We receive multiple inquiries and requests for funding every day of the week. Meeting entrepreneurs, spending time with them, understanding their plans and dreams is a core part of our day-to-day work. We love it.
Some entrepreneurs spend weeks and months writing lengthy business plans. Others send a short teaser hoping for a meeting. Many more just send an email asking for funds. This note offers some advice as you think about approaching Novastar and other VCs. We hope it will be a helpful guide to you whether or not we ever meet.
The first thing to say is: we don’t have an application form. We don’t make investment decisions by ticking boxes. Our investment decisions are inevitably subjective, and the key criterion for us as an early-stage investor is the character, capacity and ambition of the entrepreneurial team. We invest in people first, plans second.
Having said that, we are looking for clarity and conviction about the market opportunity you’re pursuing and how you are going about it. We suggest you take some time to test the rigour and clarity of your thinking on the following topics:
Mission: Why does your company exist? What is its purpose? Take time to hone it down to a single declarative sentence. One sentence. Seriously. If you can’t express your mission simply, it’s probably too complex to succeed.
Team: Who are you and why have you embarked on this exciting but difficult adventure? Motivation and a demonstrated capacity to execute (at more or less anything) is more important than impressive qualifications. How will you respond when things go wrong? Will you know when to persevere and when to pivot? You can read more on What Novastar Looks for in Entrepreneurs, here.
Market: Who is your intended customer? Paint a portrait for us. How many of these customers are there? Are you pursuing a niche strategy or one that addresses the many not just the few?
Problem: What is the problem your customer currently experiences that your business will address? Is the problem you are trying to solve a serious pain to the customer? How does the customer currently address it?
Solution: What is your solution to the problem? What is your product or service and how well is it suited to the market? Why is your solution much better than the alternatives currently available to your customer?
Innovation: What is the central innovation that makes your solution better than anything else available right now? What is the essence of your unfair advantage over the competition?
Business Model: How do you make money? What are the primary revenue and profit drivers in your business? What are the main risks in your business model?
Efficiency: We want to partner with entrepreneurs who treat investors’ money like they would their own. We look for teams who deploy capital to achieve the greatest possible progress for every dollar spent. We expect some ideas and initiatives to fail before your company succeeds. The question here is: how are you going to make sure that those failures happen early and cheaply?
Milestones: What is the pathway for developing your business? What key assumptions are you testing? How much capital will you need to achieve each of your milestones? We want to understand the basic economics of the business you’re building and the milestones you have set to prove the underlying assumptions.
Dream: When you dream in technicolour, what does this business look like five years from now? How about ten?
Exit: We are patient, long-term investors who understand that it takes time to build end-to-end solutions to big problems in our markets, but eventually we need to achieve an exit from our investment. How do you think that might happen?
Why Novastar? Why have you sought us out? What are you looking for from Novastar? What do you believe we can provide that others cannot?
