Great companies are built around brilliant ideas, great people and strong execution. It takes a lot of work to take a brilliant idea and turn it into a fundable company, and we are proud to invest in founders who put their blood, sweat and tears into doing so. At Lux Capital we invest in seed stage, and sometimes even pre-seed stage, companies and hence often find ourselves as partners with the founders in doing the messy work that is involved in moving from idea to a company. We sometimes politely call it startup sausage-making.
This kind of startup sausage-making is messy. It is not always fun. And it is not always successful. Trust me we have lots of debates internally how much of our efforts should focus on such super early stage opportunities…but as entrepreneurs in our previous lives, some of us cannot resist the temptation to take the risk and put in the hard work in bringing such companies to life. We fall in love with ideas and we fall in love with entrepreneurs. We also don’t always succeed but for sure its always a team effort at Lux, and we give it our best.
I was recently discussing some of the things involved in such startup sausage-making with a friend and thought it was worth sharing so founders we have yet to invest in would know where we have some experience and can help:
- Completing the founder team — this is the toughest, and frankly most frustrating. You can’t really hire a search firm to help find the missing founder (trust me, I have tried). Yet, we regularly meet founder teams that are incomplete. Either all technical with nobody understanding the business/market/customer needs, or all business and nobody really having the technical depth and breadth to address issues quickly. At Lux we maintain a wide network of experienced entrepreneurs across all kinds of spaces who can be pinged as opportunities arise where they might be able to play a critical role. But there is no magic formula to it. The process of dating takes a long time, and even then there is no easy fit. Arranged marriages have their advantages and disadvantages. Most important for us at Lux is to have an honest dialogue with existing founder(s) on what we think is missing, and then getting on the same page vis-a-vis what we would like in an ideal co-founder(s).
- Technology to product — Technology doesn’t sell, product does. Yes all companies go through this process but in some industries this step can be too time consuming, expensive and/or unpredictable. It is important to understand that early. Supplementing in-house competences and capabilities with knowledge gained from experienced consultants maybe the best way to triangulate on this at early stages. Understanding this also helps determine how much funding would be required to take company through to exit velocity.
- Customer discovery — Companies get built around customers. Early conversations with customers help build the right product, the right team, and the find the right investors. This is very tough if the business team is incomplete or does not exist. Investor team can help pitch in, and we open lots of doors, but somebody is needed to own the problem and build a vision for the product with customer input in mind.
- Financing — Very early stage companies have to delicately balance their pitch between being bold/visionary/change the world and here’s what we will do in concrete/focused/viable fashion over next 12-18 months. We spend time helping companies understand not only the art of pitching to investors, but realizing that a good pitch is also a document that can be used to help with recruiting and in organizing execution.
- Ugly details — Depending on the nature of the startup there are often lots of loose ends that need to be tied up for the company to succeed in the long run. For example company registration issues, IP licenses, non-compete agreements, no-hire agreements, visa issues, payroll, HR policies etc. Oddly these these are things that pester entrepreneurs most (esp first-time entrepreneurs) but fortunately these are areas that investors understand well and typically have lots of vendors and partners who can help companies gets et up the right way.