Matt and I launching Ada Ventures in December 2019 at TechCrunch Disrupt, Berlin.
Matt and I launched Ada Ventures, a $34m VC fund that invests in overlooked founders and markets, on the 11th December 2019. January 2020 was our first ‘live’ month, when we were actively looking for and making new investments. [If you missed the backstory on the fund or the fundraise — watch our video or read our thesis].
Our strategy for generating outstanding returns is to (i) increase awareness of, and access to, venture capital amongst previously overlooked founders, and (ii) make Ada Ventures the fund of choice for these founders. As part of this we will transparently share as much as possible about venture capital — how it works, who it is for, how it gets raised. To start, we’re sharing our investment process and dealflow pipeline, with real data on what happened in January 2020. We hope that this is helpful for anyone raising money and particularly for those considering raising money from us!
One of the first decisions we made at Ada was that anyone could apply for funding directly (via a form on our website), without needing a ‘warm introduction’. We know that warm introductions unfairly disadvantage underrepresented founders and we want to make sure that Ada is accessible to everyone (with the caveat we can only fund companies with a UK presence for now). Our job is to pick the best companies that have the highest likelihood of returning our investors capital, so having a bigger top of funnel enables us to increase our odds of picking the best investments.
Our new investment process
In January we launched a faster investment process, designed to waste less time for founders and to quickly home in on the key issues for our investment case. The new process is laid out below.
January 2020 data
In January, 232 companies submitted applications that broadly fell within Ada’s focus. Each submission had to include a pitch deck (otherwise we won’t review it), and our first step as an investment team is to review that deck.
In our pitch deck review, we’re looking for a couple of key things:
If the pitch deck meets enough of these criteria and we think it could be a fit for us to invest in, we contact the founder to arrange a first Zoom video call.
Zoom 1 — The first Zoom call covers why the founder is building this company, the history of the company, team and then specific questions arising from the deck review. For more about what we’re looking for in companies, we’ve written our seed investing checklist here. In January we had Zoom 1 meetings with 36 companies (15% of the companies whose pitch deck we reviewed). After this call, it is the job of the other partner to challenge the investment case and put forward the reasons not to take it forward. If the first partner can satisfactory answer these challenges, the company is then contacted to arrange a second Zoom call (Zoom 2). This process can take anything from one day to one week. If the partners decide it should not be taken forward to the next stage, the first partner will send a short email to the company letting them know why (this takes place at every stage that the company doesn’t progress).
Zoom 2 — The Zoom 2 meeting takes place with the other partner and goes into more detail on the specific issues that arose in the first meeting (e.g. defensibility, growth, unit economics). Valuation and ownership will be discussed at this stage to ensure that we can get enough ownership for the risk we’re taking. Investment structure will also be discussed (e.g. whether the company is raising an equity round vs a loan note). In January, of the 36 companies we had Zoom 1 calls with, we had Zoom 2 meetings with 10. After the second Zoom meeting a further conversation with the other partner takes place. Here, the focus is on agreeing what we would need to understand to make the investment, and making a clear due diligence (DD) plan.
Investment paper — The investment paper is designed to synthesise the DD and desk research we’ve done, help us process our thinking and see where the gaps in our investment case are. These papers are also shared with a few trusted advisors for input and challenge. It usually takes about three days to one week to write an investment paper. We wrote three investment papers in January. The investment paper is discussed and debated with our trusted advisors and at our Monday deal flow meeting.
Deep DD — If the investment paper is approved by the two partners, we then progress to a 2–3 hour in person meeting with the company at their offices and the beginning of our deep DD. This varies by company but usually involves speaking to customers, reviewing the forecast cashflow, 18 month projected P&L, 12 month historic P&L, balance sheet, and reviewing the technology and the roadmap. In January, we carried through all three investment papers to the ‘deep DD’ stage. The results of this deep DD are then written up into a longer paper, which is then discussed and debated further at an official investment committee. This phase can take 1–2 weeks. If we approve this longer paper, we decide to issue a term sheet which lays out our offer of investment (amount, valuation, conditions and key terms).
Term sheet — We issued and signed one term sheet (an offer to invest which lays out the key terms of the investment) with one company during January. The other two companies either didn’t make it through the deep DD process, or we didn’t have enough conviction to issue a term sheet. The whole process above can take at a minimum two weeks but usually around four to six weeks, although these are linear processes and sometimes we talk to companies for six months before issuing a term sheet for a variety of reasons.
A word on diversity
We are aiming to attract diverse founders as we believe that (i) diverse teams will generate higher returns, (ii) diverse founders often have unique insights into underserved and unserved markets and (iii) that they are undervalued by the rest of the market. We therefore track the diversity of our pipeline as much as we can. Due to GDPR restrictions, we can currently only track the gender of the founding team. Of the businesses that approached us for funding, we were pleased to see that half of the businesses were led by teams with a female co-founder. In fact, 34% were from all female teams, 16% were mixed gender, and 46% were all-male teams (with 4% unknown). This compares to just 7% all female, 26% mixed and 67% all male for the average <£50m UK fund.
We hope that we can maintain and increase this gender diversity in our pipeline and continue to track broader diversity data as the fund develops.
Hopefully this is a helpful summary of how our new investment process works and how best to navigate it. If we spoke to you or you submitted a business plan in January — thank you so much. We’ve loved our first month of operations and meeting so many fantastic companies. If we haven’t responded to your email or business plan, please bear with us. Publishing our emails has been terrible for ‘inbox zero’ and does mean it takes us longer to get back. We are sorry. We’re learning how to prioritise better but this is a continual work in progress. Any advice is welcome!
On to month two…
