Got an awesome for-profit startup idea? You’ll get funded.

What about a great mission-driven idea? You’ll get funded, too.

How about a for-profit, mission-driven idea? Not so fast.

Typically Sand Hill Road venture capitalists in Silicon Valley frequently balk around mission-driven companies. Similarly, social impact investors rarely pour money into startups that emphasize the “for-profit” portion of the equation.

Why can’t companies focus on both?

In an effort to change investors’ views of mission-driven, for-profit startups — which I’ve encountered regularly over the last four-plus years at my VC fund Fresco Capital — I’m happy to announce that we’re running an accelerator in Rome this summer. It focuses on raising awareness about the importance of investing in companies that are aiming for huge profits while also caring about doing good in the world.

The Vatican cares deeply about mission driven for profit companies and has been part of the global conversation on impact investing and the future of impact investing. Also, in his recent TED Talk, His Holiness Pope Francis challenged tech companies to do better.

The Laudato Si’: On Care for our Common Home is His Holiness Pope Francis’s second encyclical that focuses on addressing the climate crisis. Pope Francis has challenged the world in Laudato Si’ to act.

When the perfect opportunity presented itself, I knew we had to act. This accelerator is our response to the challenge laid out in His Holiness Pope Francis’ edict by focusing on for profit mission driven companies that focus on the challenge and values of the Laudato Si’.

Why I’m Doing This

First things first: some definitions. A mission-driven, for-profit startup is a company that has a social mission at its core — compared to a solely for-profit company that is singularly focused on selling ads. Think of Aspire Foods vs Pinterest.

Currently, founders are caught between creating companies that solely exist to make profits and creating companies that are more concerned with social causes.

This ambivalence makes it next to impossible to raise capital. So, more often than not, founders are forced to turn to NGOs or a non-mission-based business model (you know, like Pinterest).

This is unfortunate.

As a five-time entrepreneur turned VC at Fresco Capital who has run accelerators in Hong Kong and Palo Alto I’ve seen this problem first hand. I’m motivated to start a global conversation in the investment community on the value of for profit mission driven companies. As a global citizen with young children, I’m called to respond to His Holiness Pope Francis’ challenge.

What does success look like with respect to this particular endeavor? Incubating several mission-driven companies that deserve VC dollars and eventually provide a handsome return.

Investors and companies in this mission driven space have done some great work and seen a nice return in the past. This list includes our investors: Ibrahim Al Husseini — Founder, The Husseini Group; Chade-Meng Tan — Co-Chair, One Billion Acts of Peace; Caitlin Sparks — Partner, FullCycle Energy Fund; Thomas Ermacora — Founder, Clear Village; Andrew Mangino — Founder, The Future Fund; Lola Grace — Founder & Chairman, Middle East Children’s Institute.

We intend to follow in their footsteps and make a difference.

How It Works

This unique accelerator starts virtually — right away founders chat with the program director on Skype about what metrics are needed to grow and mentors are assigned (we’ve got 100 mentors lined up) to help. Then from July 13th to September 9th, there is an in-person accelerator program in Rome focused on business development, growth (we have a “growth hacker in residence” as part of the program), and customer development. As part of the program, a $100,000 USD equity investment (6%-8%) is made (via our investors listed above). After September 9th we will continue for a few months virtually and finish with a Demo Day at the Vatican in December.

This accelerator is primarily seeking startups that have already enjoyed some traction but are pre-Series A.

In the spirit of the Laudato Si’, we’re looking for startups in the following domains:

• Energy. Transform our energy systems to mitigate the most severe consequences of climate change. Preserve our common home.
• Food. Reengineer our food systems to minimize their contributions to greenhouse gas emissions. Make them resilient to a changing climate. Guarantee food security for all.
• Water. Adapt our governance, resource management, and technological systems to spatial and temporal changes in quantity and quality of freshwater to protect the well-being and livelihood of everyone.
• Urban. Restructure our urban communities for carbon neutrality and resilience to climate change impacts in ways that are inclusive. Value local knowledge and culture regardless of income level or identity. Provide the opportunity for all lives to flourish.
• Human potential. Minimize human suffering resulting from the migration, health, and humanity security impacts of climate change. Build bridges — not walls.
• Conservation. Protect the world’s most fragile ecosystems. Preserve global biodiversity. Maintain healthy and thriving ecosystems across the globe.
• Finance & industry. Reshape verticals, business models, and finance to mobilize $10 trillion by 2030 to invest in a carbon-neutral economy. Create a new ecosystem of businesses providing products and services to help individuals and communities adapt to climate change.

