This is not our boardroom.
It’s been a couple of weeks since we launched the Lab, and in that time, we’ve talked with dozens of potential founders. It’s been a fascinating experience, because it’s very different from the VC discussions I’m used to elsewhere. In other words, it looks nothing like the nice, clean boardroom at right.
Here’s a list of differences you can expect when we sit down and chat:
- It’s much more about the founder and the field than the product or progress. We’re investing at a much earlier stage in the company’s life, and we’re pretty confident that the first idea won’t work as planned. Everyone knows that — so we’re more interested in why there’s an opportunity
- It’s about market awareness and out-of-the-office discussions. Have the founders talked to actual end users? Is the opportunity big enough to make a sustainable business out of? Is the market’s pain significant enough to change their behavior and make them buyers?
- We care about use of funds, but not in a traditional business plan way. Instead, we want to know: what will you use the money for, and how will you avoid spending it? This is about cloud computing instead of hardware; about social media instead of billboards; about offshore development instead of a big internal team.
- We also care about scale. Scale doesn’t mean “I can handle a million users.” It also means that you’ll make more money on the millionth user than it costs to service them. Startups change dramatically at every order of magnitude: a hundred customers versus a thousand; ten employees versus a hundred. It’s at these turning points that business models tend to fray at the edges; but often, if you can’t make the transition, you’re looking at a “lifestyle business” rather than something that can grow dramatically.
- There’s no “business plan.” There might be speculation on a business model — recurring revenue, ad-driven, one-time license, etc. But we’re way too early in the game for pro forma statements and projections. This is a discussion of possibilities and total addressable market. It’s the formulae, not the spreadsheet itself.
More like it: A shot of the first Office Hours event in our Montreal space
Some of the folks we’ve met were a bit surprised at how the meetings went. They’re used to meetings with slides and agendas, which are fine if you have a well-formed idea and you’re trying to educate someone about it. That’s not where Year One Labs’ sweet spot is, however. We’re co-creators, and that starts at the first meeting. The informal Office Hours events are actually a much better indicator of how things run.
There’s also much more back-and-forth, and considerable time spent on possibilities. A normal VC meeting is all about what will be — based on the founders’ estimates, and how much those founders can be trusted. By contrast, a lab meeting is all about what could be — based on a founder’s knowledge of a market, and their willingness to iterate through business models and product offerings.
This is also why Y1L valuations are around the 20% mark, but may vary by deal. Some of the founders we’ve met have an idea, an itch, and technical chops — and little else. Others have a prototype and market feedback, but they’re looking for a set of partners who will get their hands dirty alongside them. The percentages we’ll have of those two firms is vastly different, and it’s not easily calculated, since many of the investments (time, contacts, and ideas) are intangible.
That makes the discussions intriguing, fast-paced, and far-ranging. Both founders and Y1L partners are trying to see if there’s a fit in terms of market, team, and personality. Even when there isn’t a good fit, we’ve all learned a lot — many of those founders have told us that the discussion made them look at themselves and their businesses in new ways, often leaving with novel go-to-market strategies.
And yes, if you’re curious, there have been a couple of good fits already; but that’s for another post.
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