User Manual: The Early Stage Startups I Want To Hear About Most in 2017 and 2018

Note: Originally published at innovationfootprints.com on December 25, 2016. Reflects updates to the original on July 2, 2017 to reflect my shift to focusing on internet infrastructure and supply chain software. Also, clarifies that we invest in startups raising an institutional seed round.

About KEC Ventures

We are a team of early-stage investors based in New York City. We invest in information technology startups that are pursuing business models with the potential to transform the way business is done in their market. In such startups, we generally invest in the first institutional Seed Round. Often, but not always, we act as the lead investor. On rare occasions, we might invest earlier than this when we meet a founder pursuing a vision that we believe in. Currently, we focus on investing in startups based in the United States or Canada. Very rarely, we may invest in a startup based in Israel but that is in the process of establishing a presence in the United States.

On our team at KEC Ventures, I have been largely focused on finding and meeting the founders that we can become most excited about. I will continue to maintain that focus over the course of 2017 and 2018.

Here are some notes for the founders of the startups I am most eager to meet.

Connecting With Me

If you know someone who knows me, an introduction would help. If you do not, never hesitate to communicate with me directly. I am easy to reach on the major social networking platforms. Also, I hold regular and frequent office hours at various co-working spaces in New York City. Some allow non-members to sign-up and attend.

The best time to start communicating with me is at least 6–9 months before you believe you will raise a round in which KEC Ventures might invest because I believe it is important to build trust before entering into the kind of working relationship that exists between startup founders and their early stage investors.

That also gives me sufficient time to understand the problem you are solving, so that if we invest, we are doing so with conviction. Time enables me to become a more effective advocate on the startup’s behalf when my colleagues and I have discussions about making an investment.

Communicating With Me

If we are not meeting through an introduction, I will respond quickest to founders who get straight to the point, and explain why we should meet in 250–400 words in their first email to me.

I try my best to respond. However, depending on what else I have going on, I may not respond if I feel the startup is outside KEC Ventures’ areas of interest and that the founder could have easily found that out before emailing me. Please follow up with me once or twice if you believe I have made a mistake.

If you are not connecting with me or anyone else at KEC ventures through a warm intro, you can email me at: [email protected]. For your subject line use; Pitch: {insert name of your startup}. This way I can easily filter my inbox for these emails when I review them each week.

Characteristics I Look For in Founders, and Teams

I look for teams in which the founders have known one another for a considerable amount of time prior to launching their startup. I look for teams in which the level of trust and respect between the co-founders is high. I look for teams that will not have difficulty attracting other great people to join the startup. I look for founders who inspire confidence and loyalty from others because they are good at what they do, the kind of people I could picture myself working for.

I look for founders for whom solving the problem that their startup is solving has become their life’s mission and they plan to solve that problem with or without help from outside investors. I look for founders who have an unconventional opinion about the market opportunity they are pursuing, and can explain why their position is correct with evidence which investors can analyze independently.

At the outset I look for teams that can focus on building a simple product that their initial customers love, and who can focus on a niche within which to launch their product. I look for teams that are judicious and frugal in how they deploy the startup’s resources.

I look for founders who value teamwork, and who can become great leaders if they desire to do so. I value transparency, honesty, and openness. I value self-awareness. I like people who are determined and tenacious, who do not give up just because the going gets uncomfortable and things seem bleak.

I look for founders who have a hard time doing something simply because it is what someone else expects them to do. I look for founders who are not afraid to be different.

I like founders who marry a strong technical background with a deep understanding of the important role marketing and sales will play in determining the success of their startup.

Characteristics I Look For In Markets

I look for large markets that could ultimately be served by the startup’s product, even though the initial target might be a small portion of the whole. I look for customers capable of and willing to pay for the product, and who are looking for and eager to find a solution to their problem.

I look for markets in which the pain is acute because the problem suppresses customers’ profits significantly, or because the problem makes users less happy than they could be.

If currently the addressable market is between $1B and $10B, I want to see evidence that it is growing quickly enough to support the startup’s future goals, and the competition that I assume will quickly follow if the team is successful.

In certain markets where I believe there are invisible barriers to innovation, I look for industry expertise on the founding team.

If your team is based outside one of the first- or second-tier cities for startups, it helps a lot if I can drive, take a train, or take a direct flight from NYC or Newark to come and meet you.

Characteristics I look For In Business Models

I look for products and business models that:

• will benefit from network effects as time progresses,
• can scale efficiently and quickly, and
• can eventually benefit from an economic moat.

If you have the time you can read my work on economic moats here in order to understand what I will be thinking about as I conduct my independent analysis of your startup.