This is your opportunity to get in on the ground level of a multi-year, global initiative.

You can apply during the May 5–June 5 period. Be ready to take part in an in-person accelerator in Rome — taking place from July 13–September 9. Check out our website for some more info: http://www.laudatosichallenge.org

Join us this summer. Do it. We’d love to have you. One more time: Apply here.

Why I’m Running an Accelerator in Rome was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

A lot of startups and well established businesses struggle with when the right time to expand into new verticals or new geographies. The short of it: Not before you’re dominating your first vertical and first consumer segment.

There’s an old tale in Silicon Valley that goes something like this: When Jeff Bezos, founder of Amazon, pitched his initial idea to Kleiner Perkins Caufield Byers, he told the VCs there that he wanted to sell everything online; every product in the market converted to the online channel as the future of transactions. But one of the VCs suggested he refine that idea: First, you must go deep in one vertical before eventually expanding into the next. And how do you know when to stop expanding in a particular vertical? When you’ve stopped learning.

Such as the cycle continues, as you continue expanding to new verticals, you won’t have to go as deep and your time to entry will be significantly shortened each time around. Over time, your company becomes wide — on an expedited timeline compared to the first plunge — and not because the company fully understands the business model and market factors to success.

Ultimately Bezos, of course, took the advice and decided to go deep in books before he went wide. After drilling all the way down into books, Amazon owned the market — even forcing companies like Borders (who chose to useAmazon to handle its ecommerce efforts) out of business.

Up next were CDs and DVDs — all the things you’d buy in a store. Then on and on Amazon went, adding everything from diapers to espresso machines to its arsenal. The company kept pace with technology, too, adding Kindle, streaming music, and streaming video options.

Deep and Wide in Action

My first startup spent a really long time focusing on recruitment and job advertising. Eventually, we added real estate and auto to our offerings, and we only had to spend a fraction of time during expansion. Pricing was the same, acquisition was the same, and the backend database was the same. We spent six months on the first vertical and three months on the second.

Another startup, Telerik, also followed suit, going deep by going deep with a robust Microsoft developer tools and then wide with cross-platform developer toolkit marketplace. We then switched to building out solutions for CMS, but because it was radically different from what we originally built, we were forced to go deep again. This wasn’t as fast and seamless, due to the differences, and it took just as long to master.

When you go deep, the right way, you gain the expertise and infrastructure to expand into new verticals. Then you’re well-positioned to go wide — and quickly.

Lessons from Amazon

Amazon spent about three years on books before moving into CDs, then six months on CDs before moving into DVDs, then four months on DVDs before opening up Amazon Auctions (which competed directly with eBay at the time but pivoted to what is the Amazon Marketplace today).

When you go deep into the first vertical successfully (e.g., after one year), it should be a lot quicker (e.g., six months) to make progress into the second vertical. And it should be even quicker (e.g., three months) to make progress in third. And so on. If it’s taking you longer to make progress in a subsequent vertical, you’re probably doing something wrong.

In order to stick to the “half time to success” formula, here are three major things to keep in mind:

• Move on when you stop learning. Don’t target the next vertical until you figure out the successful, scalable sales channel and business model before jumping to the next one. When Telerik hopped from dev tools to CMS, we faced challenges because the market and segment were both different. You must move into a market with a similar business model and segment to be able to go wide according to the shortened time frame. In Amazon’s case, books, CDs, and DVDs were no brainers.

• You need to diversify. A lot of companies stay on the proverbial books, CDs, DVDs track and then get sold or collapse. Companies that IPO or become big, on the other hand, go deep and wide in several different industries.

• Think outside the box. It’s no secret Amazon dominates the ecommerce market; the company was singlehandedly responsible for 60% of the United States’ ecommerce growth last year. After conquering ecommerce, the company wasn’t finished. It expanded deep into cloud computing with Amazon Web Services. Now, it’s going deep into brick-and-mortar with newly announced grocery stores you can walk into and out ofwithout standing in a line. It’s not hard to see them going wide there, too.

