In the venture capital business, there’s really only one way to measure how good you are: realized gains. Beyond realized gains, performance measurement is composed of various metrics — a portfolio of high potential companies, unrealized gains, strong co-investors, and a diverse network are good metrics to quantify and measure performance.
I have found tracking my interactions to be helpful and informative, especially for managing and engaging a deep network. You can do the same thing, and here’s the template I use. Looking at the past year’s worth of data, I’ve made some observations: the first half of this piece are data driven insights, complemented by anecdotal learnings.
What the Data Said:
Seed/Series A investing requires interacting with a huge number of companies. VC investing ‘conversion funnels’ vary by team size, focus, location and stage. We have three full time investors, and the past year investment stats showed: communication with 1250 startups > one of the three investors spoke with 400 companies > all three met with 60 companies > Converge made 11 new investments. At the top of the funnel, that translates to some form of communication with four companies per day.
Deal-flow comes from everywhere. Connections to startups range from friends, entrepreneurs, other vc’s, service providers, Converge Venture Partners, to family members. NYC, SF and Boston were the top three geographies by a significant margin but the data shows innovation from Austin, LA, Toronto and Denver/Boulder as well.
Vertical driven sourcing feels similar to enterprise sales. As an investor, you can now narrow verticals and identify players through databases like AngelList, ProductHunt, CBInsights and Mattermark and also through good relationships with corporate venture arms and accelerators. The less predictable methods to find companies are stage driven sourcing and location driven sourcing, or purely relying on inbound dealflow. My vertical driven (i.e. fintech, insurancetech, infrastructure) Startup ‘Target List’ contains ~300 companies, sorted by communication (email exchange, phone call, 1st meeting, invested).
Startup (Vertical) ‘Target List’
Similar companies start at similar times. In many cases it’s an obvious regulatory change, or there is a technological breakthrough, but sometimes it’s purely metoo-ism. If I’ve seen two or three startups working on similar problems in a short time period, odds are there are another half dozen or so.
The majority of companies born in Boston had either academic roots(students, grad students, PhD’s) or were founded by ex-employees of large tech companies (Akamai, Carbon Black, Hubspot, Wayfair, etc.).
Note: Measuring ROI in time spent sourcing is difficult to judge. Doubling down on sources makes sense with a vertical driven approach, but the venture capital industry is unpredictable in nature.
Anecdotal Learnings:
Boston’s Tech Scene is Beginning to Find its Mojo.
Still learning to boast about itself as an innovation hub, Boston spawns amazing software companies from Vertical SaaS (Help Scout*, Yesware, Smartvid.io*), to Cybersecurity (Threatstack, Bit9), Big Data (Podium Data*, Clearsky Data, Bedrock Data), Healthtech (Pillpack, RunKeeper, Careport Health*), Travel (Freebird, Lola, Wanderu) Artificial Intelligence (Jibo, Talla*), amongst others. In 2015, Massachusetts doled out $4.3B to MA-based tech companies, an encouraging sign for Boston innovation and startup growth (CBInsights).
* Converge VP portfolio company
Be Intentional Building a Network.
Beyond meeting people through affinities, at events or through mutual friends and the Converge network, I’ve looked to introductions as a game-changing outlet to expand my network. To build a network that keeps giving, it’s important to help others build their networks: spend time introducing entrepreneurs to vc’s who might be a better fit, make intra network connections from vc’s to vc’s, and help entrepreneurs through introductions to potential customers/hires/partners.
Regardless of who the introduction involves, getting a opt-in from both parties is a must. Valuable introductions can be hard work, but helping others grow their network will help everyone in the long run.
Because network building needs to be intentional, I did some quick research on introductions over the last year. The data was extremely volatile, where some weeks had more than 50 introductions compared to other weeks in the single digits.
Through some of these introductions, amongst other avenues, I’ve made some awesome friends, and try to bring these groups through beers, breakfasts, or other events.
Helping is the gift that keeps on giving.
Staying humble, and continuing to challenge oneself is a great way to combat hubris, but there’s nothing more satisfying than helping entrepreneurs.
Many of tomorrow’s leading companies are being built by students coming from Boston’s universities — I love working with students at Harvard, MIT, Northeastern, Boston College, and other schools. Many of these entrepreneurs have inspiring ideas and collegial approaches.
From the data driven and anecdotal insights, some forward looking observations are:
1) Understand where one provides the most value. This is an ongoing learning process, but have found a sweet spot in hires, market strategy, customers, or simply connecting dots within my network.
2) We live in a software, data driven world; leverage it. As an early stage investor, software is your life — time management, productivity, tapping into a network are imperative for network driven investors. I use Pocket, Buffer, Zapier, SocialRank*, Help Scout* Mailchimp, Yesware, Sunrise, Full Contact, Evernote and more on a daily basis.
3) There’s always more to do. Be selfish with your time, and save room to reflect. The “work hard, play hard” mentality is the best way to turn your life into a hamster wheel. Take a step back; there’s probably a more efficient way to do it.
4) The startup/VC market bet is long. Building a strong network does not happen overnight, it takes time to build street cred in your interest categories.
Bostech is at one of its most exciting times in history: GE chose to move its headquarters here, startup funding remains healthy and growing, and the ecosystem is hungry to get some wins. To the Boston tech ecosystem and as I used to say to my squash teammates: “lesgo baby”.
Until next time,
Ash