Where you typically invest:
You invest in Series A rounds and look for companies with solid positive unit economics who have more sales leads coming inbound than outbound. At this point the company’s C-Suite is filled out and is as good or better than the CEO.
Common questions you should consider asking in due diligence:
You’re at the point where you’re ready to scale – how are you going to scale fast and make it difficult for your competition – which likely now includes large incumbents – to catch up?
In order to scale, you’re going to need to have unbeatable partnerships for sales and distribution – If you don’t already have these in place, why not, and how do you plan to get them in place?
The “Level 7 fallacy:”
A common mistake is when companies think they’ve hit product market fit – where your cost of customer acquisition is truly low and your sales channel is productive without the involvement of the founder or C-Suite. In reality, companies often still have to close customers with involvement of a charismatic CEO, a strategy that isn’t scalable and actually reflects that a company hasn’t truly nailed their value proposition. What evidence can you provide to an investor that you truly are able to sell at scale with low acquisition costs?
Where you can add the most value to entrepreneurs at this stage:
Help the company understand what they need to be thinking about to scale rapidly not only in their initial target market but across multiple markets.
In order to scale rapidly and beat out the competition, the team needs to forget unbeatable partnerships for distribution. They likely have established such relationships or are in active conversations with such partners. Help them navigate these partnerships and define other potential ways to grow their pipeline and distribution channel to customers.