How We Evaluate a Good Deal As a (Pre)Seed Investor

Massimo Sgrelli
Mar 20, 2017 · 5 min read
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The idea of creating startups with a dual model — business in Silicon Valley and engineering in Italy — poped up in my head many years ago when in 2008 I started travelling between Italy and California. I was looking for good opportunities to establish a business for my Italian IT Consulting company in San Francisco. One of the first people I met in my journeys was Fabrizio Capobianco. He created a company based exactly on this model: he set up the operation of his high-tech company in Italy then he moved in the United States and attracted investor’s interest. At the beginning he was the only one of his company in the US and the rest of the team was in Pavia. During the years he raised a $35M primarily from US investors, keeping most of the operations in Italy. I few years later many others Italian founders began to follow the same model successfully. I too experimented how effective this dual model could be when I cofounded my first San Francisco startup back in in 2013. Until 2016 nobody had already tried to put this model in a bottle and foster Italian founders to create more companies between Silicon Valley and Italy, so Luigi — my friend and business partner — and I decided it was time to create something with this specific goal in mind and was born.

We knew that to create product companies you need money, so a few months ago we started to raise a venture fund to help Italian founders to win big in Silicon Valley. Our goal is to act in the seed capital market working with founders from 3 to 18 months to make them fly high in the most competitive and rewarding place on Earth. We know it will be a long journey, but big dreams take time to be transformed into realities: we want that Italian startups can play at the same level with other companies around the world.

We strongly believe that in this way, sooner or later, we’ll get the first Italian unicorn in our portfolio, but to get there we need too practice creating a lot of centaurs and ponies along the way. And maybe one day Italy will become the next Israel.

To invest in Italian founders we need to find the best ones and the most resilient among them: this is one of the main challenges we have.

But how do we evaluate a good deal? What kind of companies are we looking for?

We are asked this question very often, so here are the companies we want to invest in and work with:

Many people asked us why just focus our attention on Italian people. That’s simple, we come from Italy and we can decode much better people from our own country. When you invest seed money you need to trust your gut feeling more than business plans and if you have a cultural fit with founders it’s a good start to make a successful investment. We start from that.

This model is cost efficient and talent effective. No other way to say it. Every million dollar the company can raise in the US, becomes like 3 million dollars you can spend in Italy, because of the lower cost of engineers. An engineer salary — overall cost — in Italy is between $50,000 and $70,000 and a top talent is no more than $100,000. Software engineers love to work in companies where they can learn fast: be employed by a Silicon Valley company is the best way I know to make that happen really quickly. We bet on US companies led by Italians and we focus our efforts on 70 square miles: the Bay Area.

We prefer to work with people who can build their own product. It’s not mandatory, but it streamlines our selection process. Makes things easy: if you don’t have one, don’t panic. We think we can help you find a good fit for your company, but in that case we expect you’ve already invested to create a working prototipe of your idea. We don’t invest on “ideas”.

The companies we select must have a business model where they can get direct — you sell your product to customers — revenues and they must be very early. We expect that companies can breakeven quickly and we look for opportunities which don’t necessarily require a Round B. They become sustainable at Round A at most and then they grow — fast — organically. For this reason it’s very important to have a clear picture of where revenues come from and, by the way, we don’t invest in initiatives where advertising is the source of company’s revenue.

CEOs are the first seller of their company product, so they need to have not just technical skills, but a good business attitude. It takes time to find a way to sell your product in the US, but in the early years you can’t delegate that task to other people in the company. If you can’t sell it, nobody can. In the first 2 years you won’t have budget to hire a VP of Sales.

Your company can be very young, maybe just born 6 months ago, but your metrics must grow month after month without any outbound marketing. No excuses for that. Inbound marketing and growth hacking techniques are very welcome.

Making a good company is hard, going it in Silicon Valley is much more harder, but the reward can be great. The competition is high, the noise too. Try to tell us how you think you can resist stress and struggle in the next 5 to 10 years, because that is what you’ll have. We look for people who never give up.

That’s easy, but never so obvious. If you don’t, fix it first.

Being in Silicon Valley to make a dent in the world have to be a clear characteristic of your personality. That has to be the place where you want to stay. No East Cost, no USA in general, just the Valley.

If you think you are this kind of person, please don’t esitate to contact us; we’d like to help you to create a great company.

Lombardstreet Ventures Blog

Pre-Seed Venture Capital Firm

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