I've been starting companies for the better part of 20 years now. A lot of people approach me with questions around financing their startup. Years ago a notable venture capitalist gave me a great rule of thumb for determining if your startup is something financeable, and it can be visualized by thinking of a surfer, standing on a surfboard, standing on a wave. Seems deceptively easy, but there is a lot of power in that simple image. Here's how it works. When considering an investment, a VC will look for three key attributes--The Surfer, The Surfboard and The Wave.
- The Surfer: Is this the right team to build the new product?
One of the most important things investors look at are the founders. Generally, investors love founders that live in the domain of the investment. If your story starts with "I have been in the XYZ industry for 10 years, and I have wanted this product since day one," you have a good shot at checking the people box for the VC.
- The Surfboard: Is the idea a good one?
This is the part everyone focuses on and rightly so. You need to have a solid idea for a product or service. The surfboard represents the idea. Good ideas are pretty simple to describe and solve an identifiable pain point. Generally, the simpler the product, the better the idea. But, the reality is the world is full of great ideas, it's what you do with them that matter.
- The Wave: Is there disruption in your market?
The water represents the market for your product. Obviously you need a market, and generally the larger the better, but the real takeaway from this analogy is the wave. A good, financeable, startup is riding some kind of market wave.
For instance, smart phone adoption in the last five years has been a mammoth wave. In a short period of time, a huge wave of consumer behavior moved from the desktop to mobile devices. The way people price compare, book reservations, use maps, etc. was dramatically changed as a result.
Investors like market waves because, like real waves, they take you along for the ride. Everything is generally easier with a strong market wave because people are already in the mindset of thinking differently, and considering your product is part of that new thinking.
In the end, trying to raise venture capital without all three parts is very difficult--just like surfing; you need a solid three elements before you even start--A Surfer, A Surfboard, and A Wave.
Attracting investors is like adding another member to your team. The opportunity needs to be great for everyone or it isn't going to work. If you are like me, you think of ideas for products and companies all the time. A quick run-through using the "Surf Board Guy" as a litmus test will frame the opportunity quickly.