In the last newsletter, I put forth the “Venture Investing Expression” below:

✅ Depth of market problem ∝ solution fit ∝ non-obvious insight ∝ traction ∝ business model ∝ market size ∝ go-to-market strategy ∝ team execution potential ∝ status of fundraise ∝ valuation ∝ stage of business ✅

Today, we are discussing the stage of business. 

Prior to becoming an investor, as a startup founder, I never understood the answer to this ONE question... 👇

The question is, “How is it possible for an investor to invest in a startup with several hundred thousand in annual recurring revenue, and then in the same checkbook comes a startup investment at the pre-revenue stage, or even the idea stage?”

These two startups are world’s apart. The first is much more de-risked with a clear sense of value proposition, distribution model, and ability to scale. The other possesses incredible risk and layers of unproven assumptions.

But really, there is something else at play.

There is one fundamental thread between both of these companies which is why this can happen. 

I will tell you, it is not about the stage of the company. In fact, it is almost never about the stage of the company. At least it shouldn’t be. 

✅ It is all about forecasting the future. The future that I believe as an investor will occur. ✅

Midwest Games is a video game publisher based in Green Bay Wisconsin. 

We invested in Midwest Games’ $3 million round one year before they had projected to earn a single dollar of revenue.

We invested in the founder Ben Kvalo when Ben was still using his personal email account and the actual website address URL had not even gone live yet. In fact, the entity of Midwest Games had barely just been set up. 

👉 How in the heck was Ben Kvalo able to raise over $3 million at this stage? 👈

Or, take an example with Octane Coffee, which is the first investment that Tundra Angels ever made back in February 2021. 

We invested when Adrian Deasy from Octane Coffee had simply a robotic prototype of what he was developing. They would actually be about two years away from selling their first cup of coffee and dollar of revenue.

Adrian had demonstrated that he was able to develop an algorithm to control the robot and to have the robot make micro-adjustments to the way that the coffee was made end-to-end. If I recall correctly, the element of GPS timing the drink-making was on the roadmap but the algorithm had not yet been developed that would effectuate the drink-making timed to when the customers would arrive. 

There was no real estate secured for the first location. 

There was little to no objective validation of customer demand. There were not any surveys done, as to validate the thesis that consumers would desire this type of coffee experience. (NOTE: If I’m being honest, for one part of me, this scared the crap out of me since I am one who was academically and practically trained to discover risk points and to run micro-experiments to seek and destroy that risk. Yet, good thing I have another side of my brain 😀… see below).

For all intensive purposes, back in 2020, Octane Coffee existed with a working robotic configuration that could make coffee autonomously on demand.  

Startup founders sometimes have a tendency to objectively see stories like this and become bitter. The reaction could be, “Why the heck would anybody invest in that company when I am sitting over here with $18,000 monthly recurring revenue and no investor is even paying attention to me...” 

...Or maybe I was alone in my thinking as a startup founder when I would read stories like this. But probably not! 😉

But, as an investor, I’ve seen how it can happen. That’s why I am sharing what made Tundra Angels invest in both of these near-idea stage companies and others that follow a similar line of thinking. 

To do that, I will tell you a story. 

I’ve actually never told Adrian this. So when you read this, Adrian, this is what happened in the background through our due diligence process on Octane Coffee. 😀

At the pitch in October 2020, we had several other startups pitch as well. Octane Coffee received marginal interest, but it was the only one that had an active fundraise in play with a lead investor. 

We decided to move Octane Coffee forward into due diligence. We had two other investors besides myself join the Octane Coffee due diligence call. On that call, Adrian walked us through his model and future plans. 

I will never forget what happened during the investor discussion. One of our investors, one of the first ones to join Tundra Angels, had a moment of clarity during the investor discussion. Her eyes lit up. She told me, “I think the other investors who did not indicate interest in Octane missed something. I wonder if they truly understood what he was doing.” And she told me, “I think we need to get them back on the call with Adrian so he can re-explain his model.”

This investor had an “a ha” moment. She saw something I did. 

👇 This is what we both intuitively knew: 👇

✅ “Oh my gosh. That’s it. That’s the future.” ✅

It was so profound. Yet, so simple.

