Welcome to the Family: Managing Laconia's Portfolio

Originally posted in 2018, this blog has been updated as of March 2022 to reflect Laconia’s current investment focus, strategy, and process. If you remember reading something different before, you’re (probably) not hallucinating! For additional resources, you can check out our FAQ, sign up for an office hours session with our investment team, or submit your information for funding consideration.

This is part 5 of a 5-part series. If you haven’t done so already, you can read the first four posts here, here, here, and here.

Our last blog ended at the point of closing the deal. Here’s what happens after the money is wired.

Onboarding

The most important part of our post-funding onboarding meeting with the CEO is sparked by this key question:

What didn’t you tell us before we invested that we should know, and what did we overlook in our due diligence process that we should have asked?

To date, we have never heard anything that we didn’t already at least suspect, but we have found that this question teases out the topics that are currently top-of-mind.

We also use these meetings to discuss use of proceeds. While this topic is discussed throughout the fundraising process, it’s helpful to concretely go through the 6-12-month plan once the funding is a reality.

Lastly, part of the meeting is dedicated to housekeeping:

• Best practices on running Board meetings and managing Board relationships

• Discussion on filling independent Board seats

• Investor communication/reporting guidelines & examples, including expectations for monthly updates & financial statements

Managing the dynamics of a successful post-investment relationship is not rocket science, but it requires some figuring out — we try to make the transition as seamless as possible for our founders so they can focus on what really matters: building their businesses.

Support

Given our high conviction, high concentration portfolio strategy, we devote a significant amount of our time to portfolio support. We firmly believe that if you invest in the right people, provide the appropriate support structures, and prioritize quality over quantity, you can fundamentally change early-stage success rates.

For the first ~18 months post-investment, we are on-call 24/7 for founders, proving an extra set of hands across sales team structure, key hires, enterprise business development, future fundraising, and everything in between. We tend to take Board or Board observer seats, further solidifying our commitment. From finding independent Board members to interviewing key executives and more, we are in the trenches as much or as little as founders ask us to be.

As our companies grow into and beyond Series A rounds, our role evolves into more of a consigliere — though we may be less involved on a daily or weekly basis, we remain a sounding board and network resource over the lifetime of the investment.

Community

All of the events and community initiatives we do at Laconia are highly bespoke, curated, and scrappy :) Without diving into the nitty gritty, below are a few ways we drive connection among our founders:

• Direct connections between founders on a case-by-case basis

• An annual summer camp retreat

• Virtual and in-person events bringing together our LPs, founders, and guests

• Functional founder roundtables on highly requested topics (HR/hiring, scaling sales infrastructure, PR/marketing)

• Curated industry-specific events uniting founders, investors, and senior industry executives

We hope this blog series has provided some transparency into our venture process and thinking, thus expanding access to this world to founders who are not necessarily already in the inner circles. We couldn’t be more excited to continue building our collaborative community.

As always, please reach out to us with any questions or feedback here or on Twitter — @jsilverman22, @djarcara, @geri_kirilova, @JailwalaReena.

Real Estate Tech Industry Landscape

Some of you may remember that we put together a legal tech industry landscape a few months ago. We are excited to share our second such report on the real estate industry, this time spearheaded by intern Naomi Grossman (shout-out to Jake Quan for finalizing the data). As was the case last time, this report was created as a starting place for deep dives and due diligence. We hope it is helpful and look forward to hearing your feedback!

Diving In: What You Can Expect in the Investment Process

Originally posted in 2018, this blog has been updated as of March 2022 to reflect Laconia’s current investment focus, strategy, and process. If you remember reading something different before, you’re (probably) not hallucinating! For additional resources, you can check out our FAQ, sign up for an office hours session with our investment team, or submit your information for funding consideration.

This is part 4 of a 5-part series. If you haven’t done so already, you can read the first three posts here, here, and here.

Navigating the fundraising process is often one of the most frustrating parts of running a startup. It can be slow, opaque, misleading, and even contentious. We at Laconia do everything we can to make the experience not just relatively painless but also productive for founders. Regardless of the final investment decision, we hope each of the founders diving in with us take away something useful from the work itself.

VCs are not all the same, so what you see below may or may not apply to any other firms. The short story is that we focus on operations, leverage our community, and build a strong partnership over the course of the process. In more detail, here’s what you can expect from us:

Discovery

After reviewing some information about a company (e.g., their website, a pitch deck, a short blurb), we often decide to take a first meeting to determine whether this opportunity is a mutual fit. Because our investment team is so small, we each take intro calls individually. After this first call, we may follow up with additional questions via email or discuss the opportunity internally. If we decide to move forward, by the second or third meeting, you will generally have met our whole investment team (David, Jeffrey, Geri, and Reena; interns, too, if they are around).

