Reid Holffman’s three rules for investment

Reid has a guest post on Techcrunch today where he lists his three rules for investing in internet companies.  Armed with this framework he says “After five minutes of a pitch, I know if I’m not going to invest, and after 30 minutes to an hour, I generally know if I will.” – which is a little more efficient than we manage!

His rules:

  1. Every net entrepreneur should explain how they will rise above the noise to attract a massive audience, how they will get to 1m and then 10m users.
  2. They should have a unique value proposition, backed by a product which is sufficiently innovative to distinguish itself from the pack, but not so forward thinking as to alienate the user.
  3. A capital efficient business plan.

I (along with everyone else) rate Reid highly as a thinker and have linked to him twice before, but this is the first time I have seen a full framework from him.  Further, they are all great points that can sometimes get forgotten.

It is tough to split them, but I particularly like 2. – because for me product is the most important thing.  As I said on a panel at the excellent Geek’n’rolla conference yesterday all the great web startups have had fantastic product and if I was forced to invest in a startup which had only one of the three attributes above I would definitely choose the one that had a unique value prop/great product.  There is at least a grain of truth in the old maxim that if you have focus on building fantastic product the rest of the business will look after itself.

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