Launching Through the Looking Glass: Underrepresented Limited Partner Views

Those familiar with Laconia know that community, transparency, and accessibility are core to our day-to-day as we work on building a more supportive ecosystem for entrepreneurs and investors alike. Whether it’s literally opening our doors to any founders with questions or hosting educational events on the venture asset class, we prioritize closing the opportunity gap within the early stage ecosystem.

As an extension of these initiatives, we could not be more excited to announce a new content series focused on amplifying underrepresented Limited Partner voices.

Over the past two years, there has been a long overdue surge in attention toward diverse founders and investors. Organizations such as All Raise and diversity-focused investors, such as Female Founders Fund, Gaingels, Harlem Capital, and Backstage Capital, have shed light on both the institutional challenges plaguing the tech industry and the champions bringing us closer to an equitable future.

With studies on professional investors’ assessments of diverse fund managers and articles on diversity within asset allocators, we are just beginning to see Limited Partners - the people and institutions that invest in venture funds - take on a more central role in these conversations.

Despite strong foundational efforts to increase transparency in the LP ecosystem, there is little content focused on amplifying underrepresented perspectives on critical industry issues. Based on anecdotal conversations and wholly unscientific Twitter asks, even getting a basic understanding of LP demographic data presents a challenge.

Given the central role LPs play as capital allocators, advocates, and arbiters of change, it is critical that we include their voices in our conversations. We could go on for days about why representation is essential, but below are a few top-of-mind reasons:

• Just as diversity within VC fund managers has downstream effects on founders’ funding, it has an analogous impact at the LP-to-GP level. If we want to see industry-wide progress, we have to include the top of the capital stack.

• Access to information and widespread representation are essential to narrowing the racial and gender wealth gaps that persist today. Generally, women and underrepresented minorities are less active investors, and they certainly seem to be more passive participants, particularly in private markets. Our hope is that bringing leading investors to the forefront will reduce the caginess of the industry and decrease the barrier to entry for new investors.

• In an industry premised on surfacing outliers, following the crowd remains far too common, and highlighting underrepresented perspectives has never been more essential in driving both progress and profits.

We are thrilled to publish our first six interviews with Kelly Hoey, Amith Nagarajan, Lo Toney, Holly Lynch, Diane Henry, and Carlos Miguel Gutierrez:

Their stories cover a multitude of backgrounds and roles, providing a strong foundation for this series. We will be continuing these conversations on an ongoing basis, hoping to spotlight diverse perspectives across all possible parameters. 

If you are an active Limited Partner and you:

• Consider yourself underrepresented within your peer group (with regard to traditional demographic parameters such as gender, race, sexual orientation, or secondary criteria such as educational background), or

• Are executing on an “outside the box” LP approach, such as investing in underrepresented GPs, social impact companies, or other atypical strategies, or

• Have never publicly spoken about your LP investment activity and would like to do so...

...please reach out to us! By highlighting the insights you’ve gained through your investing experience, the barriers you’ve overcome to get where you are, and the opportunity you’ve discovered in this asset class, we hope to take another step toward tangibly moving the needle on a more inclusive and thriving ecosystem.

Thank you to Beezer Clarkson, Samir Kaji, Semil Shah, Ted Seides (Capital Allocators podcast), Notation (Origins podcast), and the #OpenLP community for paving the road toward LP-focused content (please let me know who I’m missing!); to Dessy Levinson, Nitya Rajendran, and Doba Parushev for your thoughtful feedback and support; and to Nikita Singareddy, Ed Zimmerman, Kim Lew, Mike MacCombie, Shai Goldman, Elizabeth Yin, Kelsey Banos, Del Johnson, Hana Yang and Declare for the impact you’ve had on my thinking & the creation of spaces for these discussions. 

Emerging Venture: Beyond The Headlines

To many, venture capital is what is seen in the headlines - unicorns, mega-funds, runaway valuations, and hoodie-clad tech-titans cruising the Valley on scooters. But at its very core, venture capital could not be further from this image. Venture is where capital meets innovation, primarily outside of the headlines, touching every corner of our personal and professional lives: how we eat, communicate, exercise, commute, work, and travel. This makes it a critical asset class for investors with long-term investment horizons, but it also demands deliberate strategy, structure, and process to properly allocate capital and manage risk.  

Not every venture deal, however, results in a blockbuster $1B+ IPO. The reality is actually quite to the contrary. Over 90% of 2018 exits came via M&A transactions, of which 83% were sub-$500M [1]. This suggests a deep opportunity set of “sub-unicorns”, putting smaller funds and often, emerging venture managers, at the forefront of the innovation curve and enabling them to stealthily deliver outsized alpha to those who wish to look for opportunities between the cracks in this vital but often fragmented and opaque asset class.   

Emerging venture firms, though perhaps not yet household names, are doing the digging and nimbly deploying smaller pools of capital while leveraging strategy, structure, and process to create value through hands-on engagement with entrepreneurs. Data shows this grassroots approach is generating attractive returns relative to larger funds and more established brands. In a recent study completed by Canadian Technology Accelerator, top-quartile venture funds <$249M generated IRR of 39% versus IRR of 33.6% ($250M-$999M funds) and 9.9% ($1B+ funds) [2]. This engaged approach is fully aligned, free enterprise innovation in its purest form. It is also miles away from spray and pray methodology and underscores the criticality of manager selection in the venture asset class.  

