The track to greatness involves a bit of crazy

The name of our fund was selected carefully. Founders, much like Luge athletes, plan their course, manage risk, navigate through sudden turns, overcome fears… and are a little bit crazy. Each characteristic is important, but it’s the spark of crazy that pushes founders to start down the track.

In general, VCs have a scientific thesis on what they look for before investing. It usually consists of the 5 Ms: market, management, model, moat and momentum (aka timing). Luge is no different, but we emphasize a global context. Our mantra around the office is “stretch your mind and think huge”. With big ambitions comes a fearlessness to take on the world and a realization that you have far greater access than you may have thought.

Team and Vision

At Luge, we always start with the team. We try to determine if the founders have the ability to execute on a lofty and ambitious mission. Do they have the right pedigree and do they understand the opportunities in their space? We call this founder/market fit. In addition, founders must have empathy for their customers, and a relentless goal to solve the problems that give them the most pain, with unsurpassed standards. It’s that last part that separates good companies from great ones.

Equally important is the entrepreneur’s ability to articulate their message with perfect clarity. That includes speaking about the problem and the details of the solution. There’s a saying: if you can’t articulate it, you don’t really know it. Be disciplined about how you communicate who you are and what you represent, with precision. Be audacious and fearless in setting big goals. Strive to be the best in the world at what you do. Otherwise, what’s the point?

Market

We look for entrepreneurs that are solving big problems. Most founders don’t realize that for a company to be VC-investable, they need to demonstrate a path to deliver 20–30x the original investment. Otherwise, the venture math doesn’t work out. That means the market opportunity needs to be massive! Side note: a company that is not VC-investable can still be fantastic.

Be thoughtful about how you articulate the size of the opportunity. Show that you really understand the space by segmenting between the complete macro-level view, the true addressable market and the portion that is actually serviceable by your product. Overinflating your arena will make you look like an amateur.

Product

Next, we look at the product, in detail. We like to go deep and truly understand both what the team has built and the future roadmap. We’re geeks, so we tend to ask geeky questions. We look for technical manifestations of the big audacious goals of the founders. Examples include multi-lingual, multi-currency support, flexibility to adhere to local regulations, an architecture of micro-services, a UX that can be adjusted for cultural nuances and the ability to integrate with either global or multiple local partners. Founders don’t necessarily need to solve for these issues at the company’s infancy, but if you’re not planning for it, you’re setting yourself up for eventual failure.

VCs like to talk about product/market fit. We do that too. We’re really just assessing whether customers will use your product. Customer validation (aka traction) is the best way to demonstrate it. Traction removes doubt.

When talking to us (or any other VC for that matter), be sure to highlight your reason-to-believe. When you show us that your product is the best one to solve the problem, tell us why. When shampoo companies tell you that their 2-in-1 combo will give you silky-smooth hair, they’re quick to tell you it’s because of their proprietary natural aloe extracts — that is their reason-to-believe. Being able to articulate this is also critical for your marketing.

Financial Model

We always dive deep to understand the company’s financial model. Every model we get is wrong, 100% of the time! But that’s ok because it’s impossible for any early-stage company to project out their business for 3–5 years flawlessly.

We don’t look for accuracy, we look for perspective. The model is a window into how entrepreneurs actually think about the future of their business in cold hard numbers. We look for the assumptions that were made and how they’ve been justified. More detail is better because it demonstrates that you have a thorough view of the resources it will take to build the business and a reasonable view of revenue and EBITDA.

The Secret Sauce

This is the X factor. In our discussions with each company, we try to highlight the one or two key success factors that differentiate this business from all the others in the space, and we assess whether those things have meaningful value. This can come in the form of a unique algorithm, efficient distribution channels, a unique insight on the customer, a method of integration or 147 other things. These key differentiators are usually what drive the bulk of a company’s likelihood of success, and ultimately future valuation.

There are many other things we look for, but these are at the top of this list.

Preparing for your journey is half the battle. To make this all fit together, you have to be a bit crazy, and sometimes go out of bounds to build a leading global company. If you didn’t have that ounce of crazy, you’d walk away from your venture during difficult times, and the world would be deprived of the amazing things that lie ahead.

Karim Gillani, General Partner, Luge Capital

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