In evaluating companies for investment, while he looks at common factors, the way he applies them is unique.
He looks for a company that is already number one in a vertical market. It is like Geoffrey Moore‘s Gorilla Game strategy applied to early-stage companies. Andy's argument is just as convincing; I had not previously heard it applied to early-stage companies.
As part of this, he is looking for major traction, several million dollars of recurring revenue, and the potential to grow at least 10x within five years.
Historically he's been able to find gems with bargain valuations below 10mm. That has grown more difficult lately.
He also approaches due diligence a little differently than is common. He talks to the entire management, all the cofounders, and the head of sales, in part to look for red flags, but mainly validate that gorilla potential. He also makes sure to get a full demo of the product.
This approach has been yielding good results for him and has given me a new perspective in thinking about market niches.