Few VCs are mourning the era of the one-day-close. Instead many of them are breathing a sigh of relief and taking the opportunity to perform more due diligence, close higher quality deals, and support existing portfolio companies through turbulent economic waters.
Amira Ouji, Senior Director of Portfolio Success at Revolution and Lacey Behrens, Partner at 01 Advisors are two such VCs. They told us about how a hyper-selective approach to strategic investment is paying off and providing more time for operational changes that drive firmwide improvements. Watch the full conversation or keep reading for the highlights, with time-stamps to help you dive deeper at key moments.
What thorough due diligence looks like for investors in 2023
While some seed stage founders still have their pick of investors, those raising their Series A or B are facing a more risk-averse environment.
Lacey Behrens said that while she doesn’t think 01 Advisors is unique in using data and analytics, “tools like Affinity provide an added layer of information to help identify and evaluate opportunities with less reliance on subjective judgments.”
Behrens stressed the importance of flexible due diligence frameworks that emphasize collaboration. This means sticking to due diligence criteria while incorporating many valuable perspectives within any given network.
While 01 Advisors takes historical performance into account when evaluating growth stage companies, it’s far from the only indicator they consider. “You can look at every quarter,” Behrens said, “but you need to remember there are seasonal factors that could be at play when it comes to performance. This is why we also look at founder development, specifically whether or not they’ve built a great team underneath themselves.”
Behrens uses Affinity to categorize companies that:
- Have found product-market fit
- Have a solid revenue team
- Have solid networks that can be leveraged
“The first time I did this categorization exercise with Affinity,” she said, “our team was blown away at how much time we were spending with companies that were hitting bumps in the road. It's easy to get pulled into the drama, and it’s harder to get brought into a company that’s performing well. So our task was to figure out how to run alongside those high-performing companies, and team activity reports in Affinity are the best way to start tracking that time.”
Networking at every stage of the deal
“Network is huge,” said Behrens. “It's one of our biggest competitive advantages. We actively engage our entire ecosystem at all times to build and nurture meaningful connections.”
Behrens uses Affinity lists to manage her “relationship ecosystem” in stages. “The way that works,” she said, “is through touch point cadences with firms we haven't spoken to in a while. We have our investment team do pre-work so that every Partner is going into a meeting with companies they can ask about. This is the top of our funnel.”
When Behrens breaks this down in relationship stages, her process involves engaging with:
- Other VCs and Limited Partners: “When 01 Advisors came into the market, we needed to gain trust with other VCs or firms for access. We spent a lot of time building trusted relationships with our VC partners or co-investors and meeting new investors for access to exclusive opportunities and deals.”
- Industry experts: “We spend a lot of time with industry experts. For example, we had an hour-long chat with a CTO yesterday about where generative AI is going. Spending time with industry experts like this opens up more deal flow.”
- Founders: “Number one for us is our founder experience because founders have entrepreneurial networks as well. We practice what we preach as far as being founder friendly and supporting them in every way. Then word of mouth really gets out there for deal sourcing.”
Supporting portfolio companies with your network
Amira Ouji said, “Any VC firm can write a check. What founders want to know is what you can do for them after the check.”
Ouji noted that early stage startups are looking for three things: more money, the best talent, and more customers. An investor’s network is the path to all three. “When founders come to me with requests, I use our network to source solutions. I call Affinity our ‘relationship ChatGPT’ because this is how we keep track of folks in our network.”
Ouji, who’s solely focused on supporting portfolio companies, uses Affinity to send a monthly portfolio success report to her firm. With Affinity she knows which companies she’s connected with over any given period, and most importantly whom she hasn’t spoken to in 90 days. This list in Affinity is a trigger to reach out to the deal lead for an update.
To find out how Ouji reports on portfolio company performance to LPs, watch the whole webinar here. You’ll also leave with an understanding of how to:
- Focus resources in the right areas
- Reallocate time to high value tasks
- Increase your firm’s value to portfolio companies and investors