At Laconia, we live on the outskirts of the land of unicorns (though we are certainly happy to identify one!) where there may not be headlines, but there is exciting opportunity for those willing and able to do the hard work. The moral of the story is there is a land not terribly far away, just on the other side of the forest, inhabited by innovative sub-unicorns that are generating venture returns beyond the headlines. Choose an able guide to help you find the way – you will be glad to have taken the road less traveled.  

______________________________________

[1] Data provided by Pitchbook and the National Venture Capital Associations’ “Venture Monitor”. Data as of 12/31/2018.

[2] Data parameters: 951 venture capital funds, Based in the US and Canada, FY2002 – 2014. Study conducted by the Canadian Trade Accelerator (2019) ctaconnects.com/emerging.

Portfolio Spotlight: Wethos

We are thrilled to announce that we’ve led a $3 million seed round in Wethos!

Wethos curates innovative teams of marketing specialists to work with meaningful brands. Wethos doesn’t neatly fit into any single investment category - Instead, it’s what you’d get if a network, managed marketplace, and future of work platform had a futuristic baby. This atypical model is one of the keys to Wethos’ momentum and traction in the market. 

By delivering on the promise of curating the right people for every project in a compelling time frame and price bracket, Wethos’ offering exceeds that of traditional solutions by an order of magnitude. At the same time, Wethos provides freelancers with an alternative to the lonely, uncertain, and “race to the bottom” reality of most independent work. By enabling users to find work they actually care about, removing the burden of administrative work management, and always putting freelancers’ rights at the forefront, Wethos repairs the broken trust of the gig economy and, as one of their specialists aptly said, creates “what freelance work was actually meant to be”.

No one is better equipped to tackle this opportunity than the Wethos team. They have remained uncompromising on both building a better world for freelancers while simultaneously tackling the highest pain points in the market, and we can’t wait to see them embark on this next stage.

We were initially introduced to Rachel by Mike MacCombie two years ago (thanks again, Mike!). At the time, Wethos was still in the earlier stages of building its bench of freelance specialists, with a focus on matching individuals to projects. Because of the b2c-esque nature of freelance community-building, the company was not a fit for Laconia’s b2b SaaS-focused investment strategy at the time. Still, we had no doubts about Rachel’s focus, passion, and inevitable success. Over the next two years, we stayed in touch, regularly meeting for working sessions, catching up more casually, and collaborating on tech/VC community events. 

Fast forward to our latest catch-up this past February. Wethos had built a community of 4,000+ freelance specialists, in large part cracking the chicken-or-egg problem that b2b/b2c companies often have. They had launched dozens of teams for leading organizations after having successfully navigated a major business model pivot, all while building out a formidable distributed team and figuring out how to scalably create, launch, and manage curated teams in a new and unique way. As we dove into the mechanics of the business, I was blown away by the level of detailed thought in every component. So it was no surprise that when Rachel asked, “Which funds do you recommend we talk to about this round?”, my answer was 🙋‍.

After Rachel got the rest of our team up to speed (they were stoked as well!), we dove right into our due diligence process, which got us even more excited about the company for multiple reasons. One of the core components of our due diligence process is introducing companies to 6-12 prospective customers in order to gauge market demand, value proposition strength, differentiation, and our ability to add value by opening doors, all while simultaneously generating sales leads for the company. With Wethos, we received resoundingly positive feedback, with about half of the organizations immediately moving forward with the process to hire Wethos teams. This conviction was echoed by Wethos’ existing customers and freelancers, who highlighted the exceptional quality of the specialists and Wethos’ seamless workflows as the main selling points.

We’ve found that how companies handle due diligence is often strongly correlated with how they run their business. We often see CEOs paralyzed during fundraising due to the bandwidth drain, but Rachel had everything ready to go and seamlessly collaborated with her team throughout the whole process. This delegation, responsiveness, and thoroughness were strong signals of the Wethos team’s high level of trust and efficiency. Our impression of this team dynamic was cemented by the group meeting we had with co-founders Rachel, Kristen, and Claire. The three of them demonstrated a deep mutual respect, complementary skills, individual adaptability within their evolving roles, and an unwavering shared vision for the company.

As with all of our investments, we worked in partnership with the founders to identify a strong co-investor group for this round. We couldn’t be more excited to be working with ValueStream Ventures, Loup Ventures, and Overton, among others, as well as existing investors including Flybridge and BBV.

We could go on for days about the massive market opportunity, innovative structure, and many other things that excite us about this company -- but instead we’ll leave you to check out some of their incredible work, follow them to stay posted in real time, and explore opportunities to join them as a specialist, customer, or teammate. 

For more on their latest fundraise, visit their blog.

Portfolio Spotlight: PromoteIQ

We are thrilled to announce today that our portfolio company, PromoteIQ, has been acquired by Microsoft!

