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.

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.

Who You Are: The Entrepreneurs We Seek

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

The more our portfolio grows, the more convinced we become that in the early stages of a company, the founders are most of the bet. We consider our portfolio an extension of our core values of transparency, collaboration, and community. So, when evaluating potential investment opportunities, we benchmark the founders against our existing portfolio entrepreneurs.

While there is no “one size fits all”, we’ve found certain commonalities in successful founders. Below are the core characteristics we search for:

• Deep business acumen & attention to detail: We love when founders know the key numbers of their business without having to check spreadsheets or reference materials. This attentiveness demonstrates a strong grasp on their business. At the pre-Series A stages, it’s crucial for the CEO to understand all functional divisions, especially business strategy and how it connects to capital strategy.

• Sales ability: We have an admitted soft spot for founders with strong sales skills in the early days. Founders aren’t required to have direct sales management experience, but we do expect them to have a deep understanding of customer segments and needs, go-to-market strategy, and customer acquisition models to close initial deals and begin the iteration process around determining eventual sales structure. If the founders can’t sell, we’re not buying.

• Transparency & collaboration: In order for our partnership and the Laconia community to work, founders’ core values must align with ours. We search for entrepreneurs who are open to feedback and discussion, don’t hesitate to ask questions, and demonstrate coach-ability, and over-communicate. These characteristics enable us to build strong and lasting relationships. As one example, one founder shared so much with us during due diligence about his father’s role as a trusted advisor to the company that we were curious to meet him ourselves - and we are so glad we did. This openness resulted in a much deeper understanding of the company's history and, ultimately, a stronger partnership.

• Confidence & focus: We search for founders who are hands-on and heads-down, interested in building a business, not growing their personal brands at the expense of business focus. You most likely will not find any of our founders on a TechCrunch stage. There is no aggrandized ego involved in their process of growing a scalable, sustainable business, just pure drive.

• Self-awareness: Often in a first meeting, we ask founders, “What keeps you up at night?” In the answers, we look for people who strive to understand their strengths and weaknesses and try to know what they don’t know. One of our founders, for instance, could not have been more direct with us when he told us “I know how to build this business, but raising capital is a whole other ball game.”  We could work with that and help compensate immediately.

• Integrity: This one is pretty simple. We believe that bad behavior is bad for business. Who you are personally is who you are professionally. The way you treat waiters, receptionists, and VC interns is indicative of the way you treat your vendors, customers, and employees. Honesty and respect are of utmost importance.

• Diversity: The research that diversity drives stronger business returns is comprehensive, compelling, and central to our investment activity. We track diversity in our pipeline and portfolio (see metrics on our FAQ page), and we actively make ourselves more accessible to founders outside of our existing networks through our office hours, mentorship at incubators and accelerators, and involvement with diversity-focused organizations. This commitment flows down to our companies as well. We are always open to suggestions on how we can better support diverse founders.

At the end of the day, every investment we make is, first and foremost, based upon partnership. Our trust in our founders’ ethos — and their trust in us — is paramount.

Our next two posts will spill the beans on what you can expect from us during the investment process and as part of our portfolio. How do we hold up to our end of the bargain? Stay tuned. In the meantime, let us know if you have any feedback here or on Twitter — @jsilverman22, @djarcara, @geri_kirilova, @JailwalaReena.

Finding Gems: Our Investment Thesis & Parameters

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 2 of a 5-part series. If you haven’t done so already, you can read the first post here.

Very often when we meet founders, whether they are pitching their company for investment or just asking for our insight during one of one of our office hours sessions, they ask what would make them a “sure venture capital investment opportunity”. The short answer we give is that there is no such thing, because every single VC firm has different investment theses/parameters. One perspective we can offer is the overview below of our own strategy.

Solving High Pain-Point Problems in Existing Markets & Workflows

On a broad level, we invest in the next stage of legacy industry digitization. We are focused on companies using technology to solve high pain-point problems and inefficiencies within existing markets and workflows. We still see massive opportunity in traditional sectors, as they transition from pen & paper processes to digital solutions, from fragmented digital solutions (e.g. Excel spreadsheets & in-house tools) to better workflow platforms, from workflow platforms to AI-powered analytical systems, and so on. As technology evolves, new business use-cases emerge, creating an endless loop of investment opportunities.

