We live in a time of fantastic technological change, when product cycles are ever-shortening and people’s openness to adopt new ways of working and playing is high. The right company with the right product can really change the world.
The Internet is an enabler here, not just in providing information, but increasingly in creating tools, processes, and companies with which one can build one’s own company. The repercussions of crowd sourcing, cloud computing, on-demand computing, virtualization, mobile, social, gaming, and so on, are only now beginning to be realized. The game is not over; it is just starting to get interesting.
Through the use of Web 2.0 technologies and the maturing of the Internet with point-solution companies, many of today’s new ventures do not require a large number of employees or large amounts of hardware to prototype and iteratively improve their products. They can outsource their processing needs and can find companies with which they can partner to source critical capabilities. As a result, $500,000 today can often do what $5,000,000 did a few years ago.
Fewer employees and minimal infrastructure allows an entrepreneur to be more flexible in really defining the business opportunity and to experiment more. The disadvantage is that he or she has less internal expertise on which to rely on and with which to strategize. Accordingly, we find that early stage companies often lack some critical aspects of business development expertise, coherent strategies, management strength, and access to capital. Yet, some of the highest growth, most profitable businesses of today were yesterday’s start-ups. Our approach is to bridge this gap for a select few companies that meet our criteria for success.
Despite increased efficiencies, there exists in the market a clear venture capital funding gap, whereby venture capital firms are unwilling to fund investments that are too small to be meaningful to their overall fund’s performance. Typical angels do not have infrastructure to provide substantive support to their portfolio. ff Venture Capital was formed to bridge this venture capital funding gap. We work with a select few companies, act as a strategic advisor and trusted partner, and work hard to help them change the world.
We follow a three-step process:
We primarily look for companies with extremely capable management teams, although they may be quite young. It does not matter how good the space is; without the right management in place, the opportunities, as they develop, will not be appropriately exploited.
We look for a compelling business model that, with the right opportunities, can grow rapidly and for many years. We are willing to look at pre-revenue concepts.
If the company makes sense and the management is right, then we look at how to get appropriate exposure. Valuation is key, but so is investment structure. We prefer warrants, convertible loans, participation rights, and other structures that preserve our ability to add capital as the business grows and the idea matures. However, our strategy is not solely focused on capital; we’re also focused on what we can bring to the table in terms of advice, management, connections, and adjacent technologies from companies we know well and/or in which we have also invested.
Almost all of the companies in which we invest meet the criteria below:
We primarily invest in early-stage web-based services companies with disruptive models. We are particularly focused on low CapEx high operating leverage businesses.
Typical valuation at first funding is below $5m pre-money.
Our typical first-round investment is $75k-$400k; we typically invest up to $1 million in follow on rounds for companies in which we were a seed investor.
We look for companies with potential to generate over $10m of annual EBIT within 5-7 years.