Also in this series:
So you feel confident in your business idea, and now you want a little bit of friends-and-family type capital to help take you to that coveted pre-seed/seed level. Congratulations! But how do you get there? What is expected of you as a startup founder? Read on more.
How to Reach out to Us
The best way to submit your material for investment consideration is via Blueocean. Blueocean is our proprietary platform that we use for holistic application review, LP updates, founder updates, and other fund-related news. To get the link to the Blueocean application form, email info@horizan.vc or connect with our General Partner, Jonathan Sun, on Linkedin here.
If you just woke up this morning with a business idea, we highly recommend you start off by reading What to do Before Horizan VC, followed by working on our 3 Week Journey (link here).
Sucking up to our General Partners does not work because we judge founders/business ideas based off of merit, not because we went golfing together in high school. Soz.
Investment Discussion Process
First, you submit the application via Blueocean. Tutorial on how to do so will be here. If you get stuck during the application, we will have a live chatbot that can help you during the process.
Through Blueocean, all members of our team will instantly be notified when an application gets submitted. This is when initial analysis takes place, which typically should take around 7 days. Some aspects of our analysis will be automated (for instance; the system will be setup to automatically turn down a deal if there is zero evidence of traction). Other aspects will be done manually by us as a team (eg. competitive analysis). During this time, expect to be emailed some questions about various things we felt were unclear.
If we don’t think what you are building will be a good investment for us, we’ll reject you outright at this stage. If we feel that we need to see some evidence of execution (which is most likely if you submit something with 0 traction and you woke up out of bed with a business idea), we’ll send you a link to our 3 Week Journey and track your execution progress over time.
If we feel good about what you’ve submitted thus far, we’ll invite you to do a call with our team. Most of the time, we’ll do calls on Wednesdays (to keep things consistent for our team) so make sure to keep that day roughly available (everything will be sent through a Youcanbookme link). During this call, expect to be challenged on some aspects of your business/business idea that we’re not super sure about.
If you pass through the interview stage, we’ll run some DD through you (courtesy of Stepex) to see if you pass through the Future Earnings Agreement checks. This shouldn’t take an overly long period of time. Once you pass this, you’ll be sent an FEA and an ASA to sign at the same time, and the funds will be transferred to your business account. From there you will also be onboarded to our Slack channel where you can have easy access to communicate with our team, a wide variety of perks, community gatherings, and other events that our Partners are connected to (we are very well connected in the investor ecosystem)!
Investing Authority
Investing authority will be determined by our investment committee members: Jonathan Sun, George Quentin, Toby Allen, and Viraj Ratnalikar.
What do we want to see out of idea-stage founders?
Are you building something that people really, really want?
The number one reason why people don’t succeed in their businesses is because they are building stuff that people don’t really need. Traction/user demand naturally occurs if a hypothetical product/service is solving a problem that the target market is really, really frustrated about (see High Pain Points, Not Straightforward for more reference). Unfortunately, the majority of founders make one of two mistakes in this area: either they work on a 3 out of 5 rather than a 5 out of 5 pain point, or they try to build a solution first and then try to tailor the problem to the solution. Easier said than done.
An even better question to ask is are you building something that you really want? “Taking someone’s business idea” or “working on something because it has the capacity to generate a lot of money” may seem like an ok rationale on the surface, but without that intrinsic motivation to solve a problem that you really care about, you’ll struggle down the toughest stretches when not a whole lot goes your way.
Are you building the right solution to the right problem?
Having a very high pain point is great, but you also have to make sure you are solving the problem in a manner that actually solves the problem properly. A simple analogy to use is that if you were an aspiring founder, you took a time machine to the late 1800s, and you did some user research, you’d find that one of the most frustrating pain points for people at the time was that horses were too slow. You either then have a couple ways to solve this: horse steroids or working on building the first prototype of the car. One would’ve made you a billionaire for life, and the other would’ve probably landed you in prison and a few dead horses later. Guess which one would’ve been which?
The way you will find out whether you are building the right solution to the right problem is through seeing if your target market will give up something important to them in exchange for this hypothetical solution (more on this article here).
Can you execute?
Showing your ability to execute is really, really important. The difference between a founder who makes it and a founder who doesn’t is the ability to nail the fundamental details of implementation. I cannot tell you how many times I’ve watched founders be unable to convert YC Startup School head knowledge into actual execution. “Talking to customers” merely becomes a tick box on paper that a founder rushes over in order to quickly begin the process of working on the product, and he/she wonders why there are only 50 downloads by week 4 on the App Store.
