As a specialist IoT fund, with an active operational model, our criteria is demanding. We have seen nearly 1,500 companies over the last three years and, so far, have only chosen to work with 20 management teams. The bar is high. Here are some tips on what we consider as part of our assessment before deciding to invest.
People first, products second: The most common reason start-ups fail is not their product, it’s their management. We are looking to take companies from seed stage to Series A readiness. That is a big jump in execution ability.
Series A investors want to see fast and faultless execution of sales and product development, proper corporate governance and attention to detail in areas like financial planning and sales strategy. Technical founders who are visionaries need to complement themselves with seasoned co-founders, who can pitch to senior executives of a FTSE100 firm or develop a supply chain.
We want to work with people who understand their strengths and weaknesses and can build strong management teams so they have a full range of expertise. We can help with that but only if founders can take an honest look at themselves and their existing staff. Fixing flaws in a product is simpler than resolving problems in management capability and culture.
We know and accept hardware – lots of VCs in the tech world are very software focused, be it apps, SaaS or cloud-based solutions. That’s great but IoT is the Internet of Things. In the end, somewhere, there will be a device. If you are fortunate, you can pursue an over-the-top (OTT) strategy from the beginning and float your software smarts over existing hardware, but, chances are, to launch your product or service you will probably have to build an integrated solution with proprietary hardware and software.
What happens next sorts the winners from the losers: we like business models where the value migrates over time to the software and analytics and the software can be deployed OTT or the hardware volumes can attract a third party as a partner.
You must solve a real-world problem – People are sometimes cynical of IoT because of countless media stories about smart fridges. Weirdly, these all focus on a mythical consumer who lives in fear of running out of cold beer and miss the bigger point: refrigerators are insulated and a connected fridge can slash its energy load by stopping the compressors for half an hour, with negligible impact on thermal control and sell the “megawatts” back to the grid.
In general, we prefer B2B (though not exclusively) opportunities over B2C ones because business managers are accountable for their decisions and have return on capital targets, whereas consumers just, well, consume and are not accountable for their choices.
We are passionate about IoT and the impact we believe it can make. Best in Breed 7 is now open and we look forward to meeting new people and getting inspired by all the exciting ideas they have. Applications close on March 16: if you think your opportunity fits our criteria, apply here.
[Update: Best in Breed 7 is now closed. For enquiries on funding opportunities for IoT businesses