How a Pitch Deck Becomes a Wire Transfer
Pulling back the curtain on ECV’s investment process
I’m often asked about Exponential Creativity Ventures’ investment process and timeline. We aim to be as candid and transparent with founders as possible, so these questions are welcome. In that spirit, I thought it might be helpful to lay it all out here.
Keep in mind: This is how things work today. We’re a young fund with just 19 months of investing experience. Things can — and surely will — change. Also keep in mind that other funds do things differently; this is just our process.
Pre-Pipeline (2,000+ companies / year)
I debated whether I should include this as a phase or not, but will mention it here for the sake of clarity. Among our team, we encounter 2,000+ new startups each year. Most of these are drive-bys — a quick conversation at someone’s SxSW booth, a speed pitch or investor matchmaking session at a conference, etc. The vast majority of these can be immediately eliminated from consideration because they clearly don’t fit our investment thesis or model. But hey, accurate denominators are important, and this is ours.
Now, on to a flowchart for the meat of the pipeline, followed by some explanation:
Initial Look (150–200 companies / year)
At our current pace, Exponential Creativity Ventures looks in earnest at 150–200 companies per year. This is far fewer than the big Sand Hill Road funds examine. That’s partly because we’re a smaller fund and less well-known. A bigger factor, though, is that we have a highly specific investment thesis that excludes 99% of startups out of the gate.
Regardless, this is roughly how many pitch decks we review. In 90%+ of the cases, the founder comes to us. Either they send a cold email introduction (which is fine), or someone in our network introduces us, or we’re approached at a conference or other event.
At this stage, it rarely takes longer than 60–90 seconds to know whether something is a potential fit. Most of the time when something is “disqualified,” it’s because it doesn’t fit our investment model. That is to say, one or more of the following is true:
- It clearly doesn’t connect to our investment thesis, or
- It’s too early (i.e. it’s still “idea stage”), or
- It’s too late (i.e. Series A or later)
There are other reasons we might decline a meeting, but those are the most common ones. For me personally, the tie always goes to the runner. In other words, if I think there’s even a slight chance that something might be a good investment opportunity, I will take the time for a closer look.
Preliminary Review (100–120 companies / year)
Around 50–75% of companies we consider in earnest warrant a closer look. That means a meeting with a principal (either me, one of the other members of the investment committee, or one of our venture partners). These meetings are usually conducted over video, although we’re not opposed to sitting down in person if schedules and geography can accommodate. They typically last 20–45 minutes in which the founder explains who they are, what they’re working on, and why it matters. We ask plenty of questions, but the founder is in the driver’s seat. We also usually take a few minutes to explain how our fund works and what kind of “value add” we can provide beyond a check.
Roughly half the time (and we tell founders if this is the case), the principal will decide to take the company to the investment committee for discussion. We give that initial green light when we perceive thesis-fit, have confidence in the founder, and believe there’s a realistic chance of generating the returns (financial and social) that our model demands.
Investment Committee (50–60 companies / year)
Our investment committee meets weekly to review new opportunities in the pipeline. I love the cognitive diversity of this group. We all have different ways of seeing the world and evaluating opportunities. (For example, I’m the wild-eyed optimist who gets excited about everything and needs to be calmed down by my more grounded colleagues!)
About half of the companies we discuss are rejected at this stage. When that happens, you can expect to hear within a couple of business days following the meeting.
I always try to provide candid feedback about what we liked and what concerned us. This can be difficult to write and I’m sure it’s difficult to read. But hopefully it’s useful — either because it informs the startup’s strategy going forward or because it gives them motivation to prove me wrong!
Meanwhile, the survivors move on to …
Deep Review (20–30 companies / year)
When the investment committee is sufficiently interested in a given opportunity, we’ll start a process of deeper review. This is the most time-consuming phase. All of the earlier stages can happen within a few days of the first meeting, but the deep review always takes a few weeks and sometimes takes a few months.
Every company is different, but here are some of the things that happen during this phase:
- We’ll send a list of questions by email and ask for a written response.
- The founder will meet with one or more of us on the ECV team other than the principal who they talked to earlier.
- We’ll speak with other members of the startup’s team to see if the founder has the support she needs to execute her strategy.
- We’ll conduct one or more customer interviews to better understand the value proposition from the customer’s perspective.
- We’ll talk to an existing investor to hear about their experience to date and their take on future prospects.
- We’ll talk to our advisors who have domain expertise in the relevant areas to better understand the competitive landscape and other environmental factors.
- We’ll spend some time trying the product or service ourselves.
- If we think an investment might be justified but have concerns about the terms (e.g., valuation, investment instrument, pro rata rights), we may negotiate those with the founder.
- Other company-specific stuff as warranted.
Most of the time we’ll decide at some point during this process that the company isn’t right for us, and we’ll let the founder know as soon as that happens. (See above for the awkward but hopefully helpful process of saying “no” in a candid and substantive fashion.)
Investment (6–8 companies / year)
Huzzah! We’ve decided we’d like to invest.
At this point, assuming the company wants to have us, we go into legal review. We aim to get this completed in 3 business days, and that’s usually possible when the company has all of its documentation together. Sometimes there are complications, though, and then this phase can drag out. For example, we have no problem investing in companies that are based outside the US, as long as the corporate entity is still a (usually Delaware) C Corporation. There have been a few times where a conversion of corporate structure needed to happen before we could invest, and that can take a while.
The good news is that, even in the most complicated situations, the lawyers can always be appeased eventually (at least that’s been our experience to date). Then, it’s just a matter of signing the docs and wiring the funds.
Hopefully, this provides some helpful background and context for startups thinking about pitching ECV. I’m happy to dig in deeper on anything that’s unclear or could use more color. Feel free to post questions as replies.