Written by A.J. Rounds, RevRoad CMO and Cofounder
I groan when I hear the title I’ve chosen for this article. It seems everyone has a secret method in unicorn selection. Is there a way to know who will be the next billion-dollar company? Especially when the current founders may be eating ramen and working from a dorm room? Many say there is. Yet, even venture capitalists grapple with this problem. Andressen Horowitz, a respected venture capital firm, only funds 20 companies out of 3000 applicants and predicts 1 in 2,000 to be a huge success. Don’t go to Vegas with those odds.
In Utah, dubbed the Silicon Slopes, we’ve seen several unicorns emerge from the depths of the rainbow in recent months. Companies like Pluralsight, Qualtrics, Instructure, Conservice, and Ancestry continue to experience explosive growth. How could anyone have predicted their successes before they became successes? What’s the secret?
Unfortunately, there isn’t one. I know, it’s not cool to set the stage and then burst your bubble. I apologize. Furthermore, if someone tells you there is an exact science to selecting unicorns, especially a venture capitalist, run the other way. 100% accuracy is not realistic. However, what I’ve learned at RevRoad, a venture services firm (similar to a venture capital firm), is there are a few things to look for that can greatly increase the odds of success. Interested? I’ve learned a lot since the inception of RevRoad, and I’m happy to share those tidbits with you.
First, it might be helpful to provide a bit of context about RevRoad. It’s been over four years since our company began. What a ride! I’m reminded of the inception days when Derrin Hill, Bart Skalla, Jason Caldwell, and myself huddled around a makeshift conference table building the business model for what was to become RevRoad. In his mind, Derrin had been incubating a version of the RevRoad business model for years. The premise was to help entrepreneurs succeed by adding valuable services to their businesses, not for cash, but for equity. RevRoad is one of the only venture service models in the country. We are comparable to VC firms, but we fund our portfolio companies with services instead of cash. To learn more about the RevRoad business model read here.
Our office was barely 600 square feet in an industrial center located in Mapleton, UT (a small community known for farmland turned suburbia). At that time we were all involved in a nonprofit organization, but as entrepreneurs at heart, were being drawn to the startup world. In those days, even the name RevRoad was still hot off the press. Like all branding exercises, it was a long process to get there. As most startups experience, we had a spreadsheet with hundreds of names and corresponding URL possibilities. Finding the perfect name to build into a global brand is exhausting. Those that have gone through this process can relate. However, I vividly remember the day when the name RevRoad rolled off my tongue. As the story goes, the group stopped, nodded, and I frantically searched if the URL was available. We didn’t hesitate for a second to purchase it. Once the name was finalized, operating docs were drafted, the business was registered as an LLC, and away we went. The question I posed earlier surfaced many times, how do we pick winning companies?
A few short months later, we added Amy Caldwell to the leadership team to help recruit amazing companies to apply, and about 6 months later, our CTO Bruce Hassler joined us. With a fully functional executive team coming to the table with diverse backgrounds and skill sets, we began fleshing out the venture services model, raising money for operations, hiring a team, and recruiting our first cohort of portfolio companies.
We welcomed five companies (Phonesoap, Elios, Alegra Learning, useAIble, and Aromarest) into the fall cohort of 2017 shortly after we moved into the newly refurbished Daily Herald Building now called the Rig in Provo. This became RevRoad HQ, and we envisioned it as ground zero for the entrepreneurial community. Then the fun began. We began accelerating companies to success! Some companies started to see early successes, others not so much. We diligently kept data on the successes and failures of the companies we were selecting.
Fast forward 4.3 years. We are still going strong through election cycles, pandemics, and economic downturns.
As I reflect on the last several years, I am proud of what we’ve been able to accomplish and the support received along the way. RevRoad has hosted over 500 pitches and 400 events, has 47 employees, 35 interns, and 43 portfolio companies, and has consumed 1,380 pounds of cereal to boot. Additionally, RevRoad has raised $17.3 M for 17 companies in 20 raises. At this writing, RevRoad is valued at nearly $20M. The total valuation of the RR portfolio is $235M.
This is all good news, but let’s get back to the original question: how does one select unicorn companies? For most, it’s a numbers game. The more companies you bet on, the higher likelihood of selecting winners. This is true to an extent, but we’ve always tried to be more purposeful than that.
The #1 thing I have learned in choosing successful companies is not necessarily the industry they are in, the traction (revenue or audience count) they have, the multiple or recurring streams of revenue they present, the scalability factor, or the unique and defensible nature of their products. These are all factors RevRoad takes into account when assessing applicant companies, but it’s none of those. In fact, as an organization, we have even turned away candidates that check all of those boxes.
Here it is…ready? The #1 thing we have recognized is of pivotal importance is the personal qualities of the companies’ founders. More specifically, the quality of the leadership traits they have. Without question, the data collected internally shows that strong founding teams, regardless of other characteristics listed above, are the best predictor of success.
Questions that you should ask yourself to assess the strengths of founding teams include:
- Do they have experience in previous ventures?
- Have they participated in previous exits?
- Have they experienced previous business failures?
- Do they have grit and show determination when obstacles arise?
- Are they focused on revenue growth?
- Are they humble, teachable, and grateful?
- Do they employ the 5 H’s?
- Are they full-time in the business and have they eliminated all other distractions?
There you have it. Those are the contributing factors that help RevRoad get closer to capturing those elusive unicorns.
So, in summary, if you’re knowledgeable about your industry, able to sell your idea to others (including investors), revenue focused, and willing to do whatever it takes to make your company successful, even though your journey will be long and hard, your chance for success is greatly increased.
If you are one of those founders, apply to RevRoad now! We’d love to start the conversation about working together.