When you master one way to do something, it’s much easier to target a new vertical or a new geography with the same tactic. Go deep first, learn the tricks, and then go wide. That’s the ticket to a strong, sustainable business with limitless potential.

1. Corporate Innovation Strategy

How should companies approach innovation in an unstable world?

“Every contemporary company has to be a balanced mix of established products and new products that are searching for profitable business models.” — Tendayi Viki

Tendayi introduces a useful five part framework for how established companies can manage the inherent tension of managing both established products and new innovation. Read more…

How to set up a corporate innovation outpost?

“Successful Innovation Outposts typically develop over a period of time through three stages. In the first stage the Outpost focusses on networking and partnering in the Innovation Cluster in which it is based (i.e. Silicon Valley, Boston). In the second stage, it moves into Investing, Inventing, Incubating and Acquiring technologies and companies, and in the third stage building product(s).” —Steve Blank

Steve shares the details of the three stages of setting up a corporate innovation outpost, including key questions and milestones. Read more…

Is your innovation outpost working?

“You have no dedicated system for keeping track of startup ecosystem interactions and information.” — Tytus Michalski

Tytus reviews this and four more warning signs about innovation strategy and outposts along with the solutions for how to fix these problems. Read more…

2. Engaging the Ecosystem

Why should large companies work with startups?

“The most innovative companies are also the most valuable.” — Kite

Both the data and the anecdotal stories combine for compelling evidence that the most innovative companies are engaging proactively with startups in many ways to create more value for all stakeholders. Read more…

How to build a successful innovation ecosystem?

“Just as momentum is the product of mass and velocity, the ecosystem with the most participants and fastest turnover of ideas will be the most successful.” — Martin Curley

Martin provides case studies, context and 12 principles for successful ecosystem innovation across companies, customers and other partners. Read more…

Where are the opportunities in the global ecosystem?

“We love small businesses, we love young people, and we love women.” — Jack Ma

Jack Ma shares his views on global ecosystem opportunities and more during an interview with Stanford GSB. Read more…

3. Innovation as DNA

How to innovate like Google?

“To better understand how Google innovates, I took a close look at what it’s doing in one area: Deep Learning.” — Greg Satell

Writing for the Harvard Business Review, Greg uses Deep Learning at Google as a specific case study to learn about how the company has put innovation at the core of its DNA. Read more…

How to get started with intrapreneurship?

“Never before has there been such a push for employees to take ownership of their own corner of a company.” — Alyson Krueger

Alyson provides examples of intrapreneurship, overall context about why more employees are interested in this option and the benefits for companies. Read more…

What will change most in the next 10 years?

“That’s a good question. But a better question is: What’s not going to change in the next 10–20 years?” — Jeff Bezos

Peter Diamandis highlights this important point by Jeff Bezos about focusing resources on high conviction trends, and expands with his own ideas about what won’t change even in an unstable world. Read more…

What other content do you highly recommend about corporate innovation?

It’s no secret, the widespread idea is that there’s a Series A gap in startup funding. You can easily raise a $1 million seed round and $100 million Series D, but somewhere in the middle things get a little dicey.

But as I’ve said before, there’s really no such thing as a Series A gap. Some companies just try to swing for the fences a little too soon and don’t drum up a lot of interest. Rather, they don’t focus intently on what they need to prove to secure the Series A or they focus on things that they think investors want to see.

The key to understanding the supposed gap, is that if your startup is really ready for a Series A, you can most assuredly raise money. You just need to be able to prove that your company has a repeatable and validated business model that can be scaled before walking into those meetings.

And this doesn’t mean you need to have tons of customers and millions in revenue by any means — a common misconception in today’s startup world. To raise a successful Series A round, start by proving the pipeline — and making financial projections based on it.

The Difference Between Seed and Series A

Seed money is supposed to help your startup figure out its business model. Seed is where you tell the story of what you are going to do. Series A, on the other hand, is more about making sure your business model works. You’ll also want to execute your story, telling people what you’ve done and what you’ll do next.

Let’s say you want to sell new coffee cups. During your seed, you should first focus on landing one or two landmark customers; maybe a few Starbucks locations that are proving to be loyal and consistently fill orders. When you’re pitching the Series A, show the investors that you can scale your business to every other Starbucks in the Palo Alto region and beyond, as well as Peets and other coffee shops — and the investor’s money is what stands between you and accomplishing that growth.

