Tuesday, November 06, 2007

ReifiyingHCI (part 1) - Investment in Team

This series of posts will be a sort of ecclectic collection of thoughts and observations from my dual-life as an entrepreneur and academic. They will be posted in fairly random order, and in fairly random order of importance. Some of these observations and personal discoveries may be common knowledge to those of you reading this, but others may find them surprising. Here goes:

Having lived (on cans of tuna - no bread - for lunch) through the dot com crash of the early 2000's and watched first-hand the startup investment game, one of the things i always wondered about was how any investor - angel, venture, institutional - made such a large decision to invest millions of dollars in an unproven concept. There are of course a number of factors that go into the decision (investment horizons for their fund, the way a prospective investee fits into their existing portfolio of companies, acceptable rates of failure, etc), but perhaps the most interesting fact that i learned is that investment folks invest less in the concept than they do in the team that came up with it. In HCI/d education, we speak very little about the character, the personality and the charisma of the design team, but in fact the people with the most money to lose actually place the highest value on these things.

..and when considered for more than a second, this makes sense. Markets change. Economies change. Societies change. When an investor puts money into a venture, they are betting against a 3-5 year future which, in a society that is, according to Marshall McLuhan, moving at electric speed (very fast), is likely to be completely and unpredictably different in 3-5 years than it is today. Therefore the concept that an investor sees in front of them today is likely to be obsolete tomorrow. They expect this. Therefore the thing that is the most likely to provide a good return on their investment is the team that came up with the concept - and especially their energy, process and smarts to be able to keep coming up with more concepts to adapt to the rapidly changing environment.

In a fairly recent presentation, Idris Mootee, CEO of Idea Couture - a strategy/design firm, showed the following slide with the characteristics of highest importance to Angel and Venture Capital investors. From my talks so far with investors and entrepreneurs, it appears to be pretty accurate:

Some potential implications of this:
  • A hyper-efficient iterative design process that can communicate well to all stakeholders (including investors) is clearly more important the one or two good epiphanic designs.
  • Investors may want to understand your process. If they can see how you got to today, they can plot a trajectory to where you might be tomorrow, which is what they really care about.
  • Investors are more design-oriented than is obvious at first glance. They just speak a different language.
  • Trustworthiness is more important to investors than either sales potential or the entrepreneur's experience. People who don't have their ethical house in order probably will have a hard time surviving.
  • Choosing and managing a team is of primary importance when starting any organization

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