To be clear, we are not investing in incremental solutions. Much of our analysis of companies’ potential is through the lens of a founder. As an investor managing a portfolio, you have multiple shots at success.  As an entrepreneur, you place your bet on one shot, typically for a minimum of 5 years. A quick mental model we use to evaluate the upside potential of an opportunity is “Would I be excited to join this company for the next 5 years?” If the answer is yes, we’d seriously consider the investment opportunity.

Pre-Seed & Seed B2B Software

To dive into the specifics, we invest in pre-seed & seed-stage B2B software companies, predominantly headquartered in the US & Canada. We typically write checks of $250,000 - $1,000,000 in rounds of $1M-$4M. Within B2B, we are sector-agnostic, with investments in fintech, e-commerce infrastructure, supply chain, hospitality tech, retail tech, digital health, and more. Depending on the company’s stage and capital needs, we have some flexibility beyond these guidelines, but this is where we are spending the bulk of our time.

Below are the considerations driving these investment parametrers:

• Capital efficiency:

  • Focus on fundamentals: Our <$1 million investment amounts are best utilized in capital-efficient companies that can achieve “break-even optionality” before/after their Series A round. While we are, of course, seeking outsized returns (i.e., companies that have the potential to reach $100M+ in annual revenue), we believe that setting a strong and sustainable foundation in the early stages — before raising tens of millions of venture capital dollars — is critical to ultimately achieving that outcome. As we all know, the more money is raised, the higher the bar is for an exit. We are cognizant not only of our own equity stakes but also our founders’: we want them to be in the strongest position for their best possible personal outcome rather than pricing themselves out of most lucrative exit options.

  • Early B2B traction: Typically, B2B companies are more capital efficient (at least in the early stages) than B2C ones, which typically require significant upfront capital for user acquisition before activating any revenue models. We typically like to see some validation of market demand and ideally early revenue & customer engagement metrics before investing.

  • Software scalability: Though we are typically sector-agnostic, we do focus on software & avoid capital-intensive segments such as energy, agriculture, most hardware products, and two-sided marketplace models with high capital requirements for “chicken or egg” user acquisition models.

• Business resilience:

  • Active support: We build concentrated portfolios driven by strong conviction and and high support. As a result, we are intensely committed to all of our portfolio companies; we don’t write off & walk away from them when they hit a rough patch. Given our expectations of a higher-than-average portfolio success rate, we focus on companies that are solving mission-critical problems.

  • B2B inevitability: While many B2C companies rely on customers’ (somewhat unpredictable and fickle) tastes, B2B problems and solutions are typically objectively definable, identifiable, and quantifiable. In most cases, you can put a number to how much time and/or money is wasted by or allocated toward solving a given business inefficiency. Additionally, solutions to high pain-point problems typically have an “inevitability” to them. As just one example, AutoFi connects car dealers & lenders to enable the purchase & financing of vehicles instantly online from home, a solution that is undoubtedly bound to exist.

  • Market validation: While we don’t have hard revenue minimums to consider an investment, we like to see validation of customer demand, product stickiness, and, if possible given the company’s stage, high retention. Though the actual metrics and key indicators will vary from company to company, we are fundamentally looking for evidence that a given product is a “must have” rather than a “nice to have”.

  • Headquarters in US & Canada: The past two years have drastically changed the way we invest. While historically we’ve been focused on companies in Northeast major markets (largely NY, Boston, Philly, and DC), we have adapted to running our investment process and supporting our portfolio companies largely remotely. For Fund III, we have broadened our aperture to include all of the US and Canada, with a particular interest in regions that are historically underserved from a capital perspective. We also have the flexibility to deploy 20% of the fund’s capital internationally beyond the US & Canada, allowing us to take on opportunities beyond our more traditional filters.

• Alignment with Laconia’s strengths

  • Core team expertise: We stick to what we’re good at. While there are many investors looking at B2B software, we specialize in this, bringing deep expertise in B2B sales, marketing, and business development that moves the needle on getting seed startups to Series A and beyond.