The Wrong Approach to Series A

Today, because of the emphasis on hitting a revenue target to signal a new round of funding, a lot of startups are guilty of growing their revenue linearly.

Imagine Starbucks is buying your new cups and you’re generating $50,000 ARR from that account. Then you decide to do non-core business model activities that pad your overall revenue. Maybe you consult for Peet’s Coffee and help out other startups in exchange for quick cash to keep the runway looking a little better.

Sure, all those extra funds are lumped into your total revenue. But let’s face it, that’s not the organic, scalable growth VCs are looking for.

You’d be much better off getting that one customer that fits your model, making some revenue off that sale, and then trying to get one more customer to show the pipeline potential. Focus on your core business, and a Series A will become that much easier.

Startups Love Revenue

It’s no secret that startups will chase revenue wherever it’s coming from. When you’re chasing a Series A, you’ll try to make whatever money you can to prove you have a business that generates revenue.

But let’s face it, not all revenue is created equal. This doesn’t mean revenue is necessarily bad, but time spent chasing after any revenue in sight can be a dangerous game in the early days of a startup.

There’s a common misunderstanding in the VC/startup world that a $1 million run rate means you’re ready for a Series A. In reality, there isn’t a benchmark that indicates the exact time you’re supposed to start raising money. Your run rate doesn’t matter as long as you can talk to investors about projected metrics.

How does that work? Start with your pipeline and your pipeline’s future. Show repeatability and show scalability. Show investors your funnel and the pipeline that goes into that funnel and tell them how you’re going to get there. That way, when you ask for lots of money to hire a certain number of salespeople and marketing folks, your request will be validated by the data up on the screen.

Whether you’re in a SaaS, B2B, or B2C business model, the same rules will still apply. So if it’s projecting growth in sales, the viral coefficient, or whatever else to show future scale, investors need to see the pipeline view of that story as validation before taking part in the round.

Key Takeaway

If you’re still trying to tell your company’s story, rather than actually using sales data to project growth, you’re likely better off waiting and raising a seed extension round.

How do you do that exactly? First, go back and see if your original investors are willing to go further in with you to bridge the company through to the next round; this may require you to give up more equity, but it will also be crucial to keeping the proverbial lights on. Also take time to look for firms that aren’t necessarily specializing in “Series A and above” funding — there is an abundance of seed stage investors out there looking to fill that gap.

Once you have an idea of how your business model will become scalable, use the extra time and cash to refine that story, validate the numbers, and make it real before pitching to Series A investors. This allows teams to focus less on generating non-core business model revenue, and more on securing a few necessary customers to project a data-backed pipeline. Once that happens, and you’re getting great feedback that shows the product or service is truly valued, it’ll finally be time to show later stage firms a clear vision of what you plan to do next.

Photo credit: Li Yang

You need more than hope and good intentions if your startup relies on viral growth. You need data and metrics to drive decision making.

Going viral isn’t an exact science, but data plays an important role in gauging how successful your customer acquisition efforts will be. Focus on the virality coefficient before all other metrics. It shows the impact of each product choice on growth. The formula, developed by David Skok, illustrates how each new feature impacts your customer base.

Virality-dependent businesses need to craft their strategy, and every decision they make, around the virality coefficient to be successful..

Otherwise, you’ll sound like these businesses.

(Not) Finding Growth

A number of companies have pitched me by saying they will “go viral” and attract users when it’s obvious that they have no believable plans to make it a reality. Many don’t even have share buttons on their apps!

One company made it so difficult to share their app with others that I never used it again. That’s a virality coefficient of -1. Clearly, their focus wandered.

Let me explain what that means.

The Virality Coefficient Explained

There are four variables used to determine the virality coefficient:

• Initial customers (custs)
• Number of invites sent out (i)
• The Conversation rate of customers (conv%)
• The number of days it takes to complete a full Viral Cycle (ct)

Combine these factors to calculate it using this spreadsheet.

Virality in Action

Let’s say you have ten users and send them ten invites each (100 total invites). With a 20% conversion rate, you’ll finish with a total of 30 customers after the first campaign. Using the sheet I linked to previously, that gives you a virality coefficient of two. Invites * the conversion rate or rather 100 * .2 = 2.

For the next campaign, send out 10 invites to the 20 new users (200 total invites). Assuming there’s no churn or change in the virality coefficient, a 20% conversion rate will bring in 40 new users for a total of 70 users.

