Most venture firms have their idiosyncrasies. HorizonVC is no exception. Here is a cheat sheet on some of the things we don’t care about & a few things that we do.
Things we don’t care about:
Who is leading the round1
Who will lead the next round2
What is your moat
If you use DocSend or PowerPoint or wax tablets
If your target market is small today
If you don’t know what “being good at storytelling” means3
If the stock market is going up or down
Where you are located
Things we do care about:
Can you make great software4
How do you plan to scale your go-to-market5
Can you thrive under stress
Can you build a world-class team
What do you plan on doing in the next 3 months, in the next 2 years, and in the next 10 years
Getting to know you before making an investment decision
We realize many LPs evaluate emerging seed stage managers on their co-investor logos, but we think that’s a backwards looking view. Many of the best software unicorns raised seed rounds from investors who, at the time of the round, were not well-known. We also think it’s easy to let “who else is investing” distract from what we think is the core analytical challenge of seed stage investing: evaluating a startup’s prospects from first principles.
We do hope that high quality firms will lead future rounds, but we think that the venture market for software startups is reasonably efficient at the A and beyond. If our portfolio companies are showing exceptional execution, they will attract exceptional future investors. We will worry about the exceptional execution part and let the market take care of the rest.
Many great software founders were not “good storytellers” according to VCs at their seed stage. Of course, great founders need to attract great technical talent from Day One, but storytelling for VCs at the seed stage has only a small overlap with storytelling for great engineers at the seed stage. Over time, execution ability converges with storytelling skills. Great software founders become great at storytelling for investors, but this is more an effect than a cause of startup greatness. Note that in other business models like DTC, the cause-and-effect is totally different.
Making software that users love is the primary driver of tight PMF for software startups. This is really hard! A “moat” is an output, not an input, for great software companies.
We want to invest in software startups where word-of-mouth will form the foundation of go-to-market. With high word-of-mouth, every go-to-market motion gets easier.
As a founder and former client of Horizon Partners some years ago now, I remain a genuinely enthusiastic fan of both you and Mike Firmage. Just reading your post above, a couple of brief thoughts perhaps worth sharing:
"Over time, execution ability converges with storytelling skills. Great software founders become great at storytelling for investors, but this is more an effect than a cause of startup greatness."
I so wholeheartedly agree with that sentiment, and moreover, for what it's worth I believe great founders will begin to excel at such storytelling not merely for (existing and prospective) investors, but in fact for virtually all stakeholders as both the needs *and opportunities* are revealed.
Conversely, founders who seem unable to master these once the business is well underway are almost certainly not the go-forward CEO. Of course the why of that "greatly depends", e.g., it's not to say there is no place for that sort of founder in the business, and one would hope they are be aware of this class of concern at least as early as anyone.
One more add: Early stories are of course inherently and predominately centered around things like, "who are we (the team), what problem are we going to solve and what do we think the future looks like"; in time, a founder should be able to articulate with deep insights and healthy humility, stuff like "How did we get here, How has our story changed and why?, together with things like 'What are the most valuable things we have learned" and how is that informing the story in its subsequent iterations.
Any case, thanks for the great post. Bravo!