NYCSeed‘s managing director Owen Davis came by the Rose Tech Incubator this week to give a talk on what investors look for in startup’s. Some of the key points Owen mentioned that I took away from the talk are below. (NYCSeed only invests in the 5 NY borrows).

FUNDING CRITERIA

To anyone doing a startup, “Time matters”. Owen mentioned that committing large amounts of time to R and D is a bad mistake.
Timing has to be in your favor, things have to be aligned. Your technology and the timing is key. You can build something great but is there a demand for it?

Owen recommends 2 person teams, I hear this magic number a lot, google, yahoo, etc. Startups with 2 founders is the magic number. It shows a demonstrations team work, difference in dynamic. With a team of two you have a sounding board.

Another key thing is to have a prototype complete.

Showing you have tech leads on as founders is the DNA of the company it is important. Moment by moment technology changes.

Angels and VCs like to see a good sized market, show a clear path to revenue.

TYPE OF STARTUP COMPANIES

Network Effect
-Hard to invest in these
-Risk
–e.g.: Gaming companies
–e.g.: iPhone apps
–e.g.: YouTube lost 40 or 50 million a year
-not real innovation

Application Oriented
-look at market
-build an application
–e.g.: ticketfly.com
–e.g.:quickbooks

Innovation
e.g.: google’s rank algorithm
e.g.: Advertising space, customer segmentation of ads
Investors believe or don’t believe in the innovation you have.

Some companies have pricing power, if coke raised it’s prices they would be ok.
If a copper wire company raised it’s prices it would take a toll on them

Some examples of companies that have a little higher prices are:
zappos.com has customer loyalty.
Amazon charges more then others.
Wholefoods charges much more then others.

Team
Having a good team culture is important.
Be honest and be transparent that is what is important.

WHAT MAKES A COMPANY FUNDABLE
Big Market
Team

A “good business” is not necessarily fundable.
A lot of great biz that will be successful without funding.

GOOD TRENDS
-how do u derive meaning out of data
-New ways to data mine
-Project management tools
-Online learning
-Digital advertising
-Billboard industry
-Local search
-Building a better Craigslist
-Building better Email