Investing in startups is a tough challenge given the long odds of success, and the analysis of an opportunity is an incredibly subjective exercise. The decision inevitably comes down to judgments about the 3 primary elements of the business: team, product/technology, and market opportunity.
Getting to the right answer is in part a science, gathering data and feedback from customers, partners, technologists, domain experts, and past colleagues. But it is also an art and this is the real trick -- infusing the judgment with past experience, instincts, and pattern recognition (or "analogs" as venture investors love to say). The obvious risk in layering past experience and case studies into the decision-making process is that it is so easy to over-draw the comparisons beyond their relevance. Yet this subjective judgment and instinct is what separates the great investors from the pack. This is the art that one of my mentors, Henry McCance of Greylock, was describing when he would say "I can't describe all the characteristics of a great entrepreneur, but I know it when I see it."
While working on a recent investment I made in an online English-language learning property focused on the Latin American market (Open English), I found a (particularly fun) analog to test the central hypothesis of the business -- that for certain subjects, online instruction is actually far more effective than offline teaching. Since I couldn't very well put myself in the shoes of an upwardly mobile executive in Bogota who wanted to learn English to get ahead at work, I brainstormed about the other things I'd like to learn... and pretty soon I found myself checking out the huge number of available online guitar tutors and classes. It turned out to be a useful comp as many of the same reasons why live English instruction is better online - finding great instructors (native English speakers), flexible scheduling, on-demand availability of multimedia content, and the elimination of the anxiety associated with performing poorly in person - fit my situation as an aspiring (hack) guitarist.
In the end, playing around with comparable online learning tools was a small input into my decision to invest in the company, but it was the type of pattern-matching that helps to better abstract out and understand the drivers of a business...
...And now a month after closing the investment in OpenEnglish, I find myself with a new toy, pictured below!
