Talented Meanderers vs Committed Discoverers — The Art of Pre-Seed Investing

Joe White, EF CFO & General Partner
19 November 2018

Article5 Minute Read

Those companies that move fast over 3 months will continue to be those that move fast over the next 5 years. Those that move slowly, that are on the cusp of productivity usually remain just that — on the cusp.

I was extremely excited that a couple of weeks ago, Portify, an Entrepreneur First company from our 8th London cohort, and one that I’ve mentored now for 18 months or so, announced their seed round (led by the excellent Kindred Capital) allowing them to further accelerate their mission to provide financial infrastructure to gig economy workers.

This was not just a great result for them, but the resolution of an important distinction for EF in our ability to correctly assess pre-seed teams and their potential. Portify’s result cemented their place in EF lore as confirmed ‘Committed discoverers’ vs. the less successful group of ‘Talented meanderers’ with whom we so often fall in love, despite our best intentions.

But when new teams say to us before demo day, “I’ll just do a Portify”, this is still a worrying sign — and often triggers strong internal debate — as it often means they don’t yet have visible traction. The question is always, will they ever get it? Let me explain.

The Art of Pre-Seed Investing

Entrepreneur First selects highly talented individuals, pre-team and often pre-idea for a structured 6 month programme consistently resulting in a set of exceptional companies that combine the unique skills of their founders to disruptive effect.

Not everyone makes it through the process, so those who do so are not only brilliantly smart, they’ve proven they can make rapid progress under conditions of high pressure and extreme uncertainty — a true work test for entrepreneurship.

EF seeks to produce high velocity venture fundable outputs, and our ability to assess these fledgling teams is critical for our reputation and returns. We’ve seen 1000 individuals take part in the programme so far, and with offices now in London, Paris, Berlin, Singapore, Hong Kong and as of last week Banglaore, our volume and data set is growing exponentially.

Individuals are selected on the programme based on ability, teams are then invested in based on momentum and potential. Fundamentally we’re looking for two things: exceptional team performance and potentially huge business impact. In our conceptual 2×2 we have team performance vs idea variance (the potential for the idea impact to be far from the mean).

Pre-seed funding matrix

Teams with a high idea variance have the potential to disrupt entire industries. Software consultancies, or process improvements are typically lower variance, but technology platform changes (AI, robotics, VR, Space tech, etc.) often allow for transformative disjoints in how certain industries behave, with the possibility of winner takes all outcomes.

But just because an idea has great potential, doesn’t mean the founders can do it. Team performance will ultimately trump any idea — in a competitive race, the best team will win.

Clearly we back all teams in the top right — great potential, great performance. Bottom right is a no — great potential, not up to it. Bottom left is also a no — small potential, and seemingly happy with that.

But it’s the top left that creates debate. Why is this great team doing this small idea? Will this idea evolve into a big idea, do we just not understand the idea, or are they not really that great? Will they discover their way to greatness or meander their way to mediocracy?

So how do you measure a team after 3 months?

The best teams just move faster. They set themselves weekly goals and they hit them, often achieving unexpected outcomes as they do so. They make decisions quickly, learn by doing and get customer and market feedback much more quickly than other teams. They are super smart, but don’t get lost in debate. They are fundamentally in a hurry.

EF Venture Partner Nadav Rosenberg tells me the Hebrew word for luck ‘Mazal’ combines place (‘Makom’), time (‘Zeman’) and action (‘Lashon’, tongue or as some say, ‘to do’). I love this definition, because to me, it suggests all things being equal, teams that take more action generate more luck — which is entirely consistent with my work with early stage teams. The best teams get lucky more often.

So when the idea is not immediately obvious or fully resolved (it is after all typically only 3 months since they started their journey together), and the team appears great, you have to look closely at traction and momentum to unpick the winners.

Talented meanderers appear to be great teams. They’re super smart, they talk a great game, we love talking to them. They were some of our top talent picks on the way in. They have such potential. If we only gave them another 3/6 months think what could they do! Will they ever flip the productivity switch?

Committed discoverers may not have it all figured out, but man are they on the move. Equally smart, but more pragmatic. They are running through the maze as fast as they can, hitting wall after wall, frustration after frustration, but don’t stop.

Sometimes, even more so than the teams with clearly defined ideas, they have dealt with disappointment and failure often and early in their journey and still keep going. All of this will reinforce their resilience for later in the startup marathon. It’s a long journey, they’ll need it.

It’s becoming an investment truism at EF — those companies that move fast over 3 months will continue to be those that move fast over the next 5 years. Those that move slowly, that are on the cusp of productivity usually remain just that — on the cusp.

All of which brings me back to Portify. At our investment committee they just didn’t have a lot and even by demo day, the concept wasn’t fully in place. But the team were super smart, super committed to their idea and in everyday relentless pursuit of it. We backed them on the basis of their commitment, their ability, and with the belief that they would eventually unlock the market they were after.

They didn’t just talk about it, they worked hard everyday, they iterated their offering with customers and end users, quickly turning around new features, new designs and new concepts — and discarding those that didn’t land — until everyone started to bite. They now have customers, end users and a strong seed investor.

The announcement last week was the resolution of that pre-seed bet. The journey from seed to global scale is a long one, with many more obstacles and hurdles to come. But I’d always rather bet on a team that moves fast and doesn’t stop.

Well done Sho and Chris, and well done Kindred. Can’t wait to see the next phase!

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