Here are the questions we aim to answer in these discovery sessions:

• Does your company fit our investment thesis in terms of stage, geography, and sector focus? More on our focus in blog #2. As a side note, occasionally we meet impressive founders who, for whatever reason, do not quite fit our investment scope. In those cases, we are happy to make introductions to VC friends and colleagues who may be a better fit.

• Are we aligned on the big vision and upside opportunity? We can’t always answer this question fully in just a meeting or two, but directionally, we need to share a vision of where a certain market or industry is going, as well as a shared belief that this business is a venture-scale opportunity.

• Do we bring value beside capital to the table? We only make 4-8 investments per year and work very closely with entrepreneurs, particularly in the first 12-18 months post-investment. We want to make sure that there is alignment between what you need and what we can offer at your current stage.

• Do we get along? Investing is a long-haul relationship, so we have to be able to work together.

Due diligence

If we are all in agreement that the answers to the above are “yes”, we will move into our formal due diligence process. Typically, we can reach an investment decision with a few weeks. The extent of our diligence varies somewhat depending on the stage of the company, as some items that are critical to a post-revenue company raising a $4M seed round may not be relevant at all to a pre-seed startup raising $500k. Below is a detailed breakdown of the items we consider internally while conducting due diligence:

• Stage 1 is centered on the operations of your business & your thinking around it. Across 1-2 working sessions, we will cover the following:

  • Financial statements (historical & projected)

    • This part is fairly standard: revenues (especially monthly recurring), costs, margins, growth assumptions, revenue concentration, and so on. Having an intuitive and easy-to-follow model always helps.

  • Sales, marketing, and distribution

    • Sales & marketing strategy as a lever for revenue acceleration

      • We dive into all of the assumptions surrounding your sales process to determine what actually drives your numbers. We go into these meetings with the understanding that you know your business best and that we are here to offer insight and suggestions based on our vantage point. A sample of questions is below:

        • How are you segmenting and prioritizing your customers?

          • How do you define product/market fit?

          • What are the components of your sales cycle, and what drives results at various stages of your sales funnel?

          • Is your pricing model right?

          • How is your sales team structured?

          • What will enable you to go from x% to y% market share?

          • How can you meaningfully and efficiently scale your sales efforts?

    • Market size with supporting market research

      • True market size numbers are hard to come by. We are not looking for a top-down data point for “total IT spend in X industry”. Segment your market fully and calculate every sales dollar you could feasibly close based on total number of potential customers and total revenue you could generate. Do this both for your current products as well as for future product development/market opportunities. In conducting this analysis, we are looking both for downside protection with regard to your current in-market product as well as the “big vision” that funding and growth would enable.

  • Competition

    • Clearly map out your market position and unique value proposition relative to your competition. We often find that competitive sets are not fully identified.

  • Capital structure: cap table, copies of convertible notes, debt, etc.

    • Far too often, we meet founders with multiple layers of stacked notes and limited understanding of everyone’s true stake. We will work with you on cleaning up your cap table, understanding the founders’ ownership, adjusting the option pool, and conducting scenario analysis for current/future rounds. Our top priorities are ensuring that founders are probably incentivized & that the company is as attractive as possible for future investors.

    • This topic includes discussion of current round terms. Are you raising the right amount based on your operating plan? What are the milestones you need to reach to trigger your next financing event? Does the valuation you want make sense given the stage of your company, and how does it align with your projected growth trajectory? (More on capital strategy here).

• Stage 2: Once we have gotten comfortable with the above, we will start including others into the process as well. We will reach out to our LP base, comprised predominantly of family offices and high net worth individuals, to leverage their expertise and networks. We almost always get 3-5 responses with potential customer introductions that simultaneously give us real market insight and provide you with sales leads. While conducting these calls, we will make a few more document requests on:

  • Customer information: top customers, churned customers, etc.

  • Product development: roadmap, development costs, execution risks

  • Management

  • References: customers, existing investors, potential target co-investors

    • We will hold off on calling any of your customers until the very end. Toward the end of this second stage, we will begin putting together the investment syndicate. We do not invest as the sole institutional VC.

• Stage 3: This is the home stretch! The final items are tech due diligence, customer reference calls, and some more checklist documents.

