Two Components Startups Need to Secure Investment

7 min read

“It’s hard to imagine any aspect of our life and economy that is not open to entrepreneurial innovation, transformation or disruption.” Bill Reichert, Managing Director of Garage Technology Ventures, believes in the globalization of innovation. He also thinks that any firm that focuses solely on the ‘next big tech trend’ is kidding themselves, and that a startup must have “The Two U’s” in order for his firm to invest. FN members, register here to meet Bill on Feb. 8th, 2017.

Here’s what one of the first investors in Pandora has to say about investments, globalization, and the ever elusive level of traction a founder must have to raise funds.

Q: What makes your firm unique?

Garage Technology Ventures was founded in 1998 with the idea of being the first VC firm designed for the benefit of entrepreneurs. At the time, it was a novel concept. And even to this day, VC firms are difficult to approach, and tend to be closed shops.

We’re different because we are one of the most outreach oriented firms in Silicon Valley. When we started, we had a thesis: That the innovation ecosystem is a global ecosystem. Most entrepreneurs have a difficult time plugging into the venture ecosystem in Silicon Valley— even if they live there.

So, we decided to makes ourselves accessible. How? We were one of the first VC firms to accept any and all entrepreneurs across the planet who chose to come to us. We really underestimated the interest we would garner: In our first 4 years, we received over 100,000 business plans.

When the Bubble burst, we realized being a global venture firm was not going to work. So we scaled it back, but it was very important for us to keep our outreach. And we have to this day.

“We were one of the first VC firms to accept any and all entrepreneurs across the planet who chose to come to us.” @billreichert

What investment and/or startup trends are you excited about right now?

There are two dimensions to this answer:

There is no Next Big Thing. Right now everything is trending. It’s hard to imagine any aspect of our life and economy that is not open to entrepreneurial innovation, transformation or disruption. Everything is open for entrepreneurs to innovate and build upon. Over the last few years we’ve seen Edtech, Foodtech, Fintech, Adtech, Agtech, Big Data, Machine Learning, AI, Deep Learning, IoT, 3D printing, Industry 4.0, AR, VR, MR, OMG — the point is, there’s an almost infinite number of areas that are open to innovation. From day one, we have been technology agnostic, which has proved to be very successful. Any firm that solely focuses on any specific “next big thing” is depriving themselves of opportunity.

Innovation can happen anywhere and everywhere on the planet. Fortunately for us, the global innovation ecosystem has evolved so that Silicon Valley is plugged into all innovation communities around the world. The globalization of innovation is an exciting trend that we have seen over the last several years. The good news for the investor community is that the investment opportunities are almost limitless. The bad news is that the competition in every single sector is now global.

“It’s hard to imagine any aspect of our life that isn’t open to entrepreneurial innovation.” @billreichert

What portfolio companies are you thrilled about right now, and what made you decide to invest in them?

Our decision to invest in startups comes down to them having the Two U’s:

A clear and compelling Unique Value Proposition: You have to create obviously greater value for your target customers than any alternative. To be obvious, that value is probably a multiple greater, not a percentage greater.

An Extraordinary Unfair Advantage: You need an unfair advantage to win in the marketplace. If you don’t have an unfair advantage, anyone can copy your value proposition.

You need a unique value proposition to gain customers, which an unfair advantage won’t necessarily get you. On the flip side, if you don’t have an unfair advantage, anyone can copy your value proposition and compete with you. So you need both.

“Our decision to invest in startups comes down to them having the Two U’s: A Unique Value Prop & an Unfair Advantage” @billreichert

A couple examples of startups we have invested in:

First, Playlist:

Their product is called Jam. When I was approached about Playlist, I was asked, “What is the one thing Pandora would have done differently if they began right now?” I answered, “They would add a social component, they don’t have one, and they need it.” The response, “Playlist has figured out how to do social music.”

When I first met Playlist, they had 500,000 unique visitors a month just because the name of their company was playlist. They figured out how to take streaming music and make it easier and more fun for millennials to navigate, listen to, and share.

Why did we decide to invest? The extraordinary unfair advantage they had. It was a restart of a company that had launched in 2009 as a music streaming service. When they restarted in 2016, they came back with 24M prior users, and a killer url.

Second, D.light Design:

Because they have this extraordinary story. They developed a solar rechargeable lantern that is cheaper than kerosene and lasts longer than any alternative. Four graduate students from Stanford. Their mission? To take their lanterns to the 2 billion people on the planet who currently depend on kerosene for their lighting.

Our initial reaction was: We’re not a charity, and this sounds like one of those philanthropic, do-good ideas. Their response: “You don’t get it. If we’re going to change the lives of 2 billion people, we need to build a big, scalable, global, profitable corporation.” Wow. So we invested. They are now in something like 16+ developing countries around the world, they lead in all their markets, and they’ve changed the lives of over 65 million people on the planet.

What is one book, podcast, article, or media that you think is vital for founders to read/listen to?

The Art of the Start, the bible for every entrepreneur — and I’m not just saying that because my partner at Garage, Guy Kawasaki, wrote it. Long before the Lean Startup, we launched the Art of The Start to help entrepreneurs start and scale their high technology businesses.

“We launched The Art of the Start to help entrepreneurs start and scale their high technology businesses” @billreichert

Of your most recent investments, can you share without naming names, what traction was for that investment before you decided to invest?

It’s been all over the map. We invested in a robotics company that already had $3M in revenue. We backed Playlist before they had a product. We don’t have a hard and fast rule.

Having said that, back to the Playlist story, we need some way of objectively assessing that the company can actually deliver value to the marketplace. We do look for traction in the form of some indicators. We don’t generally take technology risks, but we have.