I like Eric Ries’ recent post on pitch hierarchy, and have used it to refine my investment criteria:

Specifically, I’m targeting ventures that are already showing product market fit via promising results, making it likely that they will close a venture round (even in these tough markets). These investments have less risk and I’m comfortable making them at arms-length and in industries where I have less experience. One example is an investment I made in Fotolog, a photo sharing site subsequently funded by BV Capital and 3i and acquired by Hi-Media:

Fotolog had over a hundred thousand users and rapid growth that exceeded 20% per month, including explosive international growth in some countries like Brazil (a positive and negative, since these were more difficult to monetize and consumed significant bandwidth). A significant percentage of the base was fanatical, posting daily and posting several dozen photos weekly. An inexpensive paid version had small but consistent uptake.

Where I have expertise in the industry, or am working with a company closely, I’m willing to invest when the company has micro-scale results. This means that the core service of the company is demonstrably working at a small scale, and the company has a clear path to scaling these results in a cost-effective manner. A good example is an investment I made in Vindicia, subsequently funded by Doll Capital and Leader Ventures:

The Vindicia team had developed the charge-back merchange protection sevice in response to charge-back problems encountered at EMusic, the company they had previously founded. The company had delivered a working version and was in production with a few clients, with the product working and showing measurable cost savings. These costs savings would clearly scale with the scale of the e-commerce customer.

Where a venture is compelling but too early to demonstrate micro-scale results, I’m happy to stay in touch until these results are delivered, or in some cases, take an advisory or consulting role and help the company define these milestones and deliver these results.

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