Through the ScOp Playbook, we’ve refined our strategy for identifying, building, and investing in successful companies. For us, business success hinges on creating value by solving problems, increasing productivity, and assessing how every decision we make either creates or destroys value. This principle guides both our professional and personal decisions.
Purpose of Business: Creating Value
We believe that the essence of any business is to create value by addressing real-world problems. Whether it’s saving money, increasing revenue, or making life easier, companies should focus on solving problems efficiently. In everything we do, we ask ourselves: Are we creating or destroying value?
Investing in Companies: Playing the Odds
Investing is a game of probabilities. We look at many companies but only invest in those with the highest probability of success. We seek founders who want to dominate their markets and let trends guide our decisions as key predictors of growth. We don’t overanalyze; we prioritize big markets, great products, and smart founders—signs of high growth potential.
Venture Capital’s Economics
For us, venture capital is about helping build companies that will employ thousands of people, improve productivity, and ultimately improve the world. The potential upside is tremendous, sometimes offering 1000x returns, with the downside cushioned by tax recoupment on losses. We focus on what drives returns rather than obsessing over IRR and multiples.
Picking the Right Tech Companies
When it comes to selecting the best tech companies, we focus on a few critical criteria:
We look for companies with at least $1 billion in market potential and a clear path to revenue of $100 million.
Strong technical leadership is essential—either a CTO or a tech-savvy CEO.
We evaluate the team’s education, experience, and self-awareness. A cohesive team that understands its strengths and weaknesses is a major indicator of success.
Doing Due Diligence
Due diligence involves digging deep into a company’s operations and strategy. Our goal is simple: we try to prove why we shouldn’t like the company. We probe for hidden information, challenge buzzwords, and focus on customer churn and product-market fit. These aspects tell us much about whether a company has what it takes to succeed while allowing us to assess the executive team.
Negotiating a Term Sheet
In negotiations, we aim to be fair by aligning investors and management. While we look at past funding, we don’t place too much importance on previous investment rounds. Instead, we use market comparables to support valuations. We also ensure that founders vest some of their equity over time to avoid “dead equity”, and our initial offer is meant to start a conversation, even if it feels slightly uncomfortable.
Building a Great Company
Building a successful company requires a relentless focus on strategic/tactical priorities. We believe in applying energy to avoid entropy (too many initiatives), ensuring the company remains on track. Having a great product is non-negotiable, and we always ask, “What do customers need?” The best products typically boil down to one or two key features. We also emphasize sales because we believe sales solve most problems, and we look for scalable go-to-market methods.
Being a Great Board Member or Advisor
As board members/advisors, we know we are part of the team, and our goal is to build trust and provide value. We challenge the company’s leadership to think critically and offer alternatives without dictating actions. Recruiting key executives and remaining calm during crises are also important roles we play in guiding companies to success.
Coaching and Mentorship
Every call, meeting, deal, and project is an opportunity for us to coach and mentor others. Whether we are guiding a team or leading a portfolio meeting, we always think about how to help people grow and succeed.
In conclusion, through our experience and the principles outlined in the ScOp Playbook, we’ve developed a framework for making intelligent investments and helping to build great companies. Our focus on value creation, strategic decision-making, and leadership development has helped us navigate the challenges of venture capital and entrepreneurship through many market cycles. By adhering to these principles, we believe we can help others build and scale great companies.