Based on our analysis of the seed-stage market, we know the portfolio we want to build. So we have a narrow set of well-defined investment criteria that we apply to every potential investment:
These firm, portfolio-based criteria will probably apply to all our funds in the foreseeable future. Due to our first fund's small size, we currently have some additional qualifications that simplify our logistics. First, we are only considering startups introduced to us by incubators with whom we have relationships or people in the startup ecology whom we trust. This policy helps limit the startups we see to a manageable number.
Second, we want every startup to have a readily identifiable source of strong operational expertise. Such sources could be the founders' having extensive previous startup or business experience, the founders' attending a high-quality incubator/accelerator program, or the company having an active Board of Directors or Advisory Board with highly relevant backgrounds. This policy allows us to focus our ongoing mentoring efforts on high-leverage advice and assistance.
Third, we want each startup to have either exceptional technical capability or industry experience. Having both is, of course, a bonus. Based on our analysis of seed-stage startups, we believe startups with either of these advantages can, on average, search for product-market fit more quickly. This policy better suits the time horizon of our first fund.
We also want to be diversified across hundreds of investments. It might seem that this desire conflicts with our strict criteria. Not really. We want a diverse set of investments within a narrow asset class. In the public equity markets, a fund might focus on "small cap technology". This focus excludes most stocks. But the fund would hold positions in many different companies. We want that same kind of diversification within a specific asset class.