It is often said that the most important discussions at startup conferences occur during the after-parties, where investors and entrepreneurs come together, facilitated by sponsored drinks and a relaxed atmosphere. At a SLUSH afterparty in Helsinki, I found myself in the company of two powerful VC investors. They were polar opposites in their approach, but both had a proven track record of success with over 20 years of experience in the game. My ears as big as dish antennae, I listened as they shared their personal winning strategies for deciding on investments.
“Investing in a team of Ivy league graduates is a thing of the past. To find exceptional performers, I deliberately look for individuals who don't quite fit the mold.”
Mike*, a partner at a US venture capital firm with USD 1.4 BN assets under management and 67 successful investments, has a refreshing and open approach to sharing his insights. He bucks conventional wisdom by prioritizing outliers over Ivy League graduates in his investment decisions.
Mike tells me how he backed a founder last year with three attributes that made her not look like the typical VC investment target: Abigail*, a black female founder with an accent, a single mother of two who had migrated from Ghana to the US eight years ago, still working on the side to boot-strap her technology business in the growing home care market. This lady was loud, bling and strong. She would fill a room with her presence and positive spirit, gathering a strong dedicated team around her. She would voice her opinion and didn’t care if she fit in because she didn’t. Her character strength had been key to rising from a poor background in Africa to arriving in the US with nothing. Her business was already generating revenues and had achieved some product market fit when Mike met her at a sporting event where he expected the least to meet founders.
Despite her business being well positioned for a seed round, Abigail did not find access to venture capital because she didn’t tick any of the boxes in terms of founder team and education track record. When I asked Mike why he backed her he told me:
“To achieve outstanding results, it's essential to focus on individuals who deviate from the norm and stand out from the crowd. Founders who worked their way up against all odds are able to change the world for real."
Mike invests in college dropouts, non-Caucasian or immigrant founders, and women and other underrepresented groups. He doesn't give any weight to personal connections or warm introductions from the traditional VC sphere. He discovers hidden gems where competition from other investors is low. “I would like to see more pitches from single founders who are more seasoned, with an average age of 35 or older”, Mike adds to this.
"I'm done with experiments. If you want to win big, you go with young male founder teams from top universities."
Nick* has 15 years under his belt as a partner at a globally recognized growth stage fund and managing a staggering USD 800M AUM, he had just raised an additional USD 450M to focus on Series A European software startups. He does not beat about the bush with his views on successful startup ingredients
Nick is convinced that the best investments come from first-time founders straight out of prestigious universities like Stanford, Oxford or ETH Zurich. It's no secret that these founders tend to come from wealthy backgrounds, have gone through a rigorous selection and education process and are more likely to be white men with straight-laced resumes.
Nick found a pattern that made him extremely successful: Identify a patentable promising technology at a research heavy top university, help form the team by complementing one or two core researchers with a more business oriented co-founder. Be helpful in the spin-out negotiations and then become the first investor with high trust and super generous investment terms.
For Nick, the icing on the cake is the work ethic of such founders:
“And the best things: These founders work for a salary as low as USD 2,500 per month more than 70 hours a week without any complaints.”
Over the last 10 years, Nick had invested into 12 such companies with impressive results: He made a 75x multiple with a laser projector company founded by 2 male researchers from Oxford, a three figure exit with a robotics technology invented by a team from ETH Zurich and is currently negotiating a trade sale to IBM for a revolutionary medtech technology that hasn’t even launched yet.
While Nick's opinions are sure to stir up controversy and spark heated debates, his success speaks for itself. Whether you agree with his views or not, his candor is a refreshing change in an industry where many play their cards close to their chest. Why change a winning strategy?
Say Goodbye to One-Size-Fits-All Sourcing Strategies
Talking with these two guys who could not be more different in their approaches left me puzzled and curious: what is their secret to successfully sourcing great companies? Next morning I asked my team to use our tools to see if we could find some answers. We found that our data reflected what we learned at the party.
Both approaches can deliver great results: Both Nick's traditionalist strategy and Mike’s underdog approach would have been able to pick some amazing winners. Our findings indicate that there is no one-size-fits-all solution, and that each VC must find their own unique approach that works for them. Ideally, these search strategies can be applied in the deal origination process and during screening:
- Mike would love to spend more time with the best unconventional founders but struggles to find them systematically.
- Nick would be most interested in having a deal flow composed of all promising research-based teams ready to spin-off.
With Raized.ai, VCs can implement specific searches tailored to their unique needs. Whether you're looking for larger founder teams, female founders, or young and recent graduates, we've got you covered.
Now it's your turn: What are your thoughts on secret sauce in deal sourcing? Write us a message or schedule a call today to start the conversation and take your investing game to the next level.