It's not every day a prominent Philadelphia investor takes the stage to talk in front of a room full of entrepreneurs. At the February edition of Philly Tech Meetup, David Nevas who is a principal investor from Edison Ventures and used to be a developer for technology companies had something to say.
One of the first things he pointed out that Edison looks for in a new startup, is what space are they focused on. Are they in an overly saturated market, or are they reaching into an old bag of tricks. David asked the audience, "What's an area that's hot that people have moved away from? That's an area we look at, such as the Content Management System (CMS) space. We like niche markets, it doesn't always have to be a multi-billion dollar market. If you can pick certain spaces, that are less competitive (which means less marketing), you can get more bang for your buck, and a greater return on your investment." Edison likes to invest in companies that can gain critical mass within a $20 million investment, and exit with an acquisition of $100+ million. It's hard to make a profit when a company is raising $30, $40, or $50 million.
What David thinks is a sure fire way to grab his attention when an entrepreneur is pitching an idea to him is to lead with the concept of "team and experience". Investors are looking for a way to say "no" quickly, or disqualify an entrepreneur and get them out of the room as soon as possible. He doesn't like when a potential start up dances around their presentation waiting until the end to talk about their experience on the subject. David says, "I have to wait until the end to find out if they know what they're talking about. If you tell me up front you've been in the industry for 15 years, that's a great way to short cut the presentation, and I'll be interested in hearing your pitch."
David spent some time talking about how most entrepreneurs show a "hockey stick" financial model, and haven't really done a lot of research to show how their margins will scale, and how their company will grow over a five year period. He says if you can nail that part of the presentation, you will have a good chance of potentially getting an investment. One thing that truly resonated in his presentation was when someone asked him how his company finds enough startups to invest in since they typically only invest in later stage companies who need roughly $5 - $15 million. His answer was that they are pretty active with early stage companies, and his company tends to invest in a 18 - 24 month relationship with a startup company. How long they know a company for while keeping track of their progress is a big determining factor as to how successful future companies will be. For example, if Edison was involved with 10 startup companies over the course of 2 years, they can see what was done right, done wrong, done well, and what the main components of their success were. This way, when they form a new relationship with another startup, if they see those components again, they have a good chance of being successful, and getting an investment from Edison.
Overall, it was a very informative presentation about Edison Ventures, their focus, philosophy, and who they invest in. For more information on their company feel free to visit their site here. If you were at the presentation and have a comment about it, feel free to leave it below.
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