McKinsey will change the start-up funding game, and Plant Jammer has a head startMichael Haase31. July 2017
“I rarely cook, and when I do it’s a steak”, the investor said, “I think most people are like me, so I don’t think your vegetarian start-up will be a success”. We at Plant Jammer had this kind of reaction a handful of times in the angel investor community and have not once been asked about the percentage of flexitarians or average days of cooking/week among that group (the numbers are 25% and 4 by the way). A lot of really strong investors today rely on their heavy experience to do pattern recognition of the challenges of their startups. This seems intuitively fine, but pattern recognition is dangerous. However, fact-based investment is about to enter the scene and it could even crowd-out the currently prevalent ‘gut-feel investment’. How?
Enter “FGT”, McKinsey’s new focus area. FGT is an acronym for “Fast Growth Tech” and it is quickly becoming the new face of McKinsey. What is FGT? FGT’s clients are anything from Venture Capital (VC) seed-funded startups to Private Equity (PE) owned companies with $100 million or more in funding. FGT helps these companies grow, acquire and retain customers, and monetize those customers. Already it’s successful. McKinsey FGT did more than 100 projects mainly in Silicon Valley. With FGT, seed funds are getting as fact-based as McKinsey.
I believe McKinsey will play an accelerating role in mature startups. The McKinsey data-driven approach to problem solving is a perfect match for small tech companies that are agile and rich on data. Also, McKinsey has greatly scaled up engagements and investments in related areas
- 50% of engagements in McKinsey are ‘New ventures’, not cost cutting or lean operations
- In 2015 McKinsey bought ‘Quantum Black’ a data science consultancy, and now McKinsey engages about 900 data science practitioners one way or the other
- For decades, McKinsey has been helping Private Equity funds optimize their companies with an activist approach to portfolio management
I believe McKinsey’s entry will lift and de-risk the whole VC asset class. Why? Well, McKinsey spent the past 70 years ‘democratizing’ smart and lean methodologies in large corporates improving performance there – but I would argue that the McKinsey way of working will be even more powerful in startups. The core competences of good startups are that they change directions fast and have a die-hard passion for what they do. These competencies are powerful, but they are truly awesome when you combine them with professional structure and data-driven decision-making. As the McKinsey skillsets become a traded commodity in Venture Capital, these skills will improve among Angel investors and VCs, which in turn will benefit startups. Investments by business angels and VCs have historically performed poorly as an asset class, but with ‘democratization’ of smart and lean McKisney-type methodologies that is about to change.
However, only some startups will benefit. My experience working for McKinsey (2010-13) is that certain clients get SO much more lasting impact out of a McKinsey engagement than others. Particularly, the companies who win live up to 3 criteria:
- They are data-rich and data-driven in decisions, and they love to challenge their own mental models with facts
- They are highly ambitious and live by a massive transformative purpose to deliver something important
- They have clearly articulated and institutionalized their company values, culture and strategy, enabling them to tell McKinsey what they can touch and what they cannot
I believe, startups that live up to these 3 criteria will benefit from the general capability boost in McKinsey related skillsets within the startup community.
In Plant Jammer we are already founded and lead by a former McKinsey consultant, and the 3 criteria are part of Plant Jammer’s DNA:
- We love data. Half of our 6-person team are data scientists! Most importantly, we let data talk: One of our 4 values are “We are hungry to challenge our own mental models and pre-conceptions”
- We want to change the face of the food chain, making it sustainable, efficient and transparent. Our stated ambition is to touch 1 bn people’s food habits
- Our culture and values are an explicit part of the agenda at each weekly kick-ins, feedback sessions, and status meetings. We know which of our views are flexible and which are firm, because we stress-test them explicitly on a daily basis
So, let’s look back at the investor meeting from the start of this post. In a new ‘McKinsey-fied’ investment culture, how will that conversation pan out? From fact-based investors, I expect to get tough questions like this:
- “Well, I really like steaks and probably have a behavioural bias to think everyone are like me. What does the data say?”.
- “OK. I’d be interested in investing if you can prove to me that this ‘flexitarian’ segment is actually seeing a problem and actively searching for a solution. How can we together devise a test online to prove/disproof that?”
- “I looked at the data and I think you have a nice and large segment carved out. Now you just need to convince me that the segment’s problem is large enough that they are willing to pay for a solution. If you make a landing page for a cooking course based on your algorithm tailored for the target group, I’d like to see more than 1000 signing up within 3 months”
In conclusion, we in Plant Jammer don’t want easier questions, we want harder questions.
If you know an investor who thinks that way already, Plant Jammer would be delighted to talk to her. Plant Jammer is growing, and we look forward to engaging with Angel investors with similar values to us combined with a rigorous and fact-based approach to starting a business 🙂
A first introduction to us could be at our launch party on 29th August in Dare2Mansion. Write firstname.lastname@example.org for more information.
CEO and Founder, Plant Jammer