Accelerometry. How investors at Techstars pick winning… | by Sylvia Bouloutas | Dec, 2022

How investors at Techstars pick winning cohorts.

Techstars is one of the largest pre-seed investors in the world. We run ~50 accelerator programs globally, in almost every vertical, and have invested in over 3,300 startups across all industries.

As an investor at Techstars, I’m constantly on the hunt for incredible companies to join our Winter and Summer cohorts. An exciting part about sitting on the investment team at an accelerator program is the considerable volume of startups we have access to and founders we meet with — we sift through thousands of applications each quarter and arrange calls with up to 80 founders a week on occasion. As a result, we’re exposed to an asymmetry of information about market dynamics — we see trends miles before our peers at later-stage funds and we contextualize the disruptions and innovations founders are excited about from Day One.

That being said, from the outside, our investment process can seem quite opaque. Below, I’ve identified our framework on how our team evaluates companies for our cohorts and what we’re looking for when making investments.

The most important part of our investment selection process is around the founding team. An innovative team with grit, perseverance and genuine passion for the problem they are solving is in our eyes a critical component of any early-stage investment. We anticipate that products will change and markets will shift, but a strong team will soldier on and win.

So what does this all-star, pioneering team look like?

We love to work with teams that have history with the problem they are solving. You lived it, breathed it, experienced it — as a customer, a patient, an employee, an investor, a supplier, or a member of a particular community. This molecular understanding of a pain point signals to us that you have deep market knowledge and can navigate the complex process of finding early adopters and establishing product market fit.

We heavily encourage teams to display strong technical abilities and have at minimum one co-founder on the team, such as a CTO, who can lead the technical charge. After all, we are tech investors, and we need to know that the team is capable of building a seamless, state-of-the-art, technical product that customers will love and that is superior to both current and competitor solutions. And while you can outsource part of your product, investors know that the best tech is usually built in-house. So if you don’t have a CTO, it’s time to find one and get to building.

We’re looking for teams, and most importantly, CEOs, that have a strong sales skillset. We understand that as you grow the team and raise more venture capital dollars, you’ll have capacity to hire sales staff dedicated to closing deals with customers. But in the early-days of product building, it’s important that sales and marketing communication comes from the founding team and is sharpened to perfection. How well you present your company to myself and the investment team at Techstars signals how well you can sell your product to: 1) future hires in order to grow your team and attract the best talent 2) other VC investors down the line and 3) your customers.

We partner with teams that hold themselves to the highest ethical standards. Techstars has a strict Code of Conduct that all members of the Techstars network — including our founders — must abide by.

Adjacent to this, we are careful to observe if co-founders communicate to one another with respect, integrity and admiration. Co-founder conflict is common in early-stage startup land and can directly contribute to the death of your company. We’re very well aware of team dynamics throughout the interview process, and are only interested in investing in teams who respect one another’s opinions and value every employee’s contribution to the company.

We advise founders to apply when they are working on the business full-time. Joining a Techstars accelerator program is an 8–10 hour commitment per week, and we want to make sure that you’ll be able to gain as much learning from the experience as possible. We have noticed that founders juggling a full-time job and a founder role, in addition to being a member of our cohort, struggle with time-management and have limited capacity to leverage the comprehensive resources of the Techstars Network.

We are excited about teams that ultimately are motivated by learning. Joining a Techstars accelerator is an incredible opportunity for founders to discover their strengths and improve their shortcomings — and come out 13 weeks later as a first-class team ready to conquer the VC and startup landscape. However, we are consistently aware that the founders who get the most out of our program are the ones who put in the hard work every single day. These teams approach our program with a positive attitude, and are coachable, very receptive to feedback, and are committed to becoming the best versions of themselves.

The second most important thing we look at is the market opportunity. We screen for founders who are playing in large, growing markets where we believe that there’s enough white space for the company to capture significant market share. Throughout program, we work with you to identify your TAM, SAM and SOM and engage in meaningful customer discovery. Be prepared to answer questions about the total amount of potential customers your business can reach and the anticipated revenue you can generate from this customer base.

A large part of market considerations is timing. Some of the best startup ideas were pitched to investors a decade too early or too late. It’s important to convey to us why now is the best time for a new product in this market and what tailwinds exist to back your hypothesis suggesting industry and market growth.

Be sure to cite competition and highlight how you plan to differentiate yourself in the arena. Don’t shy away from this. We are aware that most businesses are competing with a number of other products and services, but we want to hear that you deeply understand your competitors and are intimately familiar with their limitations. And most importantly, you know how to win.

As early-stage investors, we realize your product will change as you scale your business. But we like to see some initial product momentum suggesting customers are excited about your idea and that they are willing to pay for it.

Most teams come to us with an MVP or a Beta product and some form of traction. This traction can look like a waitlist of users, key initial partnerships, or revenue. Be ready to answer questions about early indicators of customer interest.

We invest in products that are unique, disruptive and protected. We’re looking for a strong tech moat and robust IP, signaling that your product is defensible and barriers exist for future copycats.