At the idea stage, what does that look like? Well, it means that if you are at the absolute beginning of your journey, filling out regular reports once a week on the 3 week journey is a great start, showcasing your ability to understand your target market’s needs and proving your ability to get potential customers without having an MVP. You can read a greater deep dive into our pre-application process here, but basically this is a short test to see: as a founder, can you focus your time and energy on the right things?
Can you get a decent full-time job if this business idea goes bust?
This is more specifically for us because we utilize the Convertible Future Earnings Agreement. Essentially, we need to prove that if your business/business idea goes bust (because this occurs very often at the idea stage), can you get a decent paying full-time job that pays more than 2500 in a given month? Our partners at Stepex do all the analysis on this end but mainly they look at:
UK/EU Citizenship
Either previous work experience or skills (college degree, expertise areas, resume, etc.)
Current expenditure (so basically, don’t be heavily in debt)
Ensuring that you have not been convicted of financial crime
What scoring system do you use?
Now, we understand that we are looking at idea stage founders/startups, so not every category will be weighted at pre-seed/seed levels of due diligence. In addition, you don’t have to tick every single box perfectly for you to warrant interviews/funding with us (no business idea is perfect, after all). This being said, this helps us as a team to holistically understand what we are all looking at. Here’s each of our fields broken down:
Pain Point- How painful is the problem you are trying to solve for your target market?
A 0 means that it’s not painful at all. Eg: my chair is perfectly comfortable, so I don’t need another chair.
A 5 means that it’s annoying, but not particularly frustrating. Eg: I find it annoying that my teapot leaks on occasion. It’s still not particularly annoying enough that I’d buy a whole new teapot.
A 10 means that it’s frustrating as hell, and a bunch of people within the same target market would feel the same way. Eg: I find the process of shipping goods from one country to another extremely frustrating. If someone designed a tool to improve communication between shippers, freight companies, and customers, I’d definitely pay for a tool like this.
Proposed Solution- How effectively does your proposed solution solve the above problem? Will it be something so desirable that your target customer will keep coming back to it over and over again?
A 0 means that it doesn’t solve the problem at all. Eg: a triangle pillow doesn’t help me sleep any better than a rectangle pillow.
A 5 means it kind of solves the problem, but doesn’t do so in an optimal way. Eg: an app to connect ____ people in ____ community, with subscription prices for using said app.
A 10 means that the problem-solution fit is high. Eg: Figma solved the pain point of UI/UX designers not being able to collaborate with each other in an effective way by creating a “Google Docs for UI/UX design.”
Moat & Protection- How much moat could the company create for this current iteration of the product? Could the founder build this to the point where it’d be hard for other potential competitors to catch up? Or is this a sort of situation where Joe from next door could build the exact same thing using no-code, and steal half of this applicant’s market share?
A 0 means there is 0 moat. Eg: “Hello World” built from Adalo.
A 5 means there could be some moat but that moat is more derived from being first rather than actual team/tech/industry knowledge expertise. This could be upgraded to a 7 if said moat had a clear path to being achievable. Eg: Airbnb’s main moat is volume of properties and customers, rather than the tech. Because they were the first to popularise P2P accommodation rental, this head start enabled them to achieve the network effect of volume, which in turn created the moat they have today.
A 10 means it’s insanely hard to unseat said incumbent because of a combination of volume, team, tech and industry knowledge. Eg: C&C Reservoirs (providing Analogue Intelligence for upstream subsurface applications) has maintained an extremely large lead over its competition over the last 25+ years because of its combination of intelligent geo-scientists, quality of technology, depth of research reports and contracts with major oil companies such as Shell, BP, Petronas and Chevron. This is extremely hard to achieve but you never know…
Traction/Demand validation- For our definition, have you proven that your target market will give up something important to them in exchange for this hypothetical product/service?
A 0 means there is no skin-in-the-game traction. User interviews don’t count. Eg: “I sent a Google form to 100 makeup artists and 98 of them would buy this product. However, none of them have put in a pre-order yet.”
A 5 means there is some skin-in-the-game traction, but not a ton. Eg: “4 people have put down their phone number to receive updates for my hypothetical new organic skincare product on my landing page.”
A 10 means you really validated your hypothetical product. (This stage is really rare to achieve at the idea level, by the way). Eg: Tesla selling 276,000 pre-orders for its Model 3, at $1000 per pre-order.
Anything between a 5-10 at this stage is all we really would expect at a baseline. Of course, the more the better, but product/company development is rarely linear.
