When Investor Duets Make Total Sense
SOSV has been investing heavily in accelerator programs for years now, and we have over time learned many lessons both good and bad. What we have learned has enabled us to create an unprecedented number of successful programs across the world.
We discovered, for instance, that a huge amount of the value in an accelerator program comes from the teams that are in the program — so the selection process for teams is utterly vital, and a bad team can dilute the value of the program significantly.
We discovered that running generic accelerators actually dilutes the overall power of the batch. Thus, it’s much better for all concerned to focus on accelerators with a common purpose that do not drag in too many disparate influences, so that not just the companies, but the accelerator itself has a focus.
We have also created effective contexts in which entrepreneurial activity emerges during the program from all the participants. This is especially true of the engineering and scientific participants who may never have had any previous business experience. Creating an environment where entrepreneurship can be discovered and allowed thrive to its fullest is no easy task, and we are continually improving what we do.
How you select and engage mentors and how often they participate are all complex issues that require a multi-factored balancing act between the value mentors bring, the knowledge gaps the teams have, and the time they need to spend actually engaged in making stuff vs. learning how to make it.
When you get all these and many more ingredients right, the speed of the success that results from the teams’ participation is truly phenomenal, even though the effort on our part in is well in excess of traditional VC involvement.
This flood of success has also presented us with a novel problem that is set to grow in size year on year, and there is no end in sight. It’s the kind of problem that you kind of love to have, and it needs novel solutions: What do you do when you have more great deal flow than any one investor can handle?
The obvious answer is to grow the size of your fund, and while we are doing this to a substantial degree, it’s not going to be enough — nor is it the best answer to the problem.
Another answer would be to slow down or stop the accelerators. Frankly this is an even worse idea, as we have such good momentum and talent surrounding what we do that there are just no brakes to put on. In fact, in the area of synthetic biology (where we run RebelBio in Cork and IndieBio in San Francisco), if we were to slow down we would end up missing what is probably the largest set of world-changing investment opportunities the world will ever see.
As we have grown as an investment fund over the years, we noticed that a good number of our best investments are syndicated with some of the other best names in the VC business. This leads us to look at another and possibly the best solution to the problem of too much great deal flow, and that is Syndication.
This requires some communication on our part since other firms, especially in the biotech space, are often not aware of the value of accelerator programs (3 months of intense working together is probably the best due diligence process imaginable). In addition to that, many VC firms are not set up to do investments outside of their own country, and our accelerator programs attract talent from all over the world.
We have calls out right now to other investors across the world to participate in our programs and to co-invest with us and lead rounds as either syndicate members or even lead rounds in our graduate companies. Even with the great response we are having, there is going to be much more capacity to fill, and many more people to make aware of the benefits of participation.
Multi-investor rounds make a ton of sense if only for the extra pairs of experienced eyes keeping a watch over the portfolio companies as they grow. With the investments in Metabolomic Diagnostics and Synthace in the biotech space, we have been delighted to work with other firms, and there has been a lot of value brought to the boardroom tables of both companies by having more than one VC in the room.
With 30+ companies launching each year in RebelBio alone, we are going to need to fill out a much larger syndicate to make the most of all the opportunities, and this is an interesting challenge that we are going to more fully explore at a range of conferences each year. At the same time all global, quality, professional, investors are welcome to access our portfolio portal
The world needs the new and innovative companies that are coming out of our accelerators globally, many of whom are looking to profitably solve global grand challenges and take previously impossible problems and make their solutions a commercial inevitability. In order to get the best possible chances for these companies, we need to increase cooperation between VC’s globally and profitably.
We need many new investor duets (and trios!) to orchestrate the level of success that the world deserves from this massively expanding wave of creativity and development. There is so much opportunity that many can win at once. This dynamic is potentially so much more lucrative than other sources of deal flow that it makes total sense for investors to cooperate at earlier stages and ride the tide of success together.
Originally published at sosv.com on August 10, 2015.