The Themes I Am Focused On

Notes:

1. My mental model of how our team functions is akin to how a soccer team functions, or how an athletic relay team functions. We take a team-first approach — it matters more that you communicate with one of us, and less on who specifically you communicate with. In turn, we will make sure that the right people on our team collaborate with a startup’s founders as we conduct our due diligence.
2. These themes cut across different industries and sectors. That is a deliberate choice. Once you meet one of us, you’ll understand how we think about this.
3. The technology sector evolves constantly. Accordingly, our team’s interests might ebb and flow in response. The themes I have described below should serve as a rough guide to how I think about the universe of startups in which we wish to invest.
4. Ideally, a startup raising its first institutional seed round should have raised less than $1.5M or so prior to the round in which KEC Ventures would be investing. The Series A rounds in which we invest will tend to fall close to the “small end” of the Series A continuum.

I am currently interested in hearing about:

• Marketplaces: Platforms that enable the participants in large, global markets to interact with one another in ways that reduce waste or create new, untapped opportunities.
• Interconnectivity: Platforms that enable large numbers of different types of connected devices, machines, apps, and websites to communicate with one another seamlessly, and with the people managing or using them, within a secure environment.
• Data & Analytics: Platforms or applications that help people or other machines to manage, analyze, interpret, make decisions, and take actions based on vast and growing troves of centralized or decentralized data.
• Effectiveness & Happiness: Products that enable people to accomplish more at work, or to become happier outside work. Products that help large enterprises and other types of businesses and organizations to grow or function more effectively.
• Distribution: Products that make it easier to create, manage, distribute, and consume existing and emerging forms of digital media and content.
• Asset Management: Technologies for managing different forms of enterprise, business, or individual assets. Technologies for managing different forms of enterprise, business, or individual risk.
• Other: New, and as-yet unknown technologies and innovations founders are building to solve problems that exist only because no one else has developed a solution.

Note: Starting in July 2017 I will function as the subject matter specialist on our team for investments in seed-stage startups building Internet Infrastructure, and Supply Chain, software.

Internet Infrastructure Software is; The software that connects computers, machines, devices, and people on the internet. Hardware is an important component of internet infrastructure, so I am willing to speak with founders who are developing a product that combines software and hardware.

Supply Chain Software is; The software that enables networks of organizations, people, and information involved in moving products and services from one part of the world to another.

Some, but not all, of the markets that fall within these themes include artificial intelligence — including all its existing and potential applications in different industries, software-as-a-service for enterprises — I am especially interested in products that help SMBs accomplish much more for a relatively small investment, virtual and augmented reality, financial technology, insurance technology, educational technology and healthcare technology — where the founders discover a business model that addresses the concerns venture capitalists typically express about those markets.

Things I am Not Interested In

1. Exploding rounds: An exploding round comes with a caveat like “Seed round in ground-breaking tech startup closing in 1 week!” I do not like exploding rounds, not even exploding rounds that are being led by a name-brand VC. I need time to do my own homework.
2. Meetings led by an advisor: I prefer my first few interactions with a startup to be with the team of co-founders, not with an advisor. It is okay for an introduction to come from an advisor, but I do not like to have advisors or mentors micro-manage my interactions with startup founders. That does not inspire confidence.
3. Lack of control over core technologies: I try to avoid situations in which the startup has a product that has launched to the public, but the startup’s team has no primary responsibility for actually building the core product.
4. Founders who will not share bad news: I only want to work with founders who will not hide bad news until it is too late for investors to do anything that might help the startup make a course-correction. I absolutely want to hear about difficulties, challenges, and problems. I expect the good news, but I think we have an obligation to try to fix the bad stuff before it becomes unfixable.
5. Buzzwords: I do not believe in buzzword investing. I focus first on understanding the problem the startup has set out to solve. Only after I understand that do I concern myself with the specific technology or business model being employed to accomplish the founders’ goals.
6. Obfuscation: “Trust me. Our algorithm is so complex and sophisticated that there’s no way you could possibly understand it.” Don’t say something like that. I’m wiling to learn, and I need to understand the basics of how your product works.

My Commitment to Startup Founders

1. I believe in Gil Dibner’s VC Code of Conduct, and will adhere to it in my interactions with founders.
2. Given that we approach conversations with founders from the perspective of a potential lead investor, we always try to move as fast as we can to get to an answer without being sloppy about our due diligence. I wrote this guide so that founders can help us speed the due diligence process along.
3. Other founders tell us they appreciate our team’s transparency about our due diligence process. We know founders’ time is invaluable, and we do not want to waste it if the probability that we’ll make an investment is nonexistent.