We’re lucky to have Will Thorndike as an LP and advisor. Alongside founding and running Housatonic Partners he wrote an influential book that Warren Buffet put on top of his recommendations a few years ago. “The Outsiders” analyzes the highest performing CEOs and identifies that extraordinary outcomes stem from superior capital allocation. We transposed the framework onto the hard science startups we invest in. What came out is a powerful summary of insights.
| Source | Mainstream Idea | Contrarian Insight |
|---|---|---|
| Equity | The more money I raise, the more company I am. | The more equity you’ve sold, the less you own of your company and the higher the threshold for exit success. |
| Revenues | I don’t have a product, so that’s not available to me yet | Partners will pay to get a chance to participate in the future cash flows of your tech & IP: MTA’s, JDA’s, exclusivities, distribution agreements, manufacturing agreements, preferred pricing terms, royalty share, revenue share…. |
| Grants | Free money, awesome! | Grants are restricted and if you hire permanent staff against fulfilling grant obligations you’ll soon carry the cost. So pursue grants when you would do the work anyway (see capital deployment below) |
| Debt | I have never heard of debt for a startup | If you have contracts with future revenues, you can borrow – but do so only if you have a clear cash flow positive path ahead. |
| Area | Mainstream Idea | Contrarian Insight |
|---|---|---|
| Tech/product development | My business is centered around my tech -> I need to advance it to advance the company. | Often times, the technology does not need to be advanced (significantly) to get an industrial partner on board. Getting partners on board to ensure viability and path to market are most important value drivers. |
| Runway | I need enough time to advance the product sufficiently, so that I can raise the next round. | Getting deals done with large industrial companies takes a long time. Give yourself ample time and don’t waste money elsewhere. |
| Business development | I don’t have an advanced enough product yet to sell, so I am only talking to prospects. | Your work is to sell the future. Build and sell prospects on the business case for the eventually complete technology. |
| IP | An area where you must not bootstrap and most people get that right! Quantity is not equal to protection though. It’s important to develop a strategy that considers the general landscape, not just your own invention. | |
| PR & Marketing | Important to signal to investors, so I need coverage in investor press (TechCrunch, WSJ, NYT…) and I need to be present at investor community events. | Important complement to business development in order to signal tech validation to industry prospects (specialty press often beats broad press). |
| Swank (Success Theatre) | Looking like success = success | Real traction with relevant customers/partners is what brings the bacon home. |