All the sudden, in a few seconds of conversation, Adrian and Octane Coffee with his robotic configuration in a warehouse was not Adrian and Octane Coffee with his robotic configuration in a warehouse. It was a realization of the future that was live streaming to us. It was a realization of Octane Coffee and its unprecedented model was the future of coffee on-the-go.

For the next few weeks, we got the other investors on a call. Adrian re-explained his model. The kinetic energy was clear. The other investors could also see the future live streaming to them, even though Octane Coffee was two years out from making a dollar of revenue! 

Once we saw the future, then the pieces of team - i.e, is Adrian the person to do it, the market size, the anticipation of customer demand, etc. largely fell into place and became much more probable. 

In the case of Ben Kvalo and Midwest Games, Ben had a unique combination of past experience from 2K, Blizzard Entertainment, Netflix, and Netflix Games, vast industry network connections, and a captive audience. To give a sense for his audience, Ben had 5,000-6,000 followers on LinkedIn a number of months ago and now has over 17,000 followers with over 3.5M impressions just on LinkedIn in the last year. 

But Ben has another secret weapon 👉. He paints a picture of the future and evangelizes it everywhere.  

The future that is that video games can come from anywhere and are not just concentrated on the Coasts. Talent is everywhere, but video games are not. And the future that a video game publisher with a focus on games on the Midwest and other underrepresented areas is going to capture many overlooked but high quality games by nature of the existing industry focusing their attention on the Coasts. So far, that thesis has played out in reality for Midwest Games to an overwhelming degree. 

The video game industry is having its “Rising Middle of America” moment because Ben is evangelizing that message. On his LinkedIn, that’s 80% of what he speaks about. He evangelizes the future that people in the middle of America have wanted to step into for years but lacked the frontman or frontwomen with the right ingredients, right solution, and the visionary message. Ben and Midwest Games saw that as an opportunity and stepped into the spotlight and continue to hold the microphone 🎤 for the future of the video games industry. 

I have heard before from Floodgate VC Partner, Mike Maples Jr., on this podcast that, “Most great startup founders are time travelers. They live in the future, notice what's missing, and bring that insight back. They pull the present towards that future.” 

✅ The ultimate investor reaction that founders are trying to elicit is,

“I could see that future happening.” ✅

This by chance literally happened to me just this past week. 

Tundra Angels just heard a pitch from one of our portfolio companies that is re-raising. In the last year, this company has gone from a series of hypotheses to signing many lucrative contracts with companies in their industry.

For several minutes on the pitch, the co-founders had a notable moment where they laid out the problems that all of these massive companies (who are now their customers) have. The team identified that all of these companies want to achieve a certain singular outcome, but there is a single missing link that creates a vacuum in their ability to achieve that. Yet, “That outcome is where the world needs to go, for the benefit of all of these millions of end customers,” said the startup team. The team then detailed how their solution provides the infrastructure needed for these customers to attain what was previously unattainable. Then, they had a moment where they talked about the societal implications of that future. 

What did I find myself concluding in that moment?

✅ “I could see that future happening.” 

Not only could I see that future happening, but also and more importantly the founders painted a clear line of sight to this company being the one to enable it. ✅

Based on the investor-only discussion after the pitch, the investors saw it too. 

In my experience, 95% of startup founders are not showing investors and the audience the future. The 5% that are, likely are having way more success than the others. I count many of them as the Tundra Angels portfolio companies. 😀

For most of my conversations with startup founders, I don’t have a visual picture of what the future that they enable looks like. 

Startup founders tend to focus on the next 12-18 months of execution. They do not go out five-ten years and help the audience imagine the future that they are enabling. 

A startup founder should not only be an excellent executor. He or she should also be a remarkable evangelist. 

✅ Thus, stage of business in investing doesn’t matter. Better put, it shouldn’t matter because because startups and VC are not about the present. They are about the future. ✅

✅ If you as a founder are evangelizing a clear picture of the future that your product will enable, then you make it super easy for investors… 

You give them a binary decision of, “Do I want to be part of that future or not?” ✅

If you do not, investors cannot make a clear-headed decision on a vague future, or in most cases, no picture of the future at all. So they pass. 

✅ Here’s the secret - most startup founders don’t evangelize the future because they have not fully thought through what the future that they enable looks like. 

It’s not a matter of charisma. It’s a matter of thinking about the future. ✅

Chances are, you are having difficulties getting through to investors, or maybe customers. If that’s you, here are five action steps that you can take.