always the team’s ability to execute against the opportunity that determines success or failure. Our experience is that “winners” find a way to win and attract other winners. When evaluating founders, we not only look at their experiences and strategic strengths, but we also look at the team that they are able to build around them including key partners, advisors, and early hires. At the end of the day, we bet on founders, because founders are what drive culture and their team around them.
The Second “P” stands for “Product.” We want to support companies that are leaders in what they do, have a proprietary product or service, or better yet, a “one-of-a-kind” type of business. Said another way, a company needs to have a claim to fame. We avoid “follower” companies, those that may be participating in the leader’s category, but due to market share, growth, and/or quality, are imitators rather than innovators. When looking at products, we try to find solutions that are differentiated and create 10X better user experiences than existing alternatives.
Technology, in general, and the Internet, in particular, are all about disproportionate gains to the leader in a category. We want to back businesses that not only survive, but thrive, during their corporate evolution.
The Third “P” is for “Potential” — how big can this opportunity be? Determining the total future market potential is a pillar of our research. Megatrends influence our analysis as they provide “tailwinds” to accelerate growth. Often, the size of a market today doesn’t exist. As we connect dots, our analysis has shown us where there is tremendous opportunity for the future. The companies with the most potential are where the biggest problems are — the bigger the problem, the bigger the opportunity. Learning and talent is a multi-trillion dollar industry and thus, we look for companies addressing large as well as quickly-growing market segments within this broader investment focus.
The Fourth “P” is for “Predictability” — how visible is the company’s growth and what kind of operating leverage does it achieve with scale? For most new enterprises, having any degree of confidence in the forecast is a challenge. Instead, we are looking for business models that create predictability, whether it’s through recurring revenue or a clear articulation of operating metrics that drive the business. When evaluating companies, we analyze key signposts on the highway to see if the company is on track to reach its destination.
The last P is for “Purpose” — we think there is a fundamental shift taking place in the best businesses of tomorrow. There is a new “invisible hand” that is aligning economic incentives with purpose and meaning, where we believe the best, most long-term sustainable businesses will drive the highest returns. The greatest companies have equal alliances amongst employees, customers, shareholders, the environment, and the community.
The GSV Ventures team continues to leverage this framework daily, helping us sift through the noise and providing a compass that keeps us focused on what’s important. We look for companies that have high impact, provide essential services, and are critical in the transformation of human capital. We partner with companies that have the opportunity to solve some of society’s biggest issues because that’s where the biggest returns are.
If you’re an entrepreneur or part of an early stage company and think you have something powerful to share, we’d love to hear from you. Feel free to reach us at email@example.com.