Look at the below chart to see just how much of impact each campaign can have. Due to its compounding effects, even small changes in your virality coefficient will have massive impacts on your business.

There needs to be a coefficient of at least one for there to be growth. Anything less means you’re churning customers.

Crafting a Plan

To determine which feature to develop in your product backlog, sort the features based on the predicted increase in the virality coefficient. The backlog should look something like this chart.

You need a virality business plan to map out exactly how you’re going to acquire new customers. The plan should determine what features to prioritize, what incentives there are for users to share, and what level of engagement you want to focus on. Don’t forget to determine which promotion channels to use too.

Determining what makes user acquisition work might seem like an art, but using the virality coefficient can change that. Use your data to drive the decision-making process. Even a small increase could mean (hundreds of) thousands of new customers over time.

Going on a trip to Silicon Valley with your MBA program or government incubator? Don’t fool yourself into thinking that those weeklong Silicon Valley immersion programs are anything other than startup tourism. Spending a week visiting Facebook and Uber and attending talks and events, while interesting and potentially educational, will not teach you what it’s like to build a startup.

Sure, you might make some connections and come closer to figuring out what you really want to do for a living. But if you really want to benefit from a trip to Silicon Valley, you are better off reaching out to one of the several early-stage startups here and asking whether you can intern for a few weeks.

You’ll Understand How Startups Work

While immersion programs are designed to introduce you to the world of startups, they don’t go far enough when it comes to actually shining a light on the intricacies of Silicon Valley. Sure you can see the free food at Twitter, swimming pool at Google, and the hiking trail at Facebook, but that is like visiting Disneyland and thinking it is reality.

By reaching out to a startup instead and interning there, you will develop real relationships and potentially kickstart a career. You will understand how startups work behind the scenes, and you’ll be influenced by their way of doing business. Actual work experience is going to look a lot better on your résumé than spending a week hardly scratching the surface of the startup world.

Think of it like studying abroad. There are two ways to go about it. One is to study at a university where the classes are taught in English, you have no homework, and you can hop around to a bunch of different countries every weekend. You get a broad overview of another culture, but no lasting and profound understanding of it.

On the other hand, you could spend a year in another country, live with a host family, and learn the language. You’ll struggle and it will be challenging, but in the end you’ll have an in-depth understanding of that culture, and how it differs from yours. At the end, you’ll belong to two cultures, rather than just one.

It’s up to you, but I’d take the latter experience over the former any day.

You’ll Gain Unique Insights

When you attend a weeklong immersion program, you’ll get a light taste of what you could expect should you move to Silicon Valley at some point in the future.

But by interning with a company out there — and living and working in the environment itself — you’ll gain unique insights that you can’t get anywhere else. You need to experience them on your own, organically.

How to Find Startups to Work For

You might be wondering how you can actually get hired? Maybe you don’t have startup experience yet. Maybe you’re a developer who wants to work for Google, but you’ve only been coding for a year and you just don’t have the necessary expertise.

Head on over to AngelList, the best place to learn about which companies are hiring out in Silicon Valley. AngelList connects startups with jobseekers interested in working for them. The site provides you a clear view as to what you can expect should you land a gig (e.g., salary and equity is disclosed up front).

The best part? By sending out one application, you can apply to over 40,000 jobs in one fell swoop. Talk about efficiency.

How to Get a Startup to Hire You

Don’t think any startups will take you? Don’t be so hard on yourself.

Pitch attractive would-be employers a short project that utilizes your skills. For example, if you’re a communications major, offer to come in for two weeks to consult and intern with them for free, in exchange for a reference. Most startups don’t have any communications or PR plan, and are happy to take free labor.

Are you a political science major? Offer to come and do an analysis on the effects new policy or the upcoming elections will have on them. Think no startups care about this? Just ask Uber what they think.

If you don’t have any “practical” skills whatsoever? Offer to clean the coffee machines and work your way up.

Maximize Your Trip to Silicon Valley

Those weeklong programs aren’t the worst thing in the world. I’ve even hosted them before at my office in Palo Alto. But the payoff is much higher if you actually immerse yourself in the experience for an extended amount of time.

Remember, if you’re part of one of these programs, your trip doesn’t have to end once a week is up. Stay a little bit longer. You won’t regret it.

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Photo by flickr user christian.rondeau