For our main fund, we assume that a reasonable portion of the risks and milestones associated with seed-type investments have been mitigated, though we understand there is still significant technology and execution risk. While our focus remains on the capabilities of the underlying technology, we want to understand what risks remain (and what you’re doing to mitigate them), as well as your production / go-to-market approach. Markets, financials and full teams become more important, though we still accept gaps in the complete picture and business plan. But clear identification of the key success variables and missing pieces is important. What are you looking for from KV? Why have you sought out us specifically?
What is the problem you are trying to solve? What pain point are you alleviating for your customer, and why would they pick you? What are their alternatives, and what is the status quo? From a customer perspective, is the value proposition jaw-dropping, and do you have customer referrals to prove it? Try to define the company purpose in one clear sentence.
At this moment, what is the status of the underlying technology? How much further does the technological innovation need to scale to meet commercial standards? What is the margin of error if the technology is underperforming or exceeding the expected cost targets? What needs to be achieved to make your value proposition compelling?
Who are you, and why are you qualified to lead this opportunity? Are you the long-term CEO of your company? What skill sets do you bring, and what skills will your team need to add? What parts of your executive team still require filling out? What are the team’s relationships with thought leaders in the field?
What is the company gene pool like? What are the gene pool gaps? For each gene pool gap, who would be the ideal hire to solve the risk, and where will you find this person?
Please include your financial projections, profit and loss statement, balance sheet and cap table. Accuracy is more important than precision. Contingency planning on the financials is even more critical. What happens to your financial needs if technology or market development slips or costs are too high?
What are the milestones this financing will achieve? How far are you from being cash flow positive, in terms of both time and money? How many future rounds of financing do you project? What would make your company run out of cash, and what does the worst-case scenario look like in terms of cash flow? For revenue-generating companies, what is your sensitivity to lower-than-expected revenue? Has your revenue ramp been tested? We like to see quarterly financials for the next eight quarters and annual financials beyond that.
We don’t like sizing the market based on analyst reports, because models cannot accurately predict disruptions. Often, a market covered by an analyst is too late for venture. Instead, we prefer a bottom-up sizing of markets based on reasonable assumptions.
Your market size should be the maximum revenue for your business, not the entire supply chain. Don’t confuse addressable market with industry size. Is your business addressing a need in a large enough market ($1 billion-plus)? Or if, as is often the case, you are addressing a subset of the market, what is its size and why will you be competitive in that segment? What opens up that segment to you? We appreciate detailed understanding of the nuances of the market.
Do you have a good understanding of the competitive landscape? Are you comparing your company against the competition in areas that matter to the end customer? Who are 10 ideal customers who will make your company successful, and what are you doing to obtain them? What are the threats that could make the market opportunity obsolete? How does your solution fit into the existing ecosystem, current standards and incentives?
What customers or users do you have? How have you retained them? How will you increase their number exponentially and continue to retain them?
What is your go-to-market strategy? Have you identified the right partnerships? Does your price point justify the cost of sale? Why will consumers use your product over its competitors? What keeps you awake at night? Do you understand your risks? Are they clearly defined, and do you address them in your marketing or technology strategy? The quality of your assessment of market risk helps us judge how well you understand your market.
WHAT DOESN’T MATTER
“My company is a ripe acquisition target.”
An acquisition is a reasonable outcome but a horrendous plan. We invest in entrepreneurs who want to build long-lasting, highly profitable public companies.
“Government subsidies will help me win.”
Subsidies bring cash flow forward but seldom create your market or build your business. In order to succeed, your product must be price competitive without subsidies.
“I have the north American license for XYZ.”
Proprietary technology and a license for such technology is a good thing but alone, it is not enough. We want you to be the sole owner of the underlying ability to develop new technology. We invest in companies that plan to build significant technology development expertise in-house, so they can stay at the cutting-edge and respond to dynamic markets and competition.
WHAT WE DON’T INVEST IN
Growth capital / project financing / real estate / small business
We understand that there are: successful small businesses looking to expand their operations but lack differentiated technology or business-model innovations; project owners, operators and developers who are looking to build a plant, manufacturing facility or energy farm. While these are all worthwhile ideas, they are primarily the purview of financial service providers. This is not our focus at KV.
Long, drawn-out innovation cycles
The corollary to our fondness for short-innovation cycles is a dislike for long and expensive ones. An innovation or idea that requires a $100 million and five years to show its first proof point is not a target investment for us.
Niche markets with low upside but good IRR
At KV, we’re looking for ventures that have the growth potential to be billion-dollar companies; there is a significant difference between a million dollar market and a billion dollar market. A good return on investment (ROI) is not enough of an incentive for us. We care about pursuing good ROI in large companies.
Public companies conducting equity raises
Our goal and commitment is to invest in companies that aim to become large, sustainable public businesses. Businesses that are already public generally do not fit this criterion.
Copycat business plans
If your business plan is built on copying what existing companies are already doing (without a significant innovation), you are unlikely to be a fit for us. A social networking plan that promises to be “just like Facebook” is not a compelling idea.
Submit a business plan