Secrets To Building A Winning Portfolio

This is the second in an occasional series on how the most successful early investors build their portfolios. And, of course, our take.

Upfront Ventures has its own ways of doing things.

Fortunately, its managing partner, Mark Suster, has a blog. So we can get a very good idea of how Mark – and, through him, Upfront – thinks.

By the way, Mark’s posts are thoughtful, balanced and refreshingly practical. When he talks about a particular problem, he always offers a solution or several solutions. His blog isn’t called “Both Sides of the Table” for nothing!

Before Mark got into investing, he was a successful entrepreneur. He founded BuildOnline, a European SaaS company that was acquired by Sword Group. Then he founded Koral. When Salesforce.com bought it, he became the VP of Product Management at Salesforce.

He joined Upfront Ventures in 2007.

I recommend following him. Some of his posts are for founders and some are for investors. As an investor myself, I prefer those meant for his fellow venture capital brethren. But I learn a lot from all his posts. Click right here if you’re interested in signing up for his blog.

One of the Best

Upfront Ventures has one of the best portfolios around. It boasts 15 IPOs and 20 acquisitions, including its latest big winner – AlphaDraft.

AlphaDraft’s fantasy sports site targets electronic sports games. The company rides two big trends. Betting real money on fantasy sports. And more and more people playing online games like Smite: The Battleground of the Gods.

Upfront invested in May. AlphaDraft got acquired in September. Not bad.

Other major exits include TrueCar (IPO) (TRUE), Bill Me Later (bought by eBay) and Caribou Coffee Company (IPO).

So, how does Upfront do it? What does it look for in startups? And what are the no-nos?

Four Reasons to Like Skurt

Broadly speaking, Upfront favors big, crazy ideas. The crazier the idea, the crazier the potential, says Suster.

But there are also very specific attributes it looks for in startups. To find out what they are, let’s examine Skurt, Upfront’s latest investment.

It delivers rental cars to its customers. As it so happens, Suster wrote about it in a recent blog post. Below are the four attributes that attracted Upfront to Skurt – in Suster’s own words…

Exceptional and Experienced Founders. The product is the mastermind of Josh Mangel, Harry Hurst and Aaron Peck. When Josh (YC alum) first came to see me, he was all of 22 years old and on his third company.

Addictive Product. Skurt found a model to transform the entire experience and deliver a mobile-first product that is as good as using HotelTonight or Hipmunk… So far we’re batting 1,000 in terms of people we’ve recommended who try it and people coming back raving about the experience. [My emphasis.]

Disruptive Market. The rental car companies have a million scams to get more money out of you. You simply can’t build a long-term great company by duping customers and with the top three rental car companies controlling 90%-plus of the market, their behavior won’t change. It’s a […] market ripe for disruption.

Big and Growing Market. The rental car industry is $26 billion in the U.S. alone and $48 billion globally. All industry forecasts see this market continuing to grow.

Upfront is based in Los Angeles and leads all VC companies with the most successful exits of L.A. startups. Relying on deal flow from outside Silicon Valley is just another example of how Upfront has forged its own unique path.

So, where can you find companies with exceptional founders and addictive products – whose markets are not only disruptive but also big and growing?