Over the last two years, LongJump has written more pre-seed checks to Chicago-based founders than any other institutional investor in the city. During that period, we’ve revie over a thousand applications and met hundreds of founders. As a fund started by founders, for founders, we’re on a mission to pull back the curtain and bring transparency to our process. We’ve put together some notes on how we invest, what we’ve learned, and frequently asked questions we hear from applicants.
Our funding application is currently open until July 15 and we encourage you to apply or share this blog with a founder you know who is raising their pre-seed round.
1. Why We Invest Through an Application
We introduced the application to our investment process for several reasons. Most importantly, we believe transformational businesses have been overlooked and underfunded because many founders come from backgrounds and geographies that are not traditionally represented in venture capital networks. For many funds, a warm intro is your best shot at getting your company revie. At LongJump, you don’t need to connect with a team member to have your company seriously revie by our partners - the application provides the same front door for everyone.
Beyond access, the application allows us to deep dive into your business prior to meeting you. This means we can spend more time during the next step in our process, the interview, getting to know you as founders, and less time on the basics of the business.
2. Momentum is Key
The top question we receive around applications is how to stand out in our process. The key to this is momentum - both before the application and how you plan to leverage our investment to continue your trajectory post-funding. Momentum can look different for every company (product development, letters of intent, sales, other KPIs you track), so it’s your job to keep pushing forward prior to application and show investors that they are coming in at an inflection point, not a moment where the company needs a life-saving infusion of cash. In his Medium post on communication with VCs, Janko Milunovic compares momentum to boats:
“Think of momentum as a fast boat. If investors were passengers looking for the quickest way to reach the other shore, they would naturally want to board the fastest boat available. Typically, the fastest boats are the smallest speedboats with a limited number of seats. You want to be the fastest boat moving at the speed of light. Sales are growing, key metrics are exploding week-over-week, […] Your boat is moving at a rapid pace, nearing its destination — the closing of the funding round. This is the feeling you want to evoke, compelling investors to compete for a seat on your speedboat!”
Fundraising is selling a piece of your company to an investor - you want to make that purchase look as compelling as possible. Be sure to position your momentum with context - for example:
Okay: We launched our app in January and have reached 5,000 active users in six months.
Better: We launched our app in January. In the last three months, we’ve implemented a referral system that has unlocked growth - since April, we have seen 120% MoM growth and are now at 5,000 active users. The growth is more important here than the number of users itself.
3. We Like to Learn Something from Your Application
We receive a lot of applications, which means we’ve frequently seen the same problems and solutions many times over. This is okay - often, this means that no one has developed a solution that’s doing an adequate job and there’s room in the market for something new. So how do you stand out? Teach us something new.
When we invested in Flora & Noor last year, we had already revie dozens of applications for skincare products. In her application, founder Jordan Karim provided unique insights into the market for Halal beauty products, both in the United States and globally (a $75B opportunity!) and the consumer insight that many U.S.-based Muslims DIY products in their homes. At the time of our investment, Flora & Noor represented the only Halal-certified skincare brand based and made in the U.S. All of this information laid out an opportunity we weren’t familiar with, intent from potential consumers, and Flora & Noor’s unique position to tackle the market - we were excited to learn more and interview Jordan.
4. What Matters When We Think About Team
Investing in the earliest stages often means we’re taking a bet more on the founding team than the idea. For most of our companies, their idea has shifted since investment: OrdrSmart’s pivot from an inventory management solution to a platform bringing product sampling and product data management into the 21st century, for instance. Some considerations and frequently asked questions about how we evaluate teams:
- We love founders who are action-oriented and learn from their experiments. It’s okay if your product or strategy isn’t exactly where you want it to be, but we want to see you actively testing hypotheses in front of your market and using data to learn quickly and iterate.
- We have a strong preference that at least one founder is full-time or goes full-time on the business following our investment. We understand that everyone’s financial circumstances are different and hope that our $100,000 check can help you pay yourself and go heads-down on your business. We’ve learned over time that part-time founders have a harder time accelerating their business during the pre-seed phase and this weighs heavily on our consideration of your company.
