How do I evaluate companies we invest in? 6 M's

Like a traditional VC, Altus has to make decisions on what companies it decides to invest its time in. Investment capital is VC’s finite asset while time is our finite asset. I’m often asked “how do you decide what companies you work with?” I thought I’d share my rationale with the readers of this blog. It’s a mnemonic – 6 M’s – that I’ve summarized below.

1. Market – Is the market opportunity the company is pursuing big enough to support several companies?
2. Momentum – Does the market and company have momentum in terms of the market growing, the company gaining traction either in product development or better yet market adoption?
3. Model – Does the company have a compelling business model to capitalize on the opportunity?
4. Moat – Is the company’s strategy defensible as any interesting market opportunity is going to see many competitors?
5. Management – This is a huge. I believe in betting on the jockey (vs. the horse). This doesn’t mean the company’s management has to have had several exits. In fact, there’s a long list of 1^st time entrepreneurs with massive successes (Bill Gates, Steve Jobs, Sergey Brin, Rich Barton…). Quite frankly, we add the most value to 1^st time entrepreneurs since we’ve been through many of the challenges a 1^st time entrepreneur will face and as long as they are coachable, they will benefit from our experience. One of the other critical things for me is my own policy of refusing to work with jerks/egomaniacs. Though I will miss opportunities (e.g., I would have passed on Larry Ellison), I simply don’t want/need the grief of working with that type of person and more often than not, they are going to have a tough time keeping a top team around them. As successful as Oracle has been, I wonder how much more successful they would have been had they been able to retain senior execs as well as Microsoft.
6. Money – Since we typically start working with a company post-angel and pre-institutional funding, they need to have enough runway to be able to get the plane off the ground. If they are constantly chasing their funding tail, it’s hard to build much of a company.

We always enjoy chatting with leaders of companies that have a strong handle on the 6 M’s yet have some gaps to fill that sync with our focus (i.e., helping a company gain market traction via business development, sales and marketing).