What LA’s top investors look for in a start-up

There aren’t many more prolific investors in LA than Carter Reum, who along with his brother Courtney, has built up a formidable portfolio of highly successful and innovative companies...

The pair, who started their professional lives in investment banking, quit their jobs in New York to relocate to LA and turn their hands to entrepreneurship. The business they founded in 2007, VEEV Spirits, is now one of the best-selling independent liquor brands in the US, has won numerous awards and donates one per cent of topline sales to rainforest preservation initiatives.

Not content with building up their own business the Carter brothers moved into investment, where they have backed the likes of Pinterest, Lyft, Warby Parker, Blue Bottle Coffee, Bonobos, Birchbox, Shake Shack, Ring and many more. 

"Yeah, we’ve invested in companies like Shake Shack, Warby Parker and Birchbox – it’s always fun to look back to the original idea, that first deck, and see what ended up being true and what it was about the entrepreneur or concept that led you to invest," explains (Carter, right) Reum.

"Take Warby Parker, it was a bunch of guys who wanted to sell glasses online, it doesn’t exactly sound revolutionary but it's now a billion dollar company and lauded as one of the most innovative businesses in the US. Every time there’s a success it’s good to know that your instinct was right that time."

So what does Reum look for in a start-up or an entrepreneur? We asked him if he could identify the hallmarks of success and the areas in which new businesses should be looking to focus their efforts, in order to attract the right sort of attention from potential investors.

Whatever you do, don’t overthink it

"The biggest challenge entrepreneurs face is not overthinking things. As an entrepreneur you have to use gut, use instinct and be prepared to run through walls, for some people that doesn’t come naturally.

Read: Is LA really the 'hottest place in the world' for social entrepreneurship?

"They tend to overanalyse every decision, they’re too deliberate and in today’s climate that doesn’t work. You have to be prepared to fail and of course, failure is now the new black. If you’re not failing then you’re not pushing the boundaries of what you think will work."

Openness is important

One key difference for entrepreneurs and investors alike to bear in mind when working in LA, notes Carter, is the openness of the community.

"Guys like Brian Lee and Troy Carter (right) set the tone for the ecosystem here and prove that success is possible. It’s far more collaborative in LA than you’d find in Northern California. When you find a great deal the thought process is 'I should show this to the other VCs in town' as you want everyone to be in on the deal and be successful, not try to hide it."

Be agile

This openness shouldn’t just be reserved for interactions with other people, but also for one’s approach to guiding their own business. With the ability to pivot and switch lanes often proving crucial.

"The old adage is that 'I invest in people'. Well that’s still true, in the old days it would be 'I’ll invest in you as you’re smart, loyal and you work hard' – all those obvious qualities. But today, you see the guys who are successful and they have a very specific set of attributes. They’re not afraid to fail, they will run through walls – look at a guy like Travis [Kalanick, CEO] from Uber, he just puts his head down and goes – and they have a real lack of stubbornness," explains Carter.

Read: The Dollar Shave Club guide to going viral

"I’m an investor in Lyft and it’s interesting, as Lyft was four different companies before it became Lyft and found real success. You need the ability to go 'hey, we think we know what the problem we’re solving is, but six months in and there’s a different problem that needs solving,' it’s important to be able to change."

Leverage celebrity content

One area that LA start-ups commonly excel is through content creation and storytelling, with the likes of Dollar Shave Club redefining the role of brands as storytellers. However, Carter argues this can be taken a step further, through closely collaborating with the city’s strong collection of celebrities.

"Every start-up ecosystem has its own unique set of attributes and things it tends to be good at, in LA people are very bullish about what we have to offer. We have content, media and celebrity influencers – that’s something very local to here and you don’t tend to see that played out anywhere else. When it’s used well it can be very powerful, just look at The Honest Company – it’s a great case study in that area.

"People say 'oh, that’s Jessica Alba’s company', well there’s Brian Lee, a tech superstar that has built billion dollar companies, who’s also behind it. So when it comes together and you have a smart tech investor, then someone like Jessica Alba can excel the growth of that brand exponentially in today’s climate. The sales they were doing two weeks out of the gate, because of all the press she can get and her social media reach, were massive."

When investing, always think about the context

As for any potential investors, Carter is keen to impress one thing on any decision they might be in the process of making.

"It becomes gut and instinct because you have context. Why an environment like 2016 is so scary is that if you only look at five companies and invest in two then you just don’t have enough context to know that they are the two best out there.

"They were the two best out of the ones you saw, but you need to be looking at five hundred to make sure they’re not actually two of the worst. I always tell people that the key is context, that enables your instinct to work."

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