What does every company founder need to be successful? Ted Leonsis, founder of Redgate Communications, former AOL executive, and the owner of the Washington Capitals, Wizards, and Mystics sports teams, has some some uncommon insight into the answer. He's seen countless pitches as co-founder of Revolution, a venture capital firm, and illustrates what he looks for by talking about the entrepreneurs that persuaded him to fund their companies.
One example he gives is Jason Hogg, a former FBI covert special agent who founded anti-fraud debit card company Revolution Money. "When it's going bad and there's stress and tension and duress, that's when people either rise to the occasion and you see the best of them, or people freak out. There's some people who have a higher calling and rise over duress, and he's one of them."
While Hogg clearly had what it takes--he sold his company to American Express for $300 million in 2010--Leonsis warns that not every entrepreneur does. In an interview with Inc., he lays out the filters he has created to vet entrepreneurs and startups before he invests.
1. Being on the lookout for new ideas
"Innovation comes from talking to vendors and people in the industry, but also having touch points in all different aspects of your life. You need to be curious and social at the same time," Leonsis says. In 1981, he launched his first business, a computer magazine named LIST--Leonsis Index to Software Technology. He came up with the idea after picking up a copy of TV Guide while in line at the grocery store. The cover read: "The number one bestselling magazine in America" and inside were interviews with celebrities and a guide to the programs on each channel.
"I went home, sat in front of my Apple computer, and felt a whack on the side of my head," he says. "The computer looks like a TV and it has three programs. I quit my job and raised money for my first company--a magazine with interviews in the front with the likes of Bill Gates, and in the back a guide for what software and modems worked for which types of computers. You always have to be open to new ideas and connect metaphors."
2. Confidence, but not arrogance.
Your attitude affects how people perceive you and whether they rally will around you. "An entrepreneur needs to be confident, but not arrogant. There's a real difference. It's not just semantics." Confidence is a sign of a cultured person, he says, and "Culture eats strategy for breakfast." Again Leonsis cites the example of Hogg. Because of the confidence Hogg displayed, Leonsis always was able to trust him. "Whenever we sat down and [Hogg's team] said they had a problem and were working on a solution, I'd always leave knowing there weren't more problems they weren't telling me about."
3. A double-bottom line business
Your business cannot just do one thing to bring in revenue. There needs to be a grander mission that will sprout new avenues as the company grows. "Before I invest ... I need to believe the entrepreneur will have a double-bottom line business. AOL's corporate mission wasn't to become a $10 billion business, it was to create a medium that was more socially responsible than the television--we'll level the playing field for education, we'll bring democracy around the world, as well as sign up a lot of people at $24 a month and sell a lot of ads. This is a double-bottom line business," he says.
4. The magic membrane
The last thing he looks for is called the "magic membrane." Take an Internet service provider, for example. "The company starts as an ISP that just brings customers Internet. It's valued at one times its revenue. But then the ISP calls itself a new media company with subscribers bringing in recurring revenue. As the audience gets bigger, the company adds other revenues from advertising and search, and it's valued at two times. I call this bringing the company through a membrane to create more value," he says. For a real-world example, he points to Amazon. "The world's biggest book store, as Bezos first pitched to us, now sells everything and creates its own technology. I need to see this entrepreneur can go to the adjacent opportunities and jump through each of those new membranes. This process allows those companies to think bigger and have a great trajectory."