By Kevin Brockland, Principal Investment Officer.
A Russian translation of this post is available here.
Over 25 years we have considered thousands of potential investments in media companies. Out of all the applications and conversations we have had, we have invested in hundreds of projects with nearly well over 100 media companies.
Each year we receive dozens of funding applications and recognize that fundraising is time consuming and stressful for any entrepreneur. Even though we may not be able to fund all applications, either due to our mission or investment criteria, we strive to make the application and evaluation process as smooth as possible, while also adding value to the entrepreneur through the questions we ask, even if ultimately we do not invest. This is why we strive to make even this initial process a value-add for all involved.
After MDIF has evaluated a company’s mission fit, we then turn to the commercial aspects of the investment. When looking at an investment, the business case must justify the amount of investment being requested. At the start of every conversation with a potential investee, the focus centers on understanding a basic question drilldown:
What do you want to do?
Why do you want to do it?
Who are you and do you have the skills/knowledge necessary?
Where is your positioning in the market?
When do you plan on accomplishing the stated objective (or the timeline of progress)?
How will you accomplish this goal?
[Check out these 25 questions media entrepreneurs should ask themselves.]
Delivering Value Prior to Investment: A key part of the investment selection process is the interactions between the Investment Team and the Company prior to any investment. It is in these interactions that we work with a Company to solidify the business case around the funds being raised and how they would be deployed.
The specifics of the conversations vary on a case-by-case basis. However, the intent is to provide viewpoints and perspectives along with operational or financial guidance which will solidify the plan and ultimately positively impact the outcome expectations of execution. As these conversations progress, this may include collaboratively updating a product roadmap, clarifying the value proposition, working on budgeting and planning, identifying OKRs and milestones, or many other layers of analysis.
Why it matters: In the decision process, an attractive market size and opportunity is just a starting point to justify an investment. Obviously, there are size and scale considerations to open the door but, to extend the analogy, if you want to get invited inside, the investment decision hinges on, in our order of importance, the following:
- People – it is critical that a management / founding team demonstrates not only a competency in what they are doing, but also the tendencies of a perpetual learner. As conversations escalate with the Investment Team, we analyze how a team absorbs, digests and acts upon our inputs. This does not mean that they should, or do, agree with it, nor does it mean they enact everything we say, but rather that they can take feedback and respond in an additive way that shows a growth mindset.
- Process – no early-stage company is expected to have the well-functioning process apparatus of a large corporation. However, the processes that are critical relate to those that will allow the company to learn then adapt or react accordingly. Resources are finite and speed is important. A clear, understandable, and actionable feedback loop is critical to efficient use of time and resources. This cannot be accomplished without clarity developed in fine tuning the business case, which is the starting point for all our interactions with a potential investee.
- Product – quite clearly a business is not a business without a product. Even a platform that sells nothing explicitly still has a product. There are very few start-ups that will not see an evolution of their product over time. It is for this reason, we rank it third in the consideration hierarchy, but that does not lessen it importance, it simply reflects a belief that the ability to evolve is greater than its current status. Any product needs to have a clearly definable value proposition and a roadmap for where it will go.
The Bottom Line: We will not be able to fund all opportunities, nor should we.
- For those that we do not invest in, the process should still provide value solely based upon improving the clarity of the plan and ideally the execution. We always try to stay in touch when we pass on an opportunity and what may not be a fit today, could be a fit tomorrow.
- For those that we do invest in, we believe this same value-add reduces the execution risk associated with early-stage investments, while also setting the tone in the relationship with a Management / Founder Team.
Through asking these questions, our Investment Team puts together a business case as to why MDIF should invest in a particular company. As important as this is for our own decision making, more often than not these questions and the discussions between management and our investment professionals allow the entrepreneur to gain new insights into their own business and will sometimes unearth actionable insights that they can use to drive value. Just having someone who is a media investment expert taking a fresh and experienced look is value in and of itself. And this engagement continues once you’re successfully funded through our long-term relationship, where clients benefit from ongoing interaction with our investment professionals and Media Advisory Services. We look forward to hearing from you.
This article is part of our series, ‘25 things we’ve learned’, marking MDIF’s 25th anniversary.