The Full Ratchet (TFR): Venture Capital and Startup Investing Demystified

Today we publish part two of the interview with Chris Farmer of Signal Fire Ventures. In this segment we address:

  • Why he's using Beacon to make VC investments when their are numerous other applications that may have more economic value
  • How he's created an engaged, active advisor network that are also LPs in the fund
  • What characteristics the best advisors share
  • Chris' thoughts on the surge in micros VCs and how that has impacted the asset class
  • Chris' advice for founders raising initial capital
  • Wrap-up of Key Takeaways & a Tip of the Week

Guest Links:

Key Takeaways:

1- Deconstructing Beacon
Beacon is a connected platform that starts w/ sourcing but also does monitoring, context, diligence, syndication and most importanty, per Chris, portfolio support.  It's a data platform that looks like a Bloomberg terminal for the startup industry.  They started building it seven years ago and they employ a full-blown engineering team of data scientists and tech engineers.  Beacon tracks a vast array of data on 6M different companies.  And Chris started with first principles, asking "what are the KPIs that the management teams of these companies are measuring?"... those are the same elements we should measure with Beacon.  It analyzes items including customer behavior, frequency, engagement, CLV, consumer transactions, financial flows, quality of those flows, news sentiment and also team construction and quality, just to name a few.
And signal fire's platform isn't just for the investors.  There is a UI for advisors and most importantly founders as well.  Founders can utilize heir robust SaaS recruiting platform to address the key need of early stage companies... recruiting top talent.  With Beacon, Signal Fire has set out to tech enable the entire value chain of a venture firm from end-to-end.  Early indications from folks in my network are that it's an impressive platform indeed.
2- The Prepared Mind
Signal Fire did not coin the concept of "the prepared mind" but Chris does follow it.  The approach that came out of Accel has an emphasis on heavy research on existing domains.  The creation of market maps that help visualize the landscape and reveal opportunities.  In a previous episode, David Cowan discussed his approach to the Space vertical that leverages this methodology.  And in Chris implementation, he is constantly refining the maps.  He meets with LP experts and founders to go much deeper and broader than they could do w/ data alone.  The result is that Signal Fire is often much less bullish on the en vogue sectors and vice-a-versa.  Their investment in pizza making robot company, Zume, certainly illustrates their fresh perspective on an oft-ignored industry.
3- The Common Thread of Success 
I asked Chris for a common thread that he's noticed across successful startups.  And I really enjoyed his response.  The common thread in winners are those companies that are doing things full-stack. They are creating an end-to-end solution that is vertically integrated.  Where a company can be it's own customer in order to provide a better solution for the end consumer.  I discussed this concept w/ Charles Hudson in a previous episode.  We talked about finding the place within the vertical supply stack that enforces discipline on the chain and drives the most value.  Chris point was compelling in that he looks for startups that own the chain, not just a part of it.
Tip of the Week:  Tail Wags Dog -- The Affinity Investor

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Direct download: FR143_Farmer_p2.mp3
Category:general -- posted at: 11:56am EDT