- John Meyer's upstart venture company is trying to upturn what he sees as a hidebound industry.
- With Starship Capital, Meyer aims to invest very early on in technologies and companies that have "exponential" potential.
- His strategy is to serve as an advisor before investing, helping companies with hiring and, more importantly, figuring out if there's a market for their products.
- Meyer, a serial entrepreneur who was early to the app revolution, has developed a way of using Facebook ads to figure out demand and customer-acquisition costs before startups even launch their products.
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The venture capital industry prides itself on finding and funding startups that can disrupt big markets. But if you ask John Meyer, it's the venture industry itself and its traditional way of launching new companies that's ripe for disruption.
Meyer, a serial entrepreneur who cashed in early on the smartphone app revolution by making some of the first simple apps in the iPhone App Store, set up his own early-stage venture firm called Starship Capital last year to test his theory.
The tech industry and broader society are on the cusp of seeing massive changes thanks to new technologies such as artificial intelligence, Meyer told Business Insider in a recent interview. The startups that help spearhead those changes are often going to need more help — financially and otherwise — earlier in their life cycles than young tech companies have typically required in the past, he said.
"The goal of Starship is to track down what these sort of exponential leap-forward technologies are, and, at sort of the earliest moment possible, be able to assist" the companies developing them, he said.
In this new era, it's going to be important for venture firms — especially those that are looking at really nascent technologies and companies — to be flexible, Meyer said. Instead of specializing in enterprise software, say, they're going to need to be able to invest in a range of different of different sectors.
Perhaps more importantly, they will need to have the flexibility to supersize very early investments to help new companies get off the ground, he said. Instead of needing just $500,000 or $1 million in seed funding, the next-generation startups may need as much as $5 million up front, he said.
Starship is designed to be nimble
Meyer structured Starship so that it can nimbly respond to such opportunities and needs. It's not restricted to investing in a particular sector. And the firm's design allows it to scale up investments as needed.
Instead of raising a discrete venture fund that makes a certain number of investments of around the same size size, Meyer secured some $25 million in what he calls "soft commitments" from investors. Whenever he finds a startup he wants to invest in, he can go to his backers, present the opportunity, and discuss with them the appropriate amount to invest, which may well be much more than what he could do with a standard fund.
That model "allows us to be quite nimble with the deals we have access to," Meyer said.
Thus far, Starship has backed four startups. Of those, he only named one — BuildX, which aims to automate much of the commercial construction process. Another company Starship has backed, which Meyer declined to name, is developing an automated legal service that uses machine learning to help provide legal advice to those who can't afford a lawyer.
With each company Starship has funded, it started in an advisory capacity before making an investment, a strategy that Meyer plans to continue.
Indeed, that's another area where he thinks Starship will be different from more traditional venture firms. His aim is to work with founders and entrepreneurs who are less than six months into developing their business idea or startup.
"These companies are quite early stage and often times run by first-time founders that could use some additional expertise," he said.
Meyer's goal is to de-risk startups before they even launch products
When his firm takes an advisory role, he or his partner steps in and acts almost like an executive at the startup, helping out with hiring and fundraising. More importantly, they also try to help the founding team prove where there's a real market for their concept or, if not, help them quickly pivot to an idea for which there is a market.
"I've seen too many cases of startup founders [who] raise money for a company, get it off the ground, and then they realize they don't even really have much demand for that product to begin with," Meyer said. Starship's goal, he continued, is to "dramatically de-risk extremely early stage companies and assist them in getting to that phase where they can go and raise money from one of the tier-one or tier-two seed-stage funds.
A big part of how Starship helps companies — particularly those developing consumer-targeted products — prove that there's a market for their ideas is by taking advantage of Facebook's advertising platform. Even before its startup partners have launched product, Starship helps them create a brand and build a website. Then, it helps the startup advertise its potential product on the social media giant or on its Instagram subsidiary. Starship uses Facebook's tools to target ads at what are likely to be the most receptive consumers and then uses a cookie on the startups website to track the response to the ads.
With a budget of less than $1,000, Starship and the startup can get a very good idea of how much demand there is for the company's prospective product and its likely customer-acquisition costs. Because the process isn't very time consuming or costly, Starship and the startup can tweak the wording of the ads and the potential cost of the product to see how such changes affect demand.
"Literally within a week, [we can] get to a point where we can then decide whether or not to invest in this consumer startup in a way that is a much more confident decision and I think data-backed decision than most other early stage funds," Meyer said.
Meyer's entrepreneurial experience informed Starship's strategy
Much of Meyer's ideas for Starship came from his own experiences as a entrepreneur. He started writing smartphone apps as a freshman in high school, right after Apple opened up its App Store, and soon had a thriving business creating relatively simple flashlight and photography apps. He then used his proceeds to found Fresco News, dropping out of college to build a company around the news-sharing app.
Since then, he has been a founder-in-resident at Atomic, a startup incubator, and a Thiel Fellow, the name given to those who secure a fellowship from venture capitalist Peter Thiel's personal foundation — which carries the requirement that the recipient drop out of college or otherwise not attend. Last year, he cofounded Homebound, a company that uses digital technology to help speed up and reduce the cost of the homebuilding process.
Through his experience at Atomic, he got some ideas about how to help out really early-stage companies. And through his Thiel fellowship, he's made connections to other young entrepreneurs who are exploring cutting-edge ideas.
But the time he spent building apps was probably the most crucial, he's said. From that experience, he learned the importance of rapidly prototyping and iterating on products. He also during that period developed his ideas of using Facebook to glean demand. As the app market became more competitive, he needed to find a way to figure out if there was demand before investing a bunch of money in a new project; he discovered he could do that through Facebook.
"That was sort of the genesis of the strategy within Starship now," he said.
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