  • Network value: Our LP relationships and extended networks are a strong fit for B2B as well, enabling us to open doors to customer intros as soon as we dive into due diligence.

We hope this overview provides some insight into our thinking. Next up, we’ll dive into the entrepreneur profile we seek. Until then, let us know if you have any feedback here or on Twitter — @jsilverman22, @djarcara, @geri_kirilova, @JailwalaReena.

Laconia’s Story: Who We Are & Why We Do This

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.

Hey there!

From Jeffrey, David, Geri, and Reena - welcome to our playbook :)

If you know us well, you won’t be surprised to learn that transparency, collaboration, and community have been core to Laconia since 2015. We hope to demystify venture capital’s insularity and enable founders to more easily access and navigate the venture world.

In line with this foundation, this 5-part blog series publicly sharing our story, thesis, and process. Below are the five posts:

1. Laconia’s Story: Who We Are & Why We Do This (this blog)

2. Finding Gems: Our Investment Thesis & Parameters

3. Who You Are: The Entrepreneurs We Seek

4. Diving In: What to Expect in the Investment Process

5. Welcome to the Family: Managing Laconia’s Portfolio

So, how did we get here?

David and I (Jeffrey) met after living parallel lives for decades. Both of us came up through the ranks in sales, marketing, and management roles, eventually founding, running, and selling multiple media & tech companies. Much of this involved raising money.

Intrigued by the other side of the venture capital table, we had both begun to angel invest, eventually crossing paths in 2010 as members of the New York Angels. During the next 18 months as our friendship grew, we spent more and more time co-investing together and with others, until we reached the point of “What’s next? Where can we go with this?”

We knew we loved working with founders and supporting the next generation of tech companies, and our operational skill set matched the seed/Series A stage. However, the last thing we wanted to do was start another typical venture firm. We wanted to create a fund that brought together the best practices of angel investing with the best practices of institutional venture capital; a fund we would want to invest in!

In our eyes, that meant leveraging not only our LPs’ capital but their knowledge and network, while also providing operational experience to our portfolio companies during their critical early development stage. The Laconia vision was, and is, to combine our core values with institutional-level infrastructure, due diligence, and governance to drive better returns and build better businesses.

We are now seven years into this journey, and our investment team consists of myself (Jeffrey Silverman), David Arcara, Geri Kirilova, and Reena Jailwala.

We consider ourselves entrepreneurs, and Laconia is our startup. We are small and scrappy, constantly iterating as we fine-tune our strategy. Our first two funds are now fully deployed, and we couldn’t be more excited to have a fresh pool of Fund III capital to invest.

Here are a handful of examples & outcomes of our core values in our day-to-day work.

Transparency

• We provide straightforward & honest feedback to founders, whether in mentor meetings or during our investment process. No founder should ever leave a meeting with us wondering what we thought.

• We give our LPs access to our investment deal room including appropriate due diligence materials and meetings. In turn, our LPs bring us tremendous industry expertise and network contacts to strengthen our portfolio and due diligence. In one instance, LP feedback was so instrumental to our process that we decided to triple our investment allocation into one of our portfolio companies.

• When co-investing with other VCs, we share our due diligence materials, helping all involved parties make the most informed decision.

Collaboration

• Internally within Laconia, we operate by consensus. We do not have separate books of business, and we leverage our complementary areas of expertise to make better investment decisions.

• Externally, our entrepreneur and board meetings are working sessions where we hold CEOs accountable without playing “gotcha”. We always work side by side with our founders and co-investors as partners.

Community

• We host virtual and in-person events that unite our LPs and founders. On more than one occasion, these interactions have resulted in LPs making additional intros for founders that have resulted in long-term customers.

• We host tight-knit unique VC events that strengthen connections among fellow investors.

• We organize functional roundtables, workshops, and offsites for our portfolio executives, building the Laconia family.

• We are building the largest and most accessible onramp into the venture capital world through the Venture Cooperative.

The next blog dives into our investment thesis & parameters. In the meantime, let us know if you have any feedback here or on Twitter — @jsilverman22, @djarcara, @geri_kirilova, @JailwalaReena.