In the world of venture capital, our success is determined exclusively by the success of the companies we back. It’s as simple as that.
The process of investing in a startup differs from almost any other investment category in the sense that it is a two-way street: founders have a choice as to who they raise capital from. As a VC partnership, we need to both decide which companies we want to invest in (‘picking’) and then also successfully invest in those companies (‘winning’).
This post is primarily about picking, as it is the single most important thing we do as startup investors.
On this same theme we recently wrote about the Connect investment thesis — the lens through which we assess companies. And we also wrote about how we apply this thesis in practice. The post below is a continuation of this theme and unpacks how we actually go about making our final investment decisions as a partnership.
Note: the feedback we hear from founders is that VC partnerships are often seen as opaque and their investment processes are a black box. We wrote the below because we believe providing more transparency to you as founders can only be a good thing. We want you to know how we operate, what you can expect from us, and more importantly, why we do it the way we do.
Who makes our investment decisions?
We have a small and equal three-person partnership: Pietro, Sitar, and Rory. At Connect there is always one partner ‘championing’ an investment but we then work together to reach a final decision. We are unanimous in this decision — one for all and all for one. We believe this is best for our partnership but more importantly it is also better for founders, you don’t just get one partner at Connect with high conviction, you get all of us! The process we’ve honed to make this partnership decision is outlined in detail below.
Our investment process is built around three core values that aim to reduce bias and improve decision-making:
- Independent thinking — approaching each decision as an individual contributor
- Cognitive diversity — creating space for different points of view
- Intellectual humility — a willingness to change our minds based on new information
Our process needs to be fast — our most recent decision was one week from our first meeting with the founder to the final investment offer — but it also requires significant time and effort from each of the Connect partners. We’re ok with that — we’ve designed everything we do at Connect around our high conviction, high support, seed-stage investment model. As a firm we only make 8-10 investments each year so every decision, every founder and every company makes a huge difference to our eventual success.
How do we begin?
To take a company through our investment committee process, it must first be championed by one of the partners. To get to this stage, a partner must reach a high level of conviction. Depending on how much time the partner has spent thinking and researching this market (and the speed of the founder’s fundraising process) this can take anything from 1 week to 1 month.
Once this high conviction threshold has been reached, the partner championing the investment — also known as the ‘lead partner’ — will coordinate and oversee two meetings:
- a meeting between the partners and the founder(s) (“partner meeting”)
- a separate meeting between the three Connect partners where the final investment decision is made (“investment committee”)
From the moment of conviction, we move as quickly as possible to get the founders a final decision (and term sheet) within days.