I'll think of a catchy title soon
Thomas Otter's Acadian Ventures Substack Blog and/or Newsletter.
I’ve been meaning to write more consistently over the last couple of years. I have many brilliant excuses for not doing so. Trying out a new platform might just be thing to break that impasse. I’ve heard good things about substack, so let’s give it a spin. My partner, Jason, has been consistently producing our fund newsletter, but consider this substack to be the random, slightly wacky cousin of that one. I ran a relatively successful newsletter over on the Otter Advisory blog, and that is now in the good hands of Charlotte. This might follow a similar path, but I’m not going to make promises just yet in terms of cadence or form.
By now you know the subscription drill. Click the button and your soul and inbox are mine forever, subject to the provisions of the GDPR.
Reflections on my first year as a Venture Capitalist
It was roughly a year ago now that Jason and I made the decision to team up at Acadian Ventures. It has been a remarkable learning experience so far, challenging and rewarding. While I have been and remain a Limited Partner (LP) in Acadian Fund I, it is only by being a General Partner that I’ve really understood the detailed mechanics of how a VC firm really works. Over the past few years I’ve done multiple angel investments, several of which are doing really well, but jointly running a fund is a different proposition.
I’ve learnt a fair bit about VC finance, and the finance industry more broadly. I did a course via Getsmarter and Oxford Saïd on Venture Finance, and I’ve read more a dozen books with titles like the Fundamentals of Entrepreneurial Finance, Venture deals, the Business of Venture Capital, the Power Law, Secrets of Sand Hill etc. Many papers (academic and popular) and even more blogs, and listened to a plethora of podcasts. EUVC is my current favourite. Andreas has great guests and profoundly good interviewing style. I’ve learnt tons by asking Jason, Ryan (our CFO) and David Clarke (partner) a bunch of dumb questions. I’ve much more to learn.
It took a while longer than we envisioned to establish the firm structure, with Jason in the US, and me in Germany, and the forest of regulations, but we have things well sorted now.
It is all about the network
VCs from other firms are also very helpful and patient as I’ve asked what probably seem quite naive questions. I’m really enjoying building a network with other VCs, either in the context of a specific deal, or as part of the broader community. A special thanks to Anna, Emma, Fred, Fred, Cleo, Guillaume, Aileen, Jonathan, Felix, Litzie, Christian, Andy, Dave, Oliver, Sebastian, Brian, Tom, Elise and Jörg. Reading lots of term sheets and investment memos also helps. My advisory and board work over the last 4 years with PE firms and investment bankers has been really helpful too.
Several of the PE folks I’ve worked with have become LPs in Acadian, which is a nice validation for our firm. I continue to stay connected with the HR TECH focused PE community, there is a lot of research overlap, and we can learn a lot from each other.
Since the firm started, Jason has really nourished our LP community. So many of our LPs are active supporters of our portfolio companies.
Communicating with institutional investors
Engaging with potential institutional LPs requires another set of skills and perspective. I’m learning how to dramatically simplify and compress the fundamentals of HR Tech and the future of work, while at the same time significantly increasing the sophistication with which I talk about portfolio construction and allocation strategies, deal flow pipelines, distributions, follow-ons and more. Answering the question, “Why do you believe there is a market for a specialised, early stage future of work fund?” requires a different nuance, depending on who is asking it. Not everyone wants to hear the complete and unabridged history of payroll. I’m now fluent in terms like MOIC, DPI and TVPI.
Our thesis is firming up nicely. Jason has a strong analytic, datageek side to his make up, so how we tell our story in numbers, both in terms of fund performance and how we analyse the market is now looking really strong. Our message that sustainable capitalism requires sustainable work is resonating, but I need to spend more time communicating the Acadian brand, differentiation and narrative, hence this blog and getting out there to more events and podcasts.
Working with Portfolio Companies
Advising and encouraging portfolio company founders is a big part of the job, and a major component of our differentiation. Working with portfolio companies is familiar to me, given my operator background (curious term, operator, but that is for another thread). It is after all, very similar to what I did in the advisory business, although as an investor, I view the business through a different lens. It is easy for VCs to over-ascribe portfolio success to their deep nuggets of wisdom, and I want to avoid that trap. Often it is just confirming a decision the founder has already almost made, or opening a door to meet with another vendor, prospect or potential hire. Every founder is different though. It takes time to develop trust and a meaningful relationship. One of the simplest, most powerful things VCs can do it is get founders talking to each other. We brought founders together in person in 2022, and we will do more of this in 2023.
Perhaps the greatest vindication of Acadian has been that several fund I founders have invested as LPs themselves in fund II.
I’ve realised that the network we have built up in HRTECH over decades has a massive utility. People that we met decades ago turn out to provide brilliant deal flow, or invest as an LP. So much of business is about weak ties.
We meet many entrepreneurs who are looking for funding. At one level, being a VC has quite a lot of similarities with being a product manager. There are more ideas and opportunities than there is capacity. You need to prioritize. The way our fund is structured, we will do 30 investments over the course of 4 years or so. I typically see 5-10 zoom pitches a week, so this means that a vast portion of the opportunities we see, the we need to pass, and say no. I need to get better at saying no more quickly and decisively, and communicating those decisions thoughtfully. My hubspot diligence leaves a bit to be desired, but I’m building a more robust decision making framework as I see more opportunities.
Deal flow is where it is at
Deal flow is the life-blood of a VC firm, in that it is impossible to invest in opportunities you don’t see. It is fascinating to see where our opportunities come from. Jason geeks out on the analytics on this. Founders talk with each other, so it is gratifying that our founders regularly refer us. Many of our LPs are active in angel networks, so they serve as a powerful scouting machine. Sometimes it is direct outreach. Linkedin helps here, although it can be a time sink. Increasingly, leading generalist VCs engage with us help them understand an opportunity better, and this then may lead to a spot on the cap table for us, as founders and the fund find our specialization valuable to them.
In a future post (see what I did there) I’m going to explore the deals we did in 2022, the background on why we did them, and how we work with them.
On one level 2022 was not the easiest of years to become a VC. I’m not sure that I’d trade it though. It is a great time to be learning.