(N.B. This is a continuation of our previous post explaining our investment thesis. We recommend reading the first post before digging in below.)
In a typical twelve month period, the partners at Connect evaluate approximately 1,500 companies. Compounding the problem of market size is the fact that we’re a low-volume, high conviction, partner-only fund. This means the three partners at Connect have to sift through these 1,500 opportunities to find the 200–300 we want to meet in person and the 100 we spend significant time with, leading to the 8–10 companies we ultimately invest in. That’s a <1% conversion rate to new investments each year.
How do we approach it?
Most VCs look at market potential, team, GTM strategy, business model, etc. We look at those things as well — but we also go a step further. At Connect, we want to identify the best product companies in Europe. To do that, we use a filter that is unique to us: our investment thesis.
Opinionated products, crafted with love and loved by many.
In a previous post, we laid out what our thesis is and why it’s so important in guiding our investment decisions. In this post, we’ve outlined how we use the thesis to evaluate companies.
We use our thesis to generate questions around each concept contained within it. These questions aren’t written out in an evaluation form. They’re some of the mental models we’ve developed over time by working with the outstanding product companies in the Connect portfolio. We continue to develop those models as our portfolio grows and technology and markets change.
Companies don’t have to excel against every aspect of the thesis at the time of investment, but we do need to believe they can over time. Additionally, not all questions are applicable to every company we spend time with due to differences in markets, technology and industry.
Our goal with this post is twofold: building more transparency into how we make our investment decisions and helping product companies leverage what we’ve learned to understand areas of strength and areas for improvement. Any feedback on the questions is greatly appreciated!