AlleyCorp partner Susannah Shipton's framework for evaluating startups and more insights
What every founder should know
Susannah Shipton is a Partner at AlleyCorp, one of the foundational VC firms in the NYC tech startup ecosystem. AlleyCorp is known for building and investing in some of the earliest and most iconic tech companies in New York, including MongoDB (NASDAQ: MDB), Business Insider, Gilt Groupe, Zola, Nomad Health and many, many more.
A few weeks ago, I got to sit down and learn more directly from Susannah, just after AlleyCorp recently announced it had raised a $250M fund, taking capital from outside investors for the first time. We got a better understanding of her approach to investing in startups and learned more about her investment philosophy.
Below, we’ve detailed her 4-point framework for evaluating startups. Then the questions that come next if those points are satisfied. Finally, the common traits that Susannah sees across AlleyCorp’s most successful founders.
Watch the rest of the talk for even more insightful perspectives - it’s all posted below.
4-question framework for evaluating startups
1. Who the incumbent?
Who is the big giant “crusty” company out there that is doing what the startup wants to do, but horribly and the customers hate it. How are they growing, what products are they building?
MongoDB example: Crusty incumbent = Oracle
2. What is the visceral pain this incumbent is causing?
Why are customers suffering, why are they churning? Who is not happy and why?
MongoDB example: They weren’t serving certain smaller customer segments like startups and non-profits. They were super expensive.
3. What is the fundamental shift in society that is going to push this company forward?
For example: When YouTube was founded, bandwidth prices tanked. That is why video was suddenly very viable. Other trends included the emergence of mobile and now we’re seeing that with things like AI.
MongoDB example: A shift towards databases that don’t use SQL
4. Who the beachhead customer set and how can I get comfortable with them?
Who are the first customers you’re going to sell to, and how will you get them.
MongoDB example: Smaller customers that couldn’t afford the high prices of the incumbents.
After you get comfortable with the answers to these 4 questions, what’s next?
I want to know, who are your first 10 hires?
Besides the co-founders, I want to know who are your first 10 hires - show me their LinkedIn profiles. Have you had a chance to talk to them, what is their feedback?
Then I gather customer and industry feedback.
I want to call customers and industry contacts directly. I want to hear what their feedback is on the product. I talk to customers on both sides and get very direct data from people in the industry.
What are some consistent traits you see amongst the strongest startup founders?
Tenacity of spirit - You can always hire people that have skills you need, but you can’t replace a founder/leader’s heart and ability to motivate.
Strong commitment to an idea, but flexibility around it - to be really passionate about an idea, but also know when to pivot.
Customer obsessiveness - Sometimes founders get excited about the product but don’t connect to what customers really need.