The Three P’s of a Technology Company

I wear two hats – one as a Managing Director at OMERS Ventures and the other as an independent corporate director.  In both gigs I get asked the same question a lot: “What determines if a company is “venture fundable”,  post-seed financing?”.

It is certainly not black and white but here is my best shot at an answer.  I bucket company dynamics in three groups: people, product and progress.

People are the founders/operators of the company

Product is the product vision, product market fit, and total addressable market

Progress is traction and proof points validating the product

The first and most important threshold is product.  If a company does not have a massively disruptive product that attacks a huge global market, you are most likely not venture fundable.  That does not mean the company is not fundable.  “Friends and family”, angels and even debt financing are the typical instruments for good companies selling to good markets.

Okay, you have passed the first gate with a big idea for a massive market.  What’s next?

People make or break the success of technology companies.  The technology ecosystem in North America does not suffer a shortage of great ideas from entrepreneurs.  The lower barriers to entry and a new-found spike in entrepreneurship globally has spawned thousand of startups.  The reality, however, is that it is far harder to scale a company than it is to start a company.  Entrepreneurs who have had one or more prior outcomes have a higher propensity to be funded by venture than first timers.

How does a first timer overcome this bias?  Progress. A second time entrepreneur can sometimes get funded with a great idea with “proof points pending”.  A first timer does not have this luxury, even if the founding team has great “domain” expertise.  The “hockey stick slide”, which shows momentum and velocity for a first time team, needs to be extremely compelling when viewed “outside in”.  Whether the metric is revenue, client adoption, client proliferation, “uniques” or whatever it is that marks success, the hockey stick needs to be “at the blade” heading up fast.

Competition for young companies looking to scale is not only the team in the Valley trying to do the same thing, although that is certainly a key focus.  The real competition for young companies seeking growth capital is another company, not in your space, with either a second time entrepreneur who has cache, or a hockey stick slide that is “off the charts”.  When the venture firm prioritizes their pipelines and their capacity to engage, the best progress story will likely get the dollars.

First timers can and do get funded in technology (just ask the guys at Wave Accounting).  Almost all of these success stories had incredible momentum on a key metric.

My suggestion for entrepreneurs seeking venture growth capital is to wait.  Wait until you have proof points and a traction story that is damn near breathtaking.  Wait until you have the slide you know will blow your audience away.  Create relationships and seed your story with venture, but wait for the ask until you know the answer to the question.

Submitted by Howard Gwin