“An idiot with a plan can beat a genius without a plan.”
– Warren Buffett
1. MORE THAN A HOPE AND A PRAYER REQUIRED – At times, it can seem that the early stage investment process is simply a ‘shot in the dark‘: a partially-applicable list of mumbo-jumbo that inadequately defines unique situations, advised on by less-than senior ‘mentors‘ unsure of the next step or how to position for the subsequent step. As future builders, reaching the next stage in consistent fashion, it helps to have advisors that have (1) operationally been there and done from inside, making crucial business decisions and have (2) hands-on intimate details of the later phases in order to construct a plan to get there. Some experts believe pattern matching is crucial, but it goes against the central tenets that of innovation in entrepreneurship, that innovation arises from the novel rather than the contrived, suggesting success simply because you fit a certain mold. However, experience does lead to efficiency and insight beats hustle surrounding the innovative disruption itself. Just like it a imperative to have a soccer coach who’s operated at the highest levels and knows intimately the technical moves required to succeed when simply running fast is not enough, likewise ventures should be treat start-up with the same care and precision. For example, in one instance, we merged three smaller companies in order to combine a larger entity which could grow into a disruptive space. We didn’t create the innovation or the disruption, it was there already and imminent and going to happen, whether we were there are not. However, we recognized the pre-existing trend, and applied long term strategies, models, and metrics to focus on the salient dimensions to capitalize on that trend, leading to a public listing.
2. A FIELD OF LILYPADS OVER A SINGLE FILE – Whether small or large, the same fundamentals remain constant in business. Options and potential pivots are the lifeblood of growth amidst constantly changing backdrops. Imagine a frog crossing a pond with only a single trail of lily pads. In essence, the solo frog would be much more successful marking a defined route in a field of lily pads in order to choose the successful path. As life hands out unforeseen ‘lily pad flimsiness’, the frog with diverse, pivot-able field to cross the pond has a better chance of making it across to the end goal. This is an obvious truth for products in finding users. A seasoned professional wouldn’t have a single group even with catering explicitly and first to the that single group that cannot live without your product (the most ardent fans). Likewise, why would one strategically plan a singular path with the lifeblood start-up financing? We know the lily pad field and the benefits of staying the center with open options all around. If you’re not intimately aware of the options, how can you plan to stay in the center? For example, we had companies we worked with who originally wanted to proceed down a traditional IPO pathway. However, because they focused on the right metrics and dimensions, when the IPO market was closed or unfavored, they were able to pivot toward a SPAC, direct listing, or other option and stay actively growing instead of in suspended animation awaiting finance.
3. VIBRANT INVESTMENT PATHWAYS = VIBRANT ECOSYSTEMS, NOT A COLLECTIVE OF START-UP COMPONENTS – As one studies post-SPAC San Francisco and New York vs. other government-incentivized entrepreneurial ecosystems, one begins to surmise that simply having ecosystem components like a talent pool (university), service providers (lawyers, accountants, other professionals), or large Fortune 500 companies nearby, doesn’t necessarily guarantee a successful entrepreneurial ecosystem. We believe too much focus on checking off the list of ecosystem components is not really a difference maker or many ecosystems, as every contrived ecosystem would be successful, international or domestic. Rather winners have an available defined pathway and understanding of the endgame: where to go and how to get there. We believe within Orange County, Elementz has the premiere position in understanding those every changing pathways with our experience. We look at the example of the Bay Area community embracing direct listing and the SPAC structures to enable a viable outlet and options for public investor for the myriad and variety of portfolio companies, and as they have defined the pathways and built the chain, the companies continued to grow and succeed and the pipeline grew stronger. Similarly Boston/NYC early stage community has adapted in reverse but both have understanding of the endgame and that’s why they’ve grown.
4. CERTAINTY IN EARLY STEPS BUILDS CERTAINTY IN LATER STEPS – now if a collective company knows the next steps, it can plan more fully for those steps. Beyond the (A) metrics and planning, the company can consistently (B) know what future investors will judge you upon and allow you to (C) aiming big toward upcoming catalysts and developing markets. Like rock climbing, where a firm hold necessarily allows a climber to develop a firm hold for the next hold to launch upon, we believe that experiential certainty which helped you develop early stage confidence, that confidence will carry on the end goal. Using the soccer analogy again, the chain of properly placed passes (and options for dangerous passes) leads to the score and end goal. In the long run, returns are better and companies are stronger. While experience doesn’t guarantee success, it certainly gives you the best chance, with these understandings and diligent execution accordingly, we believe more companies have the ability to grow larger and resultantly, our fund produces better returns in the long run.