Karan Mehandru, from Trinity Ventures (investor in RJMetrics and its spinout company Stitch); David Rose, early stage investor and founder of Gust; and Charles Hudson, founder of Precursor Ventures shared their perspectives on funding startups.
1. Know your market
“The thing I always focus on in early stage investing is founder-market fit,” said Mehandru. “It’s a lagging indicator of companies we want to get involved with.”
Founders aren’t perfect circles, and at early stages, straight shots to glory are rare, said the West Coast–based investor.
“The thing I look for is: Are they exceptional in the dimension of the market that they’re entering?” the investor said. “The skill set has to be in relevance to the market they’re going after. If they’re uniquely qualified and have lived the pain, they’ll see [change coming] around the corner.”
2. Traction is key
Per Rose, a frequent warning sign is a mismatch of expectations between what value a product or service is expected to offer customers and the traction that ultimately follows.
“Even for early, early stage, we look for indication that there’s somebody other than you that thinks this is a good idea,” he said.
3. Traction is not key
Conversely, Hudson called out traction in early stage companies as “BS.”
“People focus too much on early traction but don’t ask the question, do they have a unique vision of the market? I’m looking for people like that,” he said.
As an example, Hudson pointed to sports-focused media outlet The Athletic, which raised a $2.1 million funding round earlier this year from investors like Precursor.
“I like people who pick weird targets,” the investor said.
Opinions, everybody has ’em.