Since speaking with Mo Koyfman, Spark Capital’s New York Partner, in October, I’ve become increasingly intrigued by venture capitalists’ gut instincts.
During our interview, Mo surprised me by debunking my assumption that process trumps gut when it comes to making investments.
“There’s a lot of work that can be done, but the truth of the matter is that work in this business can only get you so far,” he said.
“At the end of the day, you have to make a judgement call.”
“Pattern recognition informs your gut so that when you are making a gut call you’re making it based on inputs that give you more confidence.”
The only way to develop pattern recognition is through experience.
I was fortunate to spend time with Lauren Loktev, a Venture Partner at Collaborative Fund, who gave us an inside look into her journey cultivating it.
As Mo explained, the core of investing is making judgement calls, and I was most eager to ask Lauren about her personal debrief process after meeting with an entrepreneur.
Today she gives us a glimpse into how she evaluates her investments and the questions she asks herself before making a decision.
Collaborative Fund’s mission is to invest in entrepreneurs who are pushing humanity forward.
Founded by Craig Shapiro in 2010 the New York-based firm fulfills that quest by investing in companies like AltSchool, Kano, and Bond Street.
The first thing Lauren does to take a step back from the excitement of a meeting is ground herself in the team’s credo.
“When a company is pre-revenue, there may not be very much to purposely assess…You have to ask yourself: Is this an inspiring team that really wants to change the world? Do they have what it takes?”
It’s a combination of head and gut figuring it out.
Lauren’s first analytical approach is assessing the founding team.
“The composition of a founding team is really important for an organization’s success,” she said.
You need to ask yourself if “every single person on the team is exactly who they need to be.”
If not, as an investor, how can you help with recruiting to fill those gaps?
Establishing and evolving culture are among the most challenging growing pains startups face during the early days.
Lauren’s advice to founders is to “communicate as openly and honestly as possible.”
“The one thing that people don’t like in that transition is surprise. Be ahead of it, thoughtful about the messaging, and make everyone feel like they are coming along with you.”
Managing things in a direct, honest, and forthright way is the only way it works.
Regardless of the challenge, a company is facing, as an investor “you want to be a partner helping them approach it.”
“It’s our job to engage that way,” Lauren asserted.
“We accept the challenges and help teams figure them out.”
This results in partners possessing “deep ownership” of their investments.
It’s equally critical for investors, supporters, and team members to recognize that companies develop on imperfect trajectories.
Early in her career, Lauren had to accept that investments will fail for a variety of reasons.
“It’s the nature of early stage investment, and that’s okay,” she said, reflecting on her time at Collaborative Fund as well as her previous role as the Senior Vice President at New Island Capital.
“If that weren’t the case we wouldn’t see any of the huge hits.”
After focusing on the team and a company’s core mission, Lauren shifts to the startup’s brand.
“You want to have that ‘Apple effect’ that people really grab on to’,” she explained.
“Today, we want to have a real connection to the things that we purchase…Emerging brands are taking off. People don’t want to buy big boxed cereal anymore.”
There is a huge opportunity for value led businesses to be the leaders of future.
Exo Protein, protein bars made from cricket flour, are a great example in Collaborative Fund’s portfolio.
When assessing a company’s brand, you should spend equal time understanding how the team plans to develop it: How do they plan to scale a personal, branded experience that doesn’t feel like an antiquated chain?
Lauren cites Collaborative Fund portfolio company Blue Bottle Coffee as an example.
At Blue Bottle Coffee, they’ve made it a priority to connect you with the source of your coffee and staff in each of the 23 locations.
Whether you are in Los Angeles or Tokyo, the culture gives you a sense of belonging.
As we transition into 2016, Lauren will be seeking each of these traits in startups that fit into the firm’s focus on “whole child development.”
Collaborative Fund hopes to partner with entrepreneurs focusing on areas such as health, financial education, as well as the social and moral development of children.
“We’re thinking about in a holistic way,” Lauren explained.
“We’re taking a broader focus that is going to result in finding the best and most impactful investments for kids.”
Lauren details this in the below chart and in her personal blog post.
“The family structure has dramatically changed over the last 50 years. We want to support families in their modern experience.”
To learn more about the team’s focus on ‘whole child development’ and gain deeper insight into how Lauren applies these principles to her investing follow the Collaborative Fund blog and stay up to date with the firm on Twitter at @collabfund.