The future is bright, and early-stage investors get to have a front-row seat to the newest technological developments.
Despite popular belief, early-stage investing is not just about money. Investors can provide ongoing guidance to startup founders by sharing their specialized knowledge about the market. When choosing a company to invest in, VCs will anchor to a set of criteria to increase the probability that their money and time go to a winning startup.
In the latest episode of Infutor’s Identity Revolution podcast, Eric Franchi joins Cory Davis to shed some light on early-stage investing. Eric is a Partner at MathCapital, an early-stage venture capital fund focused on the digital transformation of marketing and media. With more than 45 companies in its portfolio – in areas such as CTV, identity, commerce media, and analytics – MathCapital is very active and successful in early-stage investing.
Eric talks about the key ingredients to success in venture capital. He explains the process of choosing winning startups and the importance of finding highly driven founders. If you want to hear more, continue reading or tune in to the latest episode of the podcast.
Start when other people aren’t paying attention
At the moment, MathCapital is a successful venture-capital firm, but a few years back the industry was very different. MarTech and AdTech had yet to explode, and it might not have been the best time to seek investment opportunities in these startups. Fast-forward four years, MathCapital has companies like Zeotap, Narrative I/O, TrueData, TVision, etc., in its portfolio, proving once again that we should be “fearful when others are greedy and greedy when others are fearful.”
Eric says there was a certain disdain in the minds of generalist venture capitalists at the time, but he and his partners had an idea worth believing in and pursuing.
“So we were like, ‘Ha, if we believe in this and not many other folks believe in it at the time, this could be a great time to start a fund.’ Ideally, you want to start it when not too many people are paying attention.”
Looking back, it seems that the timing was right for MathCapital, given the growth observed in MarTech/AdTech over the last decade.
Early-stage investing 101: How to pick winners?
Building a new business is challenging. It takes time, hard work, and ongoing support. Early-stage investors are typically entrepreneurs themselves with a deep understanding of successful business models. They’re present at the earliest stages to supply startups with enough money to actualize a vision.
According to Eric, there are four criteria to consider when deciding whether to invest in a company or not. In early-stage investment, these criteria remain the same while the process changes slightly. “The earlier the stage of the company, the more you need to wait, what I would call the three or four categories you use for investment criteria. They are team, vision, market, and then it’s product traction, ability to add value as an investor.”
With most of MathCapital’s investments early on, they tend to weigh team and vision over anything disproportionately. Eric explains, “I think A – the earlier the stage, the more we’re weighing the team. B – I think because we’re so early-stage focused, the fact that we’re so sector-focused and we’re still operators, Joe’s still deeply operational, it gives us an edge. And then, we’ve got the broad heading of marketing and media and AdTech. And then below that, a lot of our thoughts come from the market and where’s the market going.”
Companies are a reflection of their leadership
Everyone has their leadership style, and founders tend to transfer their cultural traits and management methods to the employees, creating “company culture.” That’s why when investing in a company, VCs like Eric start by getting to know its founders first.
Team and vision are almost equally important to early-stage investors. Eric explains how MathCapital evaluates founders. “The number one, if it’s a founder that we know. If this is their second business, this is their third business; they’ve had a track record of success before. So we’ll take that into consideration. It’s not necessarily a slam dunk. We’ll bet on second-time founders. That’s directionally a good thing to do because so many of our investments are first-time founders, domain expertise, or some unique insight of why don’t you start this business.
The more they can tell a story and help us understand from their unique perspective why they’re building this specific business in this niche, that’s where we’ll start to get excited.”
Technology is shaping the future
Eric says he’s excited to be investing ahead of all the technological developments that are yet to happen in MarTech/AdTech. He believes the next 20 years will be much bigger than the previous 20 in terms of digitalization. Everything that can become digital will. For example, voice search dominates the space right now, when it was virtually non-existent before mobile search exceeded desktop search in 2015.
We evolve alongside technology. Eric explains, “All of these new markets are opening up to expand digital from what it once was. What does that then require? That then requires an entirely new set of infrastructure to be built to make that hat right. So everything from the identity layer, from the ability to use machine learning and AI in a much more tangible way.”
The future may be unknown to us, but it’s certainly bright and exciting. “We think the next 20 years makes the first 20 years look like child’s play.”
Note: This is based on an episode of Identity Revolution, Infutor’s podcast featuring data-driven experts discussing all things marketing, analytics, and identity. We take a deep dive into industry trends, strategies, and the future of data technology.