- If you are building a tech product, you should have a technical team member or a solid plan to recruit one quickly post-investment. In our experience, non-technical teams tend to ship products and updates much slower, and in pre-seed, where the runway is constantly counting down, founding teams are at an advantage when they can execute quickly and learn. Looking for a founding technical team member? We’re partnering with next play to help connect Chicago startup talent and aspiring founders - apply to keep up-to-date with future events. W
- We’ll invest in solo founders if we find them exceptional, but it’s our preference that you have a co-founder. Startups are a hard, long road and it’s difficult to make the journey alone. Few founders have all of the skills (product development, marketing, recruitment, financial acumen, etc.) to take a company all the way, so we like to see co-founding teams with complementary skills. Recruiting a talented co-founder is like fundraising - it shows an important ability to convince people that you’re a can’t-miss opportunity.
If you’re a solo founder, be prepared to talk about where you’ll need to hire other skills, your personal runway, and how you’ve built a personal support system. Successful solo founders in our process demonstrate self-awareness and realistic perspectives on the challenges ahead.
5. We’re Truly Early Stage Investors
Our goal at LongJump is to discover emerging startups before every other investor in Chicago. This means we’ll invest very early in your business and work with you to build momentum in development/sales and help you structure your fundraise. We were the first institutional investor for 3/4 of our companies and on average, our portfolio companies have raised an additional $500,000 in funding following our check.
We know there’s a fine line between too early and just right for us. Traditionally, we will not invest based on idea alone - we want to see founders who have tested solutions, even if they are just manual MVPs or embarrassingly early products. Generally, it’s not enough to have done customer interviews. We want to see that you can build something (and, our bias is that this is easier than ever with no code / low code tools and sophisticated, easy-to-use design tools).
6. Portfolio Composition and Why It Matters to Founders
One of LongJump’s Fund I goals is to invest in ideas that are overlooked and underfunded in the Chicago VC ecosystem. Consumer products, for instance, tend not to attract institutional funding in the city until they are more mature businesses (if at all), and we’ve made several CPG investments at the fund. However, all VCs need to diversify their risk across different verticals and as a generalist fund, LongJump keeps a close eye on not being too over-concentrated in a specific industry.
LongJump’s current portfolio representation:
With 37 checks written in Fund I, you can see that we are heavy on consumer. While some of our strongest companies are in this space, it’s something we are closely keeping an eye on as we round out Fund I, meaning our bar will be much higher for a CPG or consumer tech company.
7. Our Process
Review for LongJump’s investment takes place over the four phases outlined below. We evaluate hundreds of companies during this period and we know it can be a period of anxious waiting - we promise we’re moving as fast as we can and encourage founders to reach out to hello@longjump.vc if they feel they’ve been on hold for longer than expected.
- Application review (2 weeks). All applications are revie by partners and the team meets to decide who will move forward in consideration. All applicants will receive a response from LongJump, regardless of the decision.
- Interview (2 weeks). For founders that we proceed with, we’ll have a conversation focused on the founding team and clarifying questions from the application review. We know these interviews can be intimidating - a lot may feel at stake. We encourage you to relax as much as you can and view this as a conversation. We’re not going to make you go through a pitch deck and truly want to get to know you and why you’re devoting time to the problem you’re solving. For co-founders joining together, we encourage each person to actively contribute to the conversation (but avoid talking over one another!).
- Due diligence and follow-up conversations (2 weeks). Companies that move forward will likely have subsequent meetings with the partnership as we conduct due diligence as a team and discuss with our broad network of LPs. As in the first interview, subsequent conversations are structured to uncover how you think about your business, experiments you’ve run, your momentum, and your capabilities as a founder (curiosity, resilience, execution, etc.).
- Investment decision (target: 6 weeks after application close). We will notify all founders in consideration of our final decision. For founders who reach the interview stage, we will try to give feedback if we decide not to move forward.
8. It’s Competitive
Since September of 2021, we’ve revie over 1,100 applications and made 37 investments. That means we’ve invested in just 3% of the companies we’ve seen. Each application cycle, we have more applicants than the prior cycle (we had 2.2x the applications last cycle as we did the previous cycle). In our last investment cycle, we intervie 13% of our applicants and invested in two companies.
Sharing these stats is not meant to be discouraging, they are to communicate that it’s hard to raise pre-seed and if you get a no from us, there are likely a lot of different factors for why and we encourage you to keep going.
9. You Can Resubmit
In several cases, we’ve invested in companies upon the second (or even third!) application. We love when founders come back and demonstrate new traction and learnings. If you ever have questions on whether it makes sense to reapply as a former candidate, you’re encouraged to reach out to the team at hello@longjump.vc to get perspective. Whether you’re in our portfolio or not, we see you as part of our extended community and want to be here to help.
Ready to take the jump? We’re excited to read your application and learn about your business - apply now.