Execution- Have you displayed an adequate plan on how you will take this idea to success? Do you have a track record for getting shit done? Although plans rarely go as planned (lol), the more granular you can go in terms of explanation, the more we believe that you have thought through how this can be realistically achieved
A 0 means you either have 0 plan or you are chucking sauce into air and hoping something sticks. Eg: “When we achieve a 400K fundraise, we will spend 100% of it on Facebook ads, and this will cause us to achieve 6 million subscriptions because we know we are awesome.”
3 week journey equivalent: you did nothing.
A 5 means the plan is decent but might either be missing some details that would help us understand your train of thought better or some part of the money is being spent on the wrong things. Eg: “We have talked to some users and 98% would buy the toothpaste. With 200K in funding, we’ll be able to produce our first batch of pre-orders, announce the launch to 5000 Instagram followers, and hire a fractional head of marketing. These will allow us to reach ____ sales in the first year.” Not bad, but you didn’t prove you can get potential customers before coming to talk to us.
3 week journey equivalent: you talked to customers but didn’t get “skin in the game” validation (eg: did 10 user interviews week 1, 5 in week 2, and 3 in week 3).
A 10 means you can detail exactly what you have done and you know what you need to do next with more resources to achieve the next target. Eg: “We have built a landing page and received 55 phone numbers and 4 discounted pre-orders for our brand new toothpaste. With 200K in funding, we’ll be able to produce our first batch of pre-orders, announce the launch to 5000 Instagram followers, and hire a fractional head of marketing. These will allow us to reach ____ sales in the first year.”
3 week journey equivalent: you talked to customers, got skin in the game validation, and tracked the ups and downs week to week (eg. got 30 phone numbers week 1, 20 in week 2, and 25 in week 3).
Team- (If you have a cofounder/small team already). Does your team complement the skillsets you lack? If you are non-tech, and you are building a tech product, do you have a technical cofounder (and vice-versa)?
N/A means solo founder
A 0 means your cofounder is your cat
A 5 means your cofounder/founding team have some complementary skills but may not either appear like the best match on paper or there are commitment issues. Eg: two non-tech cofounders needing money for an MVP (but have a lot of industry expertise), or a tech/non-tech cofounder pair but the tech cofounder has other pressing commitments that mean he/she is only able to spend 5-10 hours a week on this startup
A 10 means the cofounding team is an excellent match for each other and they are both equally as committed to the business success, with solid personality dynamics to boot.
Founders in general… make sure you have these solved and early…
CEO Experience & Leadership- This is more specifically on the head honcho- are you equipped to lead this startup to success? Have you led any sort of team before? Especially under pressure? What is your leadership style, and do people like working with you?
A 0 means your leadership experience comes from middle school student council
A 5 means you’ve led some projects/teams before, but we’re not sure how that scales to the pressure cooker of running a full-blown startup. If a failed startup (especially a failed startup with a team), add a couple points to this.
A 10 means you have successfully exited a startup and are now starting a new one.
Anywhere between a 5-10 in this category should suffice. You ideally want some leadership experience in something, but otherwise this is more to do with potential than anything.
Idea Growth Potential- How big can this idea scale? Do we expect this to turn into a venture scalable business or something that can make decent MRR? Or anything in between?
A 0 means this won’t go anywhere. Eg: a social network for seahorses
A 5 means this could become a stable, revenue generating business. Eg: Tiiny.host
A 10 means full-blown unicorn potential. Eg: Darktrace
Time to 1st Paying Customer- How long will it take you to achieve your first paying customer? (Yes, we understand we should evaluate on a case by case basis, industry by industry).
A 0 means around 6 months or more
A 5 means around 3-5 months
A 10 means less than 3 months
Note that you scoring high/low on this won’t affect you as much in the other categories; we just want to gauge where you are at and what this could be.
Time to MRR (Gross)- How long will it take you to achieve some gross MRR? (Yes, we understand we should evaluate on a case by case basis, industry by industry).
A 0 means around 6 months or more
A 5 means around 3-5 months
A 10 means less than 3 months
Note that you scoring high/low on this won’t affect you as much in the other categories; we just want to gauge where you are at and what this could be.
Unknowns and Risks- What are some reasons why this might not succeed? Eg: potential new competitor coming with a better new value proposition, not being able to secure enough development horsepower, if ____ new regulation comes out that makes it harder to operate.
A 0 means the risks are way too much. Eg: if you are trying to invent a brand new type of pencil, but this pencil depends on mining a certain rare earth material that only exists in a remote island and there are many tribes there who attack anything that is remotely foreign to them.
