Its been quite a while since my last blog post the day after the Super Bowl. A lot has transpired in the past 3.5 months. After weeks of relentless / obnoxious customer development, my co-founder & I validated the pain point we’re addressing, productized our solution, and by the grace of god (and hard work and luck) the stars aligned for us to get accepted into class 5 of Launchpad LA. For those of you who aren’t familiar, Launchpad LA is a startup incubator program based in Santa Monica, CA that was originally started by Mark Suster. 39 of the 41 Launchpad companies have gone on to raise Series A money and beyond and the program was recently ranked #5 globally by Forbes magazine. Launchpad offers you $100K in funding, amazing office space in downtown Santa Monica, and a network of incredible mentors and investors.
Below is an outline of the factors that I believe helped us the most and I wish someone would have outlined in a blog post when we were researching incubators.
Recommendations: Getting a recommendation / referral to an incubator can definitely optimize your chances of getting accepted, provided that you check the box on all the other criteria they look for in teams they fund. For Launchpad, we had two strong recommendations from current Launchpad mentors who happened to be people we had worked with in the past or have built a strong relationship with over time. The quality of the reccs you get matters much more than the volume of reccs..Harj Taggar has a great perspective on this that he shares on Quora. If you’re interested in an incubator, or generally working with a seed investor, a spray and pray approach of asking for referrals from folks you’re not genuinely in touch with typically yields very low results. Regularly keeping in touch with, and finding ways to be helpful to people in your network is the path to least resistance to getting a strong introduction to seed investors. When you don’t expect anything in return..the return tends to be multiples more than the time you invested. :)
Team: There is an abundance of great content all over the web about how much the quality of your team matters to investors so I won’t reinvent the wheel here. My view is that seed investors, who are taking on a lot of risk by giving you your first capital infusion, tend to look for teams that have a track record of building things, or working together in some capacity, and complimentary skills. Having at least one co-founder with a strong technical background is a must as well. In the early stages, things change all the time and if your team doesn’t have the skills to react to data, learn, and adjust your approach by iterating quickly, that generally makes investors nervous.
Timely Market Opportunity: While the idea or solution you’re building tends to matter less in the early stages, the problem you’re trying to solve matters a great deal to investors. Seed investors like to back teams that are building a product in a space that they fundamentally believe is big enough to justify venture $$ and frankly a space that the investors you’re interested in working with believe in. Building a solution in a space that the VC community has expressed interest in tends to help your chances in raising seed capital. Putting yourself in a position to recognize a timely problem, and building a solution to address that problem, is what Paul Graham calls being the type of person who “notices startup ideas” because you “live in the future”. Examples of people like this that come to mind for me are Sahil Lavingia from Gumroad, Dennis Crowley from Foursquare, and Drew Houston from Dropbox. Building mobile apps for enterprise? I’m sure there a lot of investors right now that would be interested in hearing about your business. Building a daily deal widget? umm….
Size of the Opportunity: Having a thoughtful/defensible number with respect to either the size of the opportunity in $$ or number of companies you can sell to is imperative. In my experience, a lot of times people burn the midnight oil building products for which the addressable market is what a lot of investors will call a “small idea”. If you can’t convince investors that you’re attacking a billion dollar opportunity the road ahead may be bumpy. The opposite end of the spectrum, which is also a kiss of death, is throwing out a number recklessly that inflates the size of the opportunity your product can realistically address. “I’m building an app for frequent fliers to trade seats and the airline industry is a $40 billion / year industry”…well you’re not making airplanes. Strategy consultants do this for a living and we did a ton of it at Disney (although I had a banking background). I would find a strategy consultant willing to spend 30 minutes with you walking through a market sizing exercise….Mckinsey, Bain, and the rest of the usual suspects have some great videos/articles online about market sizing estimations as well.