Evaluating the Formula for Success at the 2014 iNovia AGM

by on September 25, 2014

Like every business, venture funds hold an annual general meeting (AGM) each year to review the state of affairs, lessons learned, and changes in direction with key stakeholders. iNovia has a portfolio of over forty active companies across three funds representing about $275M in committed capital from its limited partners (investors).

There are many sources of learning for a team of eight investment professionals and five supporting actors in a venture fund, so we have to be pretty thoughtful about what to fit into the day. This year’s focus was on the subject of “Managing Momentum.” As many of our companies are beginning to scale, we wanted to share the strategies and insights we’ve learned in supporting them to grow.

We kicked off the activities last week in Montreal with a pre-AGM networking Cocktail at the offices of one of our fast growing early stage companies: BusBud. From the layout of their offices, to the length of time certain employees where still working in the night, working on code or doing customer support, the theme of “Momentum Management” was already transpiring within the attendees.

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The following morning, Chris kicked off the AGM with a presentation and discussion on iNovia’s performance to date. With over 40 active portfolio companies out of nearly 60 investments since 2007, the message was clear: We aspire to build a reputation around being a “great partner” to the entrepreneurs we choose to back. And like many startups, we have pivoted (or adjusted our investment thesis which  evolved from including life-sciences, medical devices and cleantech to a portfolio with IT companies only today.

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Intellectual honesty is critical to our team and while we haven’t exited from any of our out-performers yet, we strongly believe our early stage investment model allows us insight to promising opportunities while managing risk upfront.  Chris gave great examples of how at iNovia, we strive to add value to our portfolio community in other ways besides providing cash – attracting talent, introducing future sources of growth capital, and facilitating connections amongst our portfolio for shared learnings. The last part of his presentation was an important one as it highlighted our go forward strategy; we’re building great relationships with seed syndicates and are using crowdfunding to our advantage. Our Silicon Valley strategy already saw our Partner Kevin move down to San Mateo earlier this month so we can further build on our relationships with Tier-1 follow-on investors, corporate investors and potential acquirers in the Valley.

After that opening from Chris, we passed the stage onto Anand Sanwal, founder of CB Insights, our morning keynote speaker, who has a flair for presenting relevant data in an insightful yet unbiased way. We never talk about what he’s going to present before he gets up to do his thing.

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Minutes after Chris reviewed iNovia’s fund performance and strategy (spoiler: we’re showing great performance), Anand demonstrated how the majority of funds can — legitimately, by picking convenient metrics — demonstrate that they’re delivering top quartile returns. Good thing transparency and intellectual honesty are themes of our interaction with LPs rather than the exception!

Well-intentioned jabs aside, Anand’s research into the evolution of fund success exposes the correlation between syndicate strength (& connectivity) and successful outcomes. It highlights the importance of being in great companies early rather than just piling on. He won’t say whether “bubble” is a fitting term, but he has compelling data that the market is overheated compared to historical averages, particularly in specific categories like EdTech.

Anand’s findings drove an ongoing discussion about the increasing role of corporate investors, providing valuable context for several transactions iNovia portfolio companies are in the midst of. Evidently, while consumer Internet companies generate greater gross monetary returns to venture investors, those exits are alarmingly rare compared to enterprise exits. Though enterprise exits are more frequent, they’re less likely to be unicorn-worthy exits. It’s obvious why CBInsights has a rapidly growing list of followers (no, they’re not a portfolio company).

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David took the stage along with LP Maurice (BusBud) and Max Yankelevich (WorkFusion), both of whom have recently raised substantial rounds — and have done excellent jobs of building world class investor syndicates — then took the stage to share what they’ve learned. David drew out some unexpected insights. It impressed me how deeply these entrepreneurs understood that investors look at trajectories to success over time rather then assessing data at a single point in time. LP and Max were terrifically thoughtful about which investors they choose to spend their time with. It’s easy — and wrong — to think of investment decision-making as a one-way process. It’s just as important for an entrepreneur to choose the right investor for his/her company (as it is for an investor to choose the right company for their fund). LP and Max also provided some frank advice about which board members are worth their time and which are not. Both look for board members who will tactically apply their experience as an operator to develop a deep understanding of what’s going on at the company, who show up to board meetings well-informed, and who are willing to spend time helping out with business development (according to LP, we VC’s spend at least 80% of our time at cocktail parties, so that shouldn’t be hard to squeeze in!!!)

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Karam lead the second fireside chat. Blair Livingston (StreetContxt) and Michael Litt (VidYard) aren’t shrinking violets when it comes to scrappy opinions about how to build a company cheaply — or an entire ecosystem for that matter. They both have what you would call an, “attitude of abundance” and they each explain their fundraising journeys as, “I went with my hand out and twice as much as I was looking for fell into it.” Actually, that was pretty much true… for these guys. My partner Karam knows them well, and wasn’t surprised at Mike’s response when he asked for advice to founders who find fundraising hard:

“Don’t start a company… go work for a startup first.”

Indeed, it has always baffled us that people think anyone should be able to start a company with zero experience. Would you start a plumbing business without first spending a few years working for another plumber?

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Four of our founders separately took the stage to discuss different aspects of success. Geoff Lyon gave an incredibly human view of his journey building CoolIT Systems, identifying honest struggles around hiring for growth and firing for sustainability. He admitted his hesitancy to scale with large spending because CoolIT developed a very frugal culture. Geoff shared a hard look at startup life – that it’s not always as glamorous and sexy as we think it is.

While Daniel Saks (AppDirect) couldn’t make it to our AGM in person (the Company is hosting 200 Partners at the AppDirect Partner Summit this week in San Francisco), he prepared an amazing video explaining his approach to managing momentum when it comes to “build vs. buy decisions”. AppDirect uses acquisitive growth to augment its already frenetic organic growth.

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Max Yankelevich came back to give us a compelling glimpse of the future of the workplace, covering many different aspects to crowd computing and how much progress has been done in artificial intelligence.

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Finally, Dave Sherry provided a unique perspective on the role culture plays when scaling from 32 to over 200 employees within 24 months, and how it is managed at Lightspeed. Dave shared how culture was built from the top-down at LightSpeed and given “teeth” – making people accountable and responsible to it. Most importantly, while he recognized the importance of culture, he also admitted that results come first and the celebratory, fun nature of LightSpeed is a result of hitting key metrics and goals first.

A few traits have emerged as common threads across our family of founders. The most evident of these is an insatiable curiosity. Without exception, our CEOs are motivated by a vision. Frequently, among those most successful, we see an almost perverse combination of bravado and humility. Building an enduring successful organization requires overcoming a myriad of obstacles. The theme of our day was building momentum and while the physicists among us know that momentum (p) = mass x velocity, perhaps in venture it should be:

profit = money x velocity