In some ways, launching a venture capital firm is similar to a startup – founders moving at breakneck speed simultaneously in a bunch of different directions, juggling not only customer facing challenges but nuts and bolts back office issues as they grow and scale. It has been no different in the first month here at QDS Capital — while we have launched our firm, begun adding to our team (belated welcome to our new CFO, Gayden Carr) and been in meetings up and down the east coast related both to our Fund I and sourcing transactions for once we are past the first close for Fund I.
Our meetings with initial groups of founders often follow a familiar format — going over standard pitch decks, chatting about total addressable market and evaluating financial projections and terms of each company’s proposed raise. However, part of our mission at QDS Capital is to deliver value and assist founders across the board — regardless of whether or not they become a portfolio company. Along those lines, in most meetings, we try to be transparent on the subject of what we’re looking for in a potential investment and find a way to give back with each conversation.
Of course, all VCs will tell you they look at valuation, size of market, potential exit opportunities, milestones for their next round and the like. These are table stakes for all of us, especially those of us operating at the Seed and A rounds. Beyond these “must haves”, there are a number of other criteria that we’re constantly thinking about as we evaluate transactions:
- Are we excited to put this Founder/CEO in front of any of our LPs or Ops Partners? This might seem like an overly qualitative question in an increasingly quantitative world, but the QDS team goes far beyond Nikki, Gayden and Bill — all of our Operational Partners and all of our LPs large and small are important contributors to what we’re building at QDS, and our portfolio company founders are an extension of that team. We want to find entrepreneurs who are world class scientists, business people and inventors, and are also great leaders, collaborators and teammates.
- Does this company solve a real problem in a way that nobody else on the market does, and can the CEO quantify the value of that solution? Simple issue here, but it never ceases to amaze how many founders can’t articulate the business problem they’re solving, focusing rather on the world class tech or otherwise on their own product — which customers don’t care about (quick tip: they care about their own problems).
- Are the founders/executives coachable? At QDS we aspire to go above and beyond in terms of the support we offer to founders — our team of Ops Partners have a range of experience building media, medical device, AI and consumer product companies and they take an active role in scaling these companies. In addition, we spend significant time during the diligence process getting to know the CEO and his or her leadership potential.
- Is there a clear pathway to milestone achievement that gets the company to high growth and the next stage of investment? This should go without saying, because it should be a common expectation amongst all investors that there is interest in knowing how you will move your company through the commercialization process. Some pathways are very complicated and nuanced and there’s no problem with iterating along the way, but having a clear roadmap showing how you think you would get there a with the knowledge you have today will strengthen our confidence in your knowledge of your sector and how you can successfully gain traction as well as your ability to execute and pivot (if ever needed).
Of course each opportunity is different — but where we invest in companies, you can be sure that we’ve found companies that answer each of the above questions positively . . .