The big picture
Last month, we kicked off the StarterSquad Launchlab as our laboratory for building internet startups. Up until then our remote development teams only worked for external customers building technological innovations. With cases like Vandebron and Zorgdomein we have proven our technical execution power. Our business model, which revolves around the sale of team capacity (StarterSquad Capacity Units) for weekly sprints, is proven and we create a lot of value for our customers. Based on this experience, we believe that we can start to build our own startups as well. For this we need to become the first Virtual Startup Incubator. An Incubator with a StarterSquad twist, of course. We started looking at examples like Betaworks, Monkey Inferno and Rocket Internet. As StarterSquad is fully remote, operating like some sort of distributed startup studio makes sense. StarterSquad already has the development teams and a network of digital marketing people (so called growth hackers), so some of the important competences are available. The only missing ingredients are ideas, entrepreneurs, finance and distribution. If we are able to get these resources on board we will be able to develop and scale more startups. Holding an equity stake in these growing startups may be the next business model for StarterSquad. If we can make this happen with a distributed team, it certainly will be an interesting case. Especially if we are able to beat the odds of a 1 to 10 success rate in startup development.
Testdrive from Idea to Startup process
To kick-off the Launchlab, we started collecting startup ideas in an Innovation Funnel. These ideas come from StarterSquad members and outsiders. Although we started with an idea to build our own Innovation Funnel, we kicked things off using a simple Trello Board to manage the ideas, communication and document flow.
We also started networking at Founder events and recruiting entrepreneurs. Having both ideas and entrepreneurs is critical, but finance is needed as well. For this asset, we ask all StarterSquad members to participate in the Member (Seed) Fund. In a first round, the members committed a total of 100.000 euro for the initial funding of startups. With this first investment money on board, we needed a process to decide which ideas to fund. This process was initially called idea grooming. All serious ideas needed to have a team that can execute them and at least a solid pitch deck with a proposition to the fund. At a certain point, we started a pilot with the Golden Egg Check as well. This is a tool to test startup ideas on a collection of criteria used by professional investors. Still, it was hard to decide on where and how to spend the money. A first case the fund took on is the StarterSquad-as-a-Service platform. This startup automated most of the processes behind StarterSquad and can become the 99designs for remote IT development teams. This project is named TeamDash and is generating its first revenue after an initial investment of 25.000 euro and 10 weeks of development work. In fact, future platform development can be funded from the current cash flow.
How StarterSquad Launchlab works
Based on our first experiences, we decided on the next steps for the StarterSquad Launchlab. First we aimed at having clear criteria for our investments, besides the ones that are covered in our pitches and the golden egg check. We decided to focus on funding startups that:
- Have a positive impact on the world: we are not philantrophists, but we would like to work on ideas that matter. We want our scarce resources to be utilized well. The ideas should therefore have a positive impact on people and society. But, they have to be profitable as well. Our definition here is still broad, but we will be able to make it more specific as we learn in the coming months.
- Have a clear plan for execution: a plan that is focused around customer discovery with the prospect of short-term cash flow makes us happy. We want to commit to investments of 25.000 euro that lead to paying customers within 4 months. There should be a good and realistic roadmap for this to happen. Again, we don’t want to waste scarce resources (money & talent) for things that don’t have impact or simply won’t take off.
- Have a good team with all the required skills: a team is everything for execution. We look for teams that have the skills and mindset to make it happen. They should know the market and have access to distribution. Because we have a large network, we can complete the team with people that make a difference. We recruit coaches and people or companies with a relevant network for our Launchlab as well. They can complete the ecosystem needed for the success of the startups we launch.
- Match with StarterSquad capabilities: the idea needs to match our capabilities. We’d like to form Centers of Expertise to support startups in specific sectors or applying certain technologies. Although our developers can work for every sector and have different technical capabilities, our mentoring and business understanding is focused. Currently, we can have added value in industries like energy, crowd platforms, healthcare and education.
This is still work in progress, but up until now we are quite happy with the focus that this brings to the StarterSquad Launchlab. We know beforehand that changes and additions will be made in future iterations. In a sense, we treat the setup of the Launchlab as a Lean Startup itself with validation along the way.
The investment process
Ideas that qualify can receive funding from the Member Fund. As described, ideas need to be groomed first. To do this, we’re thinking of giving entrepreneurs the ability to pitch on a weekly basis. We’ll ask them make a pitch deck, do the Golden Egg Check, and have a pitch for the fund members on Google Hangouts. These will be recorded for the fund members that can’t join at the time set.
Based on these ingredients, we will vote. This is a process where all StarterSquad members that have put money into the member fund have a weighted vote. When the voting is positive, we will commit a 25.000 euro investment in three stages if entrepreneurs at least 10.000 euro. There is 5.000 euro for Customer Discovery, and a total of 20.000 for building a Minimum Viable Product (MVP). This is the smallest or simplest thing you should build to deliver the customer value you aim for in your value proposition.
We are still learning, but so far so good. We have been able to do our first two investments and hope to have more in the upcoming months. Our goal is to have a positive impact on the world by building startups that make a difference (not just copying existing business models and throwing loads of money at them). The objective is to build at least 10 startups per year in the coming 5 years and beat the statistics of Startup Success / Failure.
Want to get funding for your Startup? Contact us and pitch for the StarterSquad Launchlab!