High Alpha Partner Kristian Andersen joined Canem Arkan and Jessica Head of Endeavor NWA’s The Multiplier Effect podcast to discuss how the COVID-19 crisis is exposing flawed business practices and accelerating innovation.
On the podcast, Kristian discusses why he believes middle America cities like Indianapolis are primed for growth as a result of COVID, and how crises speed up trends and expose business risks. He also shares how High Alpha validates new business ideas and manages risk.
“[At High Alpha], we operate. We’re not VCs — I mean, we are technically VCs, but we don’t think of ourselves as VCs. We think of ourselves as operators, and unlike a traditional venture fund that’s probably writing checks into existing companies where there are teams and traction and revenue, or at least, you know, you can see it on the horizon, we’re making our own luck,” Kristian shared with the podcast. “We are investing at the literal idea stage. Like, “you know what? That sounds like a good idea. Let’s start a company.” And I don’t mean to be flippant when I say that, because we’re doing our homework and we’re validating to whatever extent is possible in the absence of an actual company or a product. But it’s about as high-risk as it gets.”
“When I think about managing risk, we’re fundamentally trying to do that in the validation stage. And the way we think about it is we talk about converting assumptions into knowledge, so, here’s what we assume to be true, let’s go do the work required to turn that into knowledge. That might be the knowledge of “that’s a terrible idea,” or it might be the knowledge of “that’s a great idea.” It’s a little more complex than that, clearly, because we’re also looking at the feasibility of what we want to do from a technical perspective. We’re looking at the fundability of it, which, by the way, what’s technically feasible changes incrementally and it’s pretty predictable. Using Moore’s law as an example of what would be possible five years from now, we kind of sort that out. We know what’s desirable, you know, human beings are pretty predictable. They’re not rational, but at least they’re consistent. Right. So we have a sense of what people will want in the future. One thing that’s pretty variable, the viability. From a business model and a funding perspective, I used to think it was silly to say “is this idea fundable?” I was like “Who cares? It’s a great business. It won’t matter.” But it turns out that it does matter. When you’re raising money from private markets, predominantly venture capital firms, there are industries and business models that are in favor or out of favor. I would never say don’t start an ad company, but I would say don’t start an ad tech company right now. It’s harder today than it was five years ago and probably harder today than it will be in five years. So that’s the one element of risk. How are we going to capitalize and continue to fund the business that we spend a lot of time thinking about? Frankly, the industry you’re pursuing matters. Those things kind of become fashionable or unfashionable depending on the season.”
Listen to the podcast below. You can learn more about High Alpha and our venture studio here.
