Our deeply human capital centric philosophy manifests itself in our approach to evaluating investments and working hands-on with the entrepreneurs we proudly back.
People > Idea
Human capital trumps all. As the pioneering father of venture capital, Georges Doriot, once espoused: take the A team with a B idea over the B team with an A idea. Good teams can change bad ideas. But good ideas cannot fix bad teams. Ideas and companies don’t make money; people do.
Business Model > Financial Plan
During the early stages of a company, too much time can be spent on a theoretical financial model that, instead of being approximately correct, becomes precisely incorrect. The focus should instead be on the right business model. How is cash flow going to be generated and how repeatable is it? Our preferred formula for success is recurring revenue with fixed-cost leverage. This is a business model that is rational and repeatable – not one that depends on figuring out the revenue after the costs have been spent. Read more about the world’s best business model.
Niche Dominance > Overall Market Size
Laser focus on a clear niche increases the probability of being the best at something, and being #1 or the best is a good business model. Accordingly, relative market share tends to be the best predictor of long-term profitability. The greater the market share distance between you and your competitor, the greater your earnings potential will be. It is about capturing the majority of the addressable customer base and moving into adjacent market areas over time. Put simply: it is okay – and usually preferable -- to start by being the large fish in a smaller pond.
We look for businesses with higher degrees of predictability in their revenue, and by extension, cash flow. Just as people like getting a regular paycheck, businesses should care about getting the recurring, repeatable revenue that can drive higher lifetime value of each customer and enhance predictability. This is sometimes at odds with the common pursuit of revenue growth for growth’s sake. For us, having a sense of the quality of revenue matters as much as the quantity.
We prefer costs that pay for themselves over time. Businesses that invest in intellectual property (IP) assets enjoy the advantage of leveraging these costs over time. Differentiated IP links us across the sectors in which we are active. Whether the IP comes from content (business and information services), brand and experience design (consumer services), franchising and store layout (specialty retailing) or technology (internet media), each represents the potential for recurring revenue and fixed-cost leverage.
Cash flow is king. It lets a business invest wisely, enjoy surety of solvency, and drive enormous value for all those involved. It is the only reason why a company is valuable and its absence is the sole reason why companies go out of business. Recurring revenue and fixed-cost leverage unite, not only to drive revenue and EBITDA, but to actually grow EBITDA faster than revenue, naturally driving cash flow margins upward as the business grows.
|PEOPLE||Passionate, capable, and open-minded|
Leverage of fixed costs and IP assets
(Learn more about the best business model in the world.)
|SECTOR FOCUS||Digital Media
Business Information Services
Specialty Consumer Brands and Concepts
|STAGE||Start-up (~30% allocation)
Goal: Quickly establish proof of concept while championing capital efficiency.
Revenue: Up to $5 million, EBITDA positive within 12-18 months
Typical Commitment: $500 thousand to $1.5 million initial investment
Scale-up (~70% allocation)
Goal: Scale organization to next growth level and optimize business model.
Revenue: $5 to $30+ million, EBITDA positive
Typical Commitment: $2 to $6 million initial investment
Industry-specific Strategic Guidance
Our Cue Ball team members and Collective Brain Trust – our unique set of active investors – have all been in your shoes. As a result, we believe we hold unique, proprietary, and time-tested understandings of the information services, digital media, and specialty consumer opportunities – and their concomitant business models -- that we target. This pattern recognition, uncommon insight, and familiarity with everything, from product development and customer strategy to best-practice analytics, confer a unique strategic advantage that we joyfully provide to our portfolio companies. Such guidance helps to both detect issues at their inception and accelerate growth at any stage.
General Business Judgment and Mentorship
We are committed to helping to answer any type of question from our entrepreneurs, for as long as it takes. From product development, to sales, to HR and legal, our 80+ collective years of experience as entrepreneurs and business-builders means we have seen and worked through the issues common to growing ventures of all kinds. Our human capital-centric approach translates that experience into a thoughtful and dedicated philosophy towards mentoring our portfolio companies.
An important part of our relationship with our CEOs is to identify the top strategic priorities every year for each company we back and develop associated execution plans that are articulated in an Annual Memo to the Board. This ensures that everyone is on the same page and can benefit from the clarity of the priorities. After all, you can be “making great time,” but if you are lost, it doesn’t really matter.
Best Practice Analytics
Peter Drucker, had it right: “You can’t manage what you don’t measure.” For our portfolio companies, we offer our suite of best-practice analytics, including our pioneering customer-driven research techniques and the development of the right management metric dashboard. Understanding what drives customers is perhaps the most important input to product development, bundling, and pricing. We work with management to develop customer surveying and interviewing methods that yield insights into how the product is really being used and in what direction the crucial next step of the business lies.
The most important weekly and bi-weekly metrics are not financial ones, but instead they are operational in nature. We call it measuring the input instead of the output. Take Epic Burger, for example. Reporting weekly sales is interesting, but reporting average wait times and turn-away rates is insightful. We work with our entrepreneurs to help them define the most important input metrics -- not just monitor what matters, but act appropriately in response.
The Cue Ball team and the Cue Ball Collective offer a network that spans the industries we invest in, the financial community, and some of the world’s greatest circles of thought leadership.
The Cue Ball Collective amplifies the already significant and deep personal networks of Cue Ball’s General Partners. In addition to making themselves a go-to source for portfolio companies – the Collective members offer their own relationship networks that can bring helpful introductions to potential customers, partners, and suppliers. We feel fortunate to have assembled this remarkable group of individuals to provide inspiration, advisory, and board roles for each of our portfolio companies.