Essentially the (Market Category generator) MCG is a MUST-HAVE investment vehicle, and makes it seemingly inevitable for early-stage investors
Today, the best way (coping way) to make money investing in Start Ups, is to invest in a large enough portfolio of great entrepreneurs. Returns will follow a power law (an accepted fundamental principle) –in other words, invest in 20 and if you lucky 1 or 2 will return the entire fund. This is the reality today! A few funds have recorded spectacular returns, most have failed. Why? Nobody, knows IF and WHEN a start Up will take-off and become a home run.
To give yourself (an investor) a better chance, you have to carefully select a portfolio of the best entrepreneurs with ideas that can become home runs. As a result, the successful funds also follow a power law. Betting on this type of uncertainty (not knowing ‘IF and WHEN’) will always result in returns that follow a power law.
Conclusion = As long as you are focusing on the START UP, you cannot escape the impact of the POWER LAW.
We (TMARA) are trying to transform this space. We don’t want to just try and pick the winners more accurately, we want to drastically reduce the impact of the power law. At the source of the power law, is the type of “uncertainty” we are dealing with.
The limitation is the “uncertainty” associated with the “IF and When”. In science it is called a “disorganised-complexity” problem – only suitable for probability analysis. This is not just your simple two or three variable problem. There are too many variables, and the only way to deal with it, is through statistical analysis. Bet on the average, not the specific.
To transform this space, we need to diminish this limitation – the specific “uncertainty” associated with “IF and When”. In scientific terms, moving from a “disorganised-complexity” problem, to an “organised-complexity” problem. “Organised-Complexity” is governed by first principles – suitable for root-cause analysis.
To do that, we decided to change the focus from the Start Up, to the Market. More specifically, Innovation (invention) can create value, if and only if, it diminishes a limitation for the market (first principle). Instead of focusing on finding and funding great Start Ups (entrepreneurs), we are looking for, co-creating and funding great new markets (value).
Every successful start up will go through 3 phases: The Fountain of Hope (Just build the tech / product and they will come); The Valley of Death (No Market / No traction / No Future); The Promised Land (Product-Market Fit / Scale at will)
In the valley of death ( the middle phase), every start up faces a massive market constraint (ie: no market). Most entrepreneurs still think, that if they can just build the product, the market will come – big mistake! They tend to be preoccupied with inventing products, and not creating value (markets). This becomes absolutely apparent, the moment the start up enters the valley of death, and they face the inevitable – death!
TMARA MCG = Market Category Generator.
in the MCG, we care less about the Start Up’s product or tech. We just want to know if the Start Up has discovered something, that can diminish a significant limitation for a big enough market. The Start Up will then have to change its tech / product to fit the new market category.
The difference = You found a great entrepreneur versus you found a great new market category. Which one is more viable? We know the promised land is reached only when you achieved product-category fit!
In today’s language, this is called – find a great big problem, that you can solve, to create a great big market. Love the problem (market) not the solution (tech/product). There is just one problem – what is a great problem? Which type of problem, by default, will create a great new market category? This is where TMARA has an edge – Diminishing a significant limitation for a market, by default, enables creating a new market category. For the first time we can enter a world, that operates BY DEFAULT (more than 50% chance), and not by a POWER LAW (very small chance).
Investing in start-ups, and your return WILL
follow a power law
Invest in new Market Categories, and returns will NOT
follow a power law (by default). Returns will be ‘by default’. By Default = more than 50% of the time.
Essentially the MCG is a MUST-HAVE investment vehicle, and inevitable for early-stage investors
Other topics by TMARA, include :
The rewards of an early-stage LEAD investor
Stop turning friends and family into fools!
HOW to know, IF and WHEN a startup will reach Product-Market Fit:
The primary cause of startup failure:
Most, if not all, of the great startup successes (home runs) did not solve a BIG PROBLEM for a big market!
www.tmaragroup.com for more conversations
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