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1/ I think there are three things that must be true for a systematic vc/pe fund to be successful.
-ability to raise the money
-real data/tech that provides information advantage
-fine tuned operations machine
-ability to raise the money
-real data/tech that provides information advantage
-fine tuned operations machine
2/ Ops machine is hardest for discretionary investors to imagine. How can you reach out to that many co's? How will you win the deals? No chance you’ll be able to help them post close.
I’ve been a discretionary investor most of my life and I’m just baffled by some of the pushback
I’ve been a discretionary investor most of my life and I’m just baffled by some of the pushback
3/ Let’s zoom in on ops, then zoom in again and focus on post-close in this TweetStorm.
4/ A discretionary VC fund spends ~80% of time either sourcing or evaluating a deal. Systematic VC fund eliminates that by finding and evaluating deals through data. Not by sending super highly paid investment professionals to fly around the country and spend months diligencing.
5/ Think about that. Think of the $ that is spent in people power that can be reassigned to post-close value creation.
Here are 5 post-close value add (pcva)) ideas.... for those of you that like the term “value add”:
Here are 5 post-close value add (pcva)) ideas.... for those of you that like the term “value add”:
6/ pcva1: INSIGHTS - build a product to expose the data and tech that the systematic fund relied on to find the co. Imagine how valuable that data could be as the portfolio companies develop their strategy, launch new products, try to get into a new retailer, etc. Massive impact
7/ To be clear- likely the insights to help the co. grow is different than the insights that helped the systematic fund find/evaluate the co. But I would bet they can rely on similar data.
8/ pcva2: PARTNERSHIPS- what sort of player could add value for a high-growth CPG brand, and what players would want to get in on the action?
In CPG that could mean…..
In CPG that could mean…..
8a/ ….retailers. Growing co’s need distribution and retailers can help with that. Everyday retailers are trying to predict the future by picking CPG- but all their data is commoditized. A successful systematic fund changes the game for them.
8b/ …..recruiting firms. Growing co’s need high quality ppl and they need them yesterday. Why would a recruiting firm care? Because they want to work with the best clients. They want to focus on courting the clients that are actually growing (and thus will have more hires)
8c/ …..branding firms. Growing co’s have already struck a chord with a subset of consumers and need to scale that resonance. For a branding firm, these companies are sexy, innovative, more fun to work with.
8d/ …...supply chain companies. CPG co's that grow are constantly expanding their manufacturing capabilities, supply chain resources, etc. Thus the supply chain co’s want to work with those that grow.
9/ To summarize, partners want access to the systematic fund’s portfolio because of predictive analytics around how it was built. And portfolio is also much larger (i.e. 150 companies v. 30 in a typical discretionary fund). Thus more options for partner.
10/ pcva3: COMMUNITY - The systematic fund is a larger portfolio of great companies. Large community. If organized effectively there are network effects to that community. Ask YC or First Round.
10a/ Could be cultivated with events (a16z’s corporate briefing is a good example) or even a simple internal email list. That email example may sound silly. Ask a CEO who is a part of one that is active- I find it very valuable as a CEO.
11/ pcva4: PEOPLE Look I’m not big on operating partners 95% of the time. They hold almost no power at most (not all) discretionary funds. They are often asked to swing wildly between different stages and categories. It’s tough.
11a/ But if you wanted to, this systematic VC fund could hire a bunch of operating partners that could get very specific and perhaps actually drive real impact.
11b/ In consumer that might mean putting operating partners against the 4 key levers of success of a CPG brand: distribution, brand, team and supply chain.
11c/ A typical vc or pe fund has 60%+ ebitda margins. The $ just goes to those fat cats at the top.
So now imagine that the systematic fund shifts resources from sourcing & evaluation to post-close.
So now imagine that the systematic fund shifts resources from sourcing & evaluation to post-close.
11d/ They could hire ex-national buyer from a major retailer. Or key senior person from a distributor. The fund could bring on a recruiting partner that just specializes in VP of Sales. Or perhaps they bring on a few branding/marketing experts.
11e/ The d2c marketing talent is certainly tough to find these days.
12/ So now you have Option 1: a systematic fund that can invest quickly, without requiring much diligence work from the portfolio company (thus faster & less time investment from CEO). It can provide services post close like those mentioned in this TweetStorm.
13/ or Option 2: yet another discretionary VC investor who sits on 10 other boards, takes months to do diligence and claims to have a “great network.”
14/ Which is more attractive to the entrepreneur? Let me answer my own question and put on my CEO hat. I’ll take Option 1 all day long.