PromoteIQ automates vendor marketing for e-commerce. Their platform enables brands to promote their products on e-commerce sites, increasing brand awareness, driving incremental product sales and generating unprecedented product performance insight. For retailers, vendor marketing is quickly becoming a strategic business line and critical source of incremental margin. Today, PromoteIQ's technology powers the core vendor marketing programs for the largest online retailers and brands, and we couldn’t imagine a better partner for the next stage of PromoteIQ’s growth than Microsoft.

In August of 2016, Alex Sherman and Peter Schwartz, the co-founders of PromoteIQ, walked into our office after being introduced to us by another founder in our Laconia family, Liz Zalman (Co-founder & CEO, @strongDM).

Investing in PromoteIQ wasn’t an immediately obvious decision. Though we had a number of exciting adtech investments in our legacy portfolio (TripleLift, C3 Metrics, FreeWheel, Localytics, to name a few), our fund focus had shifted away from the sector as it became increasingly tough to navigate for both entrepreneurs and investors alike. The space had become oversaturated with investment, and obtaining fresh capital and/or liquidity was proving to be difficult. 

Any reservations we had about the sector quickly disappeared as Alex and Peter presented a clear articulation of PromoteIQ as building an entirely new category at the forefront of the "Digital Shelf". At the time, vendor marketing had not yet gained serious momentum; even Amazon's now multi-billion-dollar advertising business was mostly under the radar. Alex and Peter cleanly outlined the tremendous growth opportunity in this new category at the intersection of marketing and commerce. PromoteIQ's platform enabled e-commerce sites to create another revenue stream and allowed brands to promote themselves to shoppers at the critical moment of conversion in their purchasing pathway.

Confident and grounded entrepreneurs, Alex and Peter possessed a clear vision of the market opportunity and the potential challenges ahead. They were also fully versed in the metrics and milestones needed to drive the business and reach the next stage of company growth. We felt a strong sense of 'fit' - these were entrepreneurs that we wanted to work with.

We introduced Alex and Peter to Nauta Capital and co-led their seed round. Over the last thirty months, we have had the honor of working closely with them on opening doors at key enterprise clients, fine-tuning strategy, helping them find some star hires (including our very own former intern Reena!), and everything in between. Their business has grown at breathtaking speed and in a short period of time, the company has become the dominant player within their category, easily outmaneuvering some of their larger competitors to build the defining solution for retailers.

We are so proud of Alex, Peter, and the entire team for building and establishing the company as a leading global vendor marketing platform -- no small feat by any means. From board meetings to late night phone calls and summer retreats, we have learned a great deal from them as investors, partners, and friends -- and who knew they would help us find love and tranquility in fishing? We can’t wait to see them expand their global presence through their continued growth with Microsoft’s powerhouse behind them.

You can read more on the acquisition here and here.

Portfolio Spotlight: Ocrolus

We are very excited to announce the closing of Ocrolus’s $24 million Series B financing led by Oak HC/FT with follow-on support by Laconia, Bullpen Capital,  QED Investors, ValueStream Ventures, and Differential Ventures. We were introduced to Ocrolus in the summer of 2017 by Nick Adams of Differential Ventures. Ocrolus is a New York City-based fintech infrastructure platform that automates the analysis of digital documents and financial data. By eliminating manual review, Ocrolus empowers companies to reinvest their human capital and automate processes with industry-leading speed and accuracy. Ocrolus services hundreds of customers in the financial sector and analyzes millions of transactions every day with 99+% accuracy. 

The company was in our sweet spot from the moment we met their CEO, Sam Bobley. It had been seed funded primarily by friends and family, allowing Sam to build a strong founding team with a product solving a large TAM manual workflow problem. When Sam first sat down with us, he was looking to raise $750K. His pitch was very compelling about digitizing what heretofore was a high pain point manual workflow: the processing of financial services applications.  Ocrolus was a big idea and it quickly became apparent to us that a much larger capital raise was needed.  

Sam and Vik were very responsive and transparent throughout the due diligence process. Diving into everything from the company's financing history to their plans for improving unit economics to even introducing us to Sam's father, an entrepreneur himself & a trusted advisor to Ocrolus, we felt we were building a true partnership with the team. Our collaborative inclinations have few boundaries!

Sam had raised a fair amount of seed capital, so his cap table had unusual complexity to it. We rolled up our sleeves, sifted through the company's finances, and came up with a structure that would permit increasing the initial $750K Sam sought to a proposed $3M-$4M round. Indeed, over the next few months, a first class group of syndication partners concluded Ocrolus’s $4M financing in January of last year. 

It was then off to the races. Ocrolus’s rapid year-to-year revenue growth has been sensational.  Sam, Vik, and the team have built a product that checks all of the boxes: strong market fit, sound tech, tremendous scalability. They are also amongst the most intense and driven leaders we have encountered. They actively solicit and listen to all of their investors and then are quickly decisive once the facts and opinions have been satisfactorily gathered. They are also very loyal, always making sure their investors and employees are respected in any decision being made. 

Sam and Vik embody the Laconia DNA. Congratulations to them and their entire team!

For more details, see their feature in Venturebeat.