What This Investor Looks for When Funding a Company At Circular Summit, Jesse Draper of Halogen Ventures will share what investors like her seek in early-stage companies to those ready to make an exit.
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When it comes to funding, entrepreneurs are often left in the dark. Startup founders have little insight into how to get access to capital, best practices for driving growth and when it makes sense to exit.
This much uncertainty can be frustrating. To shed some light on these topics, I spoke with Jesse Draper, the founder of Halogen Ventures, a venture capital firm focused on female entrepreneurs. She will be featured on a panel called "Get Rich" at Circular Summit, a women's conference in Houston which started on March 30.
Below, she discusses what she looks for in early-stage companies and the skills entrepreneurs need.
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When entrepreneurs pitch you, what specifically piques your interest?
I take into account the market size and how populated it is. Also, is there a disrupter in it? Is there something different? I want to look at something unique, and I want to market that.
For example, I saw five or seven tampon company pitches in one month. And I was like, OK, I don't want to invest in a tampon company. There's way too many of them. What's different? So, I invested in a company called Flex, which is an alternate tampon device, because tampons is a billion-dollar industry. But I wanted to disrupt it. I didn't want to invest in something that was just putting another product out there doing the same thing.
When you are determining if you are going to invest, what boxes must be checked off?
The entrepreneur needs to be passionate and excited about what they're building and have a great product, prototype or idea for the product.
Also, you have to bet on the people. I can be in the market, I can do research, I can put together case studies, look at their 10-year financial projections, but if it's an early company then you need to bet on the team.
Lastly, I like to know they will roll with the punches. I typically don't invest in founders who tell me they are going to go in one direction and only that direction and aren't open to pivoting.
So I'm betting on the people, the hustle, they're in it to win it and ready for a 10-year marathon.
Related: 7 Essential Tips for an Effective Fundraising Strategy
When someone pitches you, what are some of the questions you ask them?
First, tell me about your company and what your market size is and how do you define that.
I then go into the team. What does your team look like and do you have a technical co-founder, or someone that is ready to come on full time once you get money? The reason being is I look at technology going into companies.
I also ask a lot of curve ball questions based on each company to see if they are open and willing to pivot, if need be. I will not invest in Negative Nancys whatsoever. That said, I have invested in a few realists, but still they are very optimistic. I believe in the power of positive energy.
Is there anything that they should not do in front of you or other investors?
No drugs and no lying. If you are lying, I will find out. I ask around a lot about people. People don't even know the research I typically do behind the scenes. An entrepreneur will send me a list of references. I won't call them but I will call all the people with mutual connections.
What advice do you have for entrepreneurs thinking of exiting or wanting to know when to exit?
There's so many different stories about this, but I think once you become a $100 million company, or you're making upwards of $100 million in revenue, then that's the time you could sell or go public. That is a good marker.
That said, there are some companies that think about their ideal selling number. For instance, I have some companies say, "OK we're going to sell at $500 million," and they work backwards from there. They just year over year try to produce results to get them towards that goal.
And then I have companies who are like, I'm not sure when or what we're going to sell for, but we're going to build a great company and if the opportunity presents itself, evaluate then.
So people go about it different ways. Some people are not thinking about the sale in the beginning and some people are.
What traits do you believe make an entrepreneur successful?
You need to be a nice person, because being an entrepreneur, you need to be a great leader, set a great example and be able to talk to people.
People bet on different types of entrepreneurs, but I believe in people who can network, lead, are well liked and can make the best of every situation.
Related: 25 Common Characteristics of Successful Entrepreneurs
Besides being a VC, you also are the host of The Valley Girl Show, which features interviews of big-name leaders such as Sheryl Sandberg and Elon Musk. What have they taught you about success?
They're all really positive people that have fun, sometimes crazy ideas and are insanely optimistic. Also, just the grit a lot of these entrepreneurs had. Some of them came from nothing, but it didn't matter. They just kept going, because they were going to be an entrepreneur no matter what. They have that real drive and hunger for it.
