What things do you look for in an early-stage startup to gauge potential? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.
We are seed-stage investors -- and typically invest before a company has any real metrics (i.e., before a product is in the market). So most of our analysis is focused on the founder, the idea, and the market they are targeting. That said, here are five specific things we look for:
1. An initial, compelling, and unique insight. We want to understand what about your thesis is contrarian (i.e., why do you think the existing players are wrong) -- and why you think a startup (and yours specifically) will win.
2. If there is a product in a market, a small group of passionate early customers that love the product is a strong indicator. Several years ago we started to hear First Round founders talking about an amazing new tool called Looker. After we heard about it for the third time in a few weeks, we reached out to the company -- and invested.
3. We think that founder-market fit is very important. I've lost a ton of money investing in founders with years of enterprise experience who now wanted to pursue a consumer idea -- and vice versa.
4. Too many times founders spend a ton of time innovating on their product, but not enough time innovating in their go-to-market. We try to avoid
5. Finally, we spend time thinking about the market the founder is pursuing. Specifically, if they end up winning their market, is it a prize worth winning? The market frequently disparately rewards different types of companies. SaaS companies are valued diferently than on-premises software. First-party branded retailers are valued differently than third-party e-commerce sites. Just like real estate has massively different values, so do market segments. To mix a metaphor, before a founder starts building their "house", it is important to make sure they picked the right parcel of land to build on top of.
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