You will derive two lessons from this blog post. One of them is that I am not a good graphics artist at all.
Every time we meet a new company at Route 66 Ventures (R66) we immediately look at two components: the quality of the team and the quality of the business opportunity. Our job as investors during the initial phase of our interaction with a company is to figure out very quickly if we like the team and if we like the business opportunity. The objective is simple, to categorize a company as per the below model which is fairly self explanatory.
Some companies we end up passing quickly, see the red circle above. Make no mistake, there is still value in interacting with the companies we end up passing on, namely pattern recognition – excelling at identifying what works and what does not work based on the sector, business and revenue models presented is key to an investor’s success.
Some companies we want to invest in based on the strength of the team and the business opportunity. As an investor, one’s work would be so simple in the absence of competition. Such is not the case in the real world. This group circled in blue is where we face the most competition from our peer investors.
The other and third set of companies are more intriguing. This is where a great investor can work his magic I believe. As an investor I have the benefit of seeing many business plans, many companies, many founders and executives. My brain is hard wired to recognized patterns, what works, what does not work. I constantly weigh and decrypt individuals and teams to uncover fault lines or excellence – hence the value in pattern recognition I alluded to with regards to the set of companies we end up passing on.
Remember, first and foremost, an investor invests in people. I am no exception, R66 is no exception. Passing on a great team is very difficult. Working with a great team to tweak a business model, tracking them throughout their pivots, figuring out their problem solving and decisioning processes, helping and mentoring along the way always adds value. By building a relationship I always increase the chances of investing and even if I do not I know my time is not lost as the team I mentored and help will remember me and R66 and I will have also learned in the process.
I have never regretted working with a great team on their business. It has always worked in wondrous ways for me.
What prompted me to write this blog is a recent conversation I had with the partner of a very reputable LA-based VC whom I just met a few days ago. Both he and I had looked at the same alt lending platform startup at the same time last year. Both he and I liked the team. Both he and I liked the team but not the business model. I stopped talking to the team, he did not. He suggested changes, tracked them and eventually invested in their seed round. I did not. The company’s prospects look very promising from what I gather. Kudos to him.
The second lesson you should take away from this post is even more obvious than the first. Once you have developed a heuristics that works when interacting with companies you consider investing in, do not deviate from it.