How Does Follow [The] Seed Examine Investments?

So long, outdated algorithms; an internationally stationed VC fund is taking their search for extraordinary ideas to an entirely new place.

So long, outdated algorithms; an internationally stationed VC fund is taking their search for extraordinary ideas to an entirely new place.

If you’ve spent enough time in the private investment or entrepreneurial worlds, you will most likely have noticed something very interesting: the venture capital industry, that financed about 50% of the world’s innovation, has hardly changed in the past 40 years. Recently, we’ve seen various changes. Social-funding platforms have emerged like Angellist, OurCrowd and iAngels; as well as various big-data and social signaling attempts to use algorithms for identifying great startups. However, the basic process hasn’t really changed.

The entrepreneur has to contact the investors (mostly via personal connections), send a short “deck” describing the idea, and then request a meeting. The next step sees venture capitalists abiding by a list of thumb rules to filter pitches: some say they don’t like people without prior entrepreneurial experience; others say they would never invest in a startup with just one founder or more than four founders. In other words; they would probably refuse to meet – not to mention invest in – companies like Amazon, Google, Facebook, DropBox or Pinterest. Right?

What happens if the entrepreneur is a Muslim, a woman, from a minority group, or living in a peripheral town or – god forbid – a totally different country? What happens when she doesn’t have big names in her CV, with a Stanford degree or via a silicon valley big shot angel investor? The answer is clear and that’s where the Follow[the]Seed filtering tool comes into play.

The RavingFans® algorithm, designed to test what percentage of a product’s or service’s customers are raving fans. In other words, the ratio of customers that value a product or service far beyond its functional benefits and consider it to be an integral, inseparable part of their lives. Because RavingFans® is an algorithm, the entrepreneur’s identity is rendered obsolete. The tool is interested in the potential of startups, not in the hair color, gender, religion and CV design of their founders.

In our view, there are two types of customers: rational and irrational.
Rational customers make informed decisions about products which means that, as soon as a competitor presents a cheaper or improved alternative, they will slip through your fingers. The second type is an irrational customer. Not crazy, just irrational when it comes to using your product or service. Take a Bruce Springsteen raving fan who plans family vacations around the Boss’s tours. Then there’s Harley Davidson raving fan who, given by the permanent Harley insignia on his upper arm, wouldn’t dream of purchasing Yamaha. These fans are obsessed and it’s all they want to talk about (and they are highly unlikely to stop, either).

Irrational fans are the customers of every entrepreneur’s dreams; and their behavior is what the RavingFans® algorithm is searching for:

Obsessive, compulsive or addictive patterns of behavior among a critical mass group of customers.
Evidence that this group, irrespective of the total number of “registered” users, is growing.
High retention rates among this group.

If 20-30% of your customers are RavingFans® , Follow [The] Seed is most likely interested in investment. Even with a customer base of 10,000 customers or less.

RavingFans® is not just applicable to B2C products and services. While most of the products and services tested by Follow[The]Seed fall into that category, any habit-forming company is relevant; even if it’s B2B focused (e.g. Slack). RavingFans® is in search of products that become an integral part of a consumer’s life, work or pleasure.

Follow[The]Seed invests in a variety of fields, with the exception of medical and bio-tech, leveraging the diversity among of its founding partners. Ajoy Mallik, Formerly of Tata and Cognizant, based in Silicon Valley, is the enterprise expert. Andrey Shirben, a former intelligence officer in the Israeli Defence Force is based in Sydney and is interested in anything from cyber to underwater robots. Curt Shi, a seasoned investor based in Beijing, specializes in Telecom, Sports and Gaming. Eliav Alaluf, the brains behind the RavingFans® itself, is passionate about habit forming products and algorithmic products and services.

Follow[The]Seed typically invests in the post-seed stage, prior to A-Round and investments usually range between $0.5M to $2.0M. Once an early-stage working product is defined, in the case of an enterprise type of deal, the fund wants to see traction and run the venture by contacts around the globe – USA, China, Australia, Israel and Europe – to determine whether or not it can add value to the business.

In the case of habit forming products and services, The RavingFans® algorithm tests the usage data and signals the fund once it needs to take a closer look. Ventures aren’t required to request permission to enter testing mode: the process is designed to save everyone’s precious time.
Download 9 lines of code SDK (until data analytics begin present unique user actions, we’re forced to use this SDK) right here: http://followtheseed.vc/dl_form/
If you want to receive an SDK for your website, please email us here (we’ll soon have an automatic interface, similar to the mobile apps one).
For more information about how the RavingFans® algorithm works, FAQs, and the thinking behind the model, feel free to visit our website at www.followtheseed.vc

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