  • Tech due diligence: infrastructure, tech stack, security, tools, etc.

    • For each tech due diligence call, we bring in one of our portfolio CTOs to lead. This approach allows us to leverage their expertise and also introduce founding teams to each other, which is key to the Laconia community we are building. As our focus is on applications of technology for high pain-point B2B problems, we often are not taking on significant risk with cutting-edge technology.

  • Terms & investor syndicate

    • The timing varies a bit case by case, but typically we will formally issue a term sheet post tech due diligence. We prefer leading, and we are open to co-leading or following if that makes the most sense for a given company. If we have not yet finalized the investor group, we will focus all of our efforts on that now.

  • Reference calls: senior executive team & customer reference calls

  • Legal & tax documents: trademarks, litigation, tax returns, incorporation docs, etc.

While this may all seem overwhelming on paper, it is a highly collaborative and engaging process. The most important parts for us are deeply getting to know founders and building lasting relationships with them and the co-investors in the round. We can make an investment decision in as little as a few weeks, but seeing founders execute and showing them the way we work are critical to setting a strong relationship foundation. Most of all, we enjoy rolling our sleeves up with founders and leveraging the growing Laconia community. 

Some final tips on managing your investment process if you are still awake:

• Create a target VC list that makes sense for your company. Make sure a VC’s fund size makes sense for the company you are building (e.g. a $10B fund will have no interest in a company aiming for a $100 million M&A exit) and that its investment velocity aligns with what you need (e.g. a fund that writes 2-3 checks per week will not be providing the deep dives and hands-on support described above).

• Prepare a deal room with your deck & the docs listed above prior to beginning your fundraising process.

• Treat fundraising as a sales process. Identify your prospects, move them through the funnel, and close them.

• Do your diligence, too. Call a VC’s existing portfolio founders and find out what they do, not only when things are going well but especially when they are not.

The next & final blog in this series will be on what it’s like to be in the Laconia family. What can you expect from our onboarding, community, and ongoing support? Keep an eye out. In the meantime, let us know if you have any feedback here or on Twitter — @jsilverman22, @djarcara, @geri_kirilova, @JailwalaReena.

Saying Hello & Goodbye: Laconia's Internship Program

Saying goodbye to a family member or friend as they move forward in their life is always a bittersweet moment. It is that time of year at Laconia when we must say goodbye and thank you to our latest team of interns.

We run a paid part-time intern year-round, either for an academic semester, a full academic year, or a summer season. Our internship program has been widely successful, attracting talented students from NYU, Columbia, Cornell, Penn, Brown, UMich, and Rutgers, among others. In addition to intellectual curiosity, exceptional work ethic, and adaptable skills, they have all brought to the table a genuine passion for technology, entrepreneurship, and venture capital investing. Numerous former interns have gone on to pursue full-time opportunities at other venture capital firms and Laconia portfolio companies, with one former intern even re-joining Laconia full-time. Our interns are among the firm’s strongest ambassadors, often referring future candidates and budding entrepreneurs.

Our program fully immerses the interns in the inner workings of a venture capital firm, providing extensive first-hand exposure to all aspects of the work required. In preparation for the program, they read Ventures Deals by Brad Feld & Jason Mendelson, review Laconia’s Private Placement Memorandum, and become familiar with our portfolio companies. While with us, they are involved in deal flow & sourcing, due diligence, portfolio support, industry research projects, marketing, and operational support. We treat our interns as associates, and, in return, we get hardworking, smart thinking, and creative minds who allow our small team to accomplish so much.

We are strong believers in compensating them for their work along with providing them with a platform to learn, grow, and explore. Internship programs are great vehicles to allow young adults to dip a toe in the real world so they better understand the direction they want to take and the skill they need to develop. Payment extends access rather than limiting the field to only those who can afford to work for free.

I end this by saying goodbye to Jodie Miller and Ravi Shah and wish them all the best as they graduate and head off to PwC Strategy& and IA Capital respectively. They were stars and will be sorely missed. The good news is that as one door closes, another opens, and, with that, we welcome Naomi Grossman and Addison Huneycutt to the Laconia family - we can’t wait to see what you will create here!

Legal Tech Industry Landscape

One of our fabulous associate interns, Jodie Miller, put together an extensive report on the legal tech industry landscape - please check it out below. We hope this document can serve as a resource for future deeper dives and due diligence sessions on companies in the legal tech space. This project is a work in progress, and we hope it can be a useful starting part for anyone who comes across it. We look forward to hearing everyone's feedback and additions.