A 5 means the risks are moderate, but swallow-able. Eg: a potential competitor could come up with a new competitor that duplicates many of your same features, but if you work hard enough to build your community and volume moat within a smaller window of time, you’ll probably be able to beat this.
A 10 means there aren’t many risks to the business idea (rare) and is basically nearly a sure thing. Eg: you’re building an innovative quantum computing startup with a bunch of pre-orders and your team is the top 1% in the world for quantum computing knowledge.
What will cause instant rejection?
No sign that your target market cares about your problem space/product idea.
No lean canvas or pitch deck (or equivalent)
Not being a UK/EU citizen/permanent resident
What are some common reasons why we’ve turned down founders?
Not a strong enough pain point (vitamin vs painkiller problem). I remember someone telling me that “glasses are frustrating to wear” and I was like “Bro… glasses give me swag lol”
Not building the right fundamental solution to the problem. See earlier.
Not being clear on your solution. If we can’t understand what you are trying to do, it's not a very good sign.
Saturated space. This kind of ties in with the pain point element, but unless you are really standing out from the competition then you’re not really solving a pain point (you’re just adding features to products that exist and branding that as something revolutionary).
Defensibility- specifically, lack of potential network effects
No/very little skin in the game demand
High potential cost to develop the product. We specialise in scalable, capital efficient products/services, and thus things like drilling, vaccines, manufacturing don’t make sense to us with our small ticket size
(Specific to marketplaces): potential problems with disintermediation
What are some reasons why we’ve chosen to fund founders?
ZIM Connections- Solves a high pain point (accessing SIM cards in foreign countries), solid pretotyped traction (90% email sign up rate), sharp, young founding team with a can-do attitude and ability to learn quickly
Gigbridge- Solves a high pain point (construction companies struggling to find, hire, and keep skilled workers), revenue generating even with a simple MVP, solo founder with industry experience and competence (ex-partnerships manager for Taskrabbit, 4th startup)
Ila Generation- Solves a high pain point (domestic violence fleers having nowhere to turn and stores wanting to make an impact), solid traction via a paid trial (onboarded 120 staff members and 6 companies on a paid trial, generating around £2600, great team (2x female founders with experience in gender based violence research and corporate social responsibility).
How do you squeeze into pre-seed rounds?
Usually, at pre-seed (which most of the time are sized around the lower 6 digits), our money starts off as a Future Earnings Agreement, which is to the founder. No equity is taken from the Future Earnings Agreement, but if the founder earns 2500+ in any given month from his/her personal income then 10% is taken until he/she pays 1.5x what we gave in 5 years or 2.0x in 10 years. The ASA doesn’t activate until the next qualifying round (700K+) which is usually seed. There, the unpaid money from the FEA converts to equity at a 20% discount to the lead investor’s valuation at a 5M valuation. At this round, we also have participation rights, so we can also put in more equity-only money at a 20% discount to the lead investor’s valuation (but no valuation cap).
So to summarise: it’s a very clean fit.
What are some things you want to see/don’t want to see in the application?
Be very clear as to the problem you are solving and the way you want to go about solving this problem.
Please show how much skin in the game demand your product idea has. Ideally done utilising the pretotyping method, but any method that proves your target market will give up something important in exchange for this idea works well.
Deck: less words, more visuals.
Properly research your competition. We’re not going to just blindly look at your deck- we’ll cross check your “competition slide” with G2 and Capterra. If we find stuff that you’ve missed we’ll discount some points off of “holistically understands the market.”
Numbers > vague statements. If you have a claim, back this up with numerical data.
Eg: instead of saying “Twitter has a terrible user experience” say “From a recent survey, % of people were frustrated with ____ aspects of Twitter” (and attach a link to said survey so we can analyse)
Financials don’t matter to us at all.
FAQ
How many times can I apply? You can apply as many times as you want, but usually if we outright reject an idea, it’s because we don’t think an idea is solving a high enough pain point or will legitimately solve a problem properly. If there is zero traction (potential customers) we’ll redirect you to the 3 Week Journey and that’s how you’ll remain on our radar. However, we highly encourage you to apply with different business ideas (provided that you are actually testing them out properly and not “throwing darts on a wall”
How do I navigate the pre-Horizan VC process? Read this article here.
Final Thoughts
Don’t focus so much on making us happy as you are on making your <potential> customers happy.
Understand our terms properly! We are not a pure equity investor (though we will become one at a 700K qualifying fundraise if you choose to grow down that path). Understand also that although receiving pure equity investment looks like the least amount of personal liability to you (and nothing wrong with it), it forces you to pursue one route of growth: a 20-25x blitzscale. So think about that as you try to figure out who to take money from.