2017 is certainly a year to remember. Like most, we were busy at S2G Ventures. We finished the year with 32 companies in our portfolio (with 1 additional approved but not funded). We made 30 investments (both new and follow on) of various sizes in seed, venture and growth stage companies. We made our largest investment to date. We sat through many board meetings, some filled with positive news (we like these) and others filled with the challenges that startups have. We have 107 co-investors that we have invested with, of which around half are strategic investors. We did some level of diligence on over 400 companies, not to mention the larger number that we were introduced to, had cold called us, approached us at speaking events or we reached out to. And then there were the hours that we spent working with our portfolio, trying to help our CEOs and companies be successful.
And while we were busy, we learned a lot as a firm and individually about being an investor and partner to our portfolio companies. We still try to be entrepreneur centric. We still focus on being value add. We still need to see impact baked into the business model. We still know life is short so we should work on things that we enjoy (and the rewards will follow). We are making an effort to evolve and be world class. So here are a few of the things that we learned in the past year and we want to build on heading into 2018.
The thesis and systems approach has market traction. When S2G was started, the thesis of building a soil-to-shelf had not been tried, at least as far as we could tell. But as the fund has invested from soil-to-shelf (we have even joked that it could be considered from microbiology-to-microbiome) we have seen a number of advantages of investing across the entire system. We have been able to connect many of our companies who are now customers of each other. We have been able to have our portfolio identify holes in the market and have looked to fund companies in a particular sector that fills those needs. We have been able to have our companies help us with diligence to vet a particular technology or entrepreneur. And we have been able to share best practices across companies (where appropriate). A lot can be gained individually and for S2G by staying engaged with the leadership at our portfolio companies. They are probably the best source for insights that will help us keep a differentiated thesis and approach to investing.
Sense of urgency. In the past, we had 4 main things that we looked for in founders besides an impact focused business. They were: action oriented, seek feedback, think about their revenue model and their growth model. And after this year, we are adding to that list a sense of urgency. We are not suggesting a CEO should bulldoze forward blindly, its about moving through problems, finding the best solution and moving on to the next. There is a balance between a perfect solution and something that is good enough. As the rate of change in business continues to accelerate, companies that are not solving their growth challenges quickly and efficiently with novel and unique solutions, are going to get left behind.
CEO’s still matter. There is the old adage in the venture world that a good investor would rather bet on an A Team with a B Product over a B Team and an A Product (teams over technology). And while this is true, it’s not because we think the CEO needs to be the smartest in the room (if they are you are in trouble), it’s because the CEO needs to be able to remove the obstacles to success from the rest of the organization and let the people she has hired do their thing. They provide the vision, the culture, motivation, are scrappy, take responsibility and lead by example. Good CEO’s hire good people, great CEO’s help good people become great. And knowing that very few things in life are ever linear, we try to take a measured view of the relative successes or struggles that our CEO’s are experiencing at any one point in time. If our CEO’s are successful, we will be successful!
Syndicate construction and management is an art. This is probably not something that most early stage companies think about. Heck, in our entrepreneurial experience we didn’t really think that much about it, but looking back on some of our experiences and now working with so many world class syndicate investors, we have realized how much of an art it really is (and we are sure we have a lot more to learn). The vast majority of co-investors are generally doing what is best for their fund, which is what their job is, but what’s best for their fund may not always align what is best for our fund or frankly the company. And so both as an entrepreneur and as an investor, it is important to try to make sure that everyone around the table is as aligned as possible. And that is not always straightforward.
Learn from the past. But focus on the now and future. Look back to see what worked and didn’t work. Where there are valuable lessons, but you can’t dwell on the past and expect to move forward. Take those lessons, figure out the obstacles that stand in the way of success and go after them. At S2G we try to minimize the time spent focusing on the past and put our efforts and life focused on the present and the future.
Data. Data. Data. The definition of data is extremely varied. It seems so simple, yet is often a mess, hard to get and expensive for early stage companies. But good data is invaluable. It can help with decision making, planning, optionality and seeing where others can’t. It is not the end all be all and organizations use it very differently. But it has its place inside the decision making of an organization. But we and our companies need to get better at managing our own data. And that data needs to be based on machine learning, AI and data analytics. Being action oriented for a company means trying, experimenting, learning from the output and using that to get smarter. A test that fails is valuable, it shows what won’t work and gets us closer to a solution. The companies that use/build/leverage the most robust and relevant data will have an advantage.
You manage what you measure. Speaking of data, increasingly traditional metrics of how we measure financial performance (revenue, EBITDA, et al) are lagging indicators of future performance. As investors and Board members, we try to find secondary signals for judging performance but its imperfect since the management team is executing day to day. We are finding that many of our teams are deploying more sophisticated signals for demand for their product, their supply chain and that important SG&A burn (from R&D, regulatory, product performance & pricing to sales/marketing). Measure. Learn. Adapt. Repeat. The one thing that is still hard to measure at a more granular level is culture, which kills strategy and tactics.
This really is a marathon. While a sense of urgency is critical, it is also obvious that change is hard, especially the closer you get to the farmer. Farmers have a different risk equation relative to a software startup. A software startup can make a change to their code or business model and test it that day, and sometimes running multiple tests in a day in which they can get to a “best answer” and rapidly change the whole business based on those results. Farmers basically get one set of experiments a year. So if they start farming at 25 and retire at 65, they get 40 chances to experiment in their lifetime. And market factors or mother nature or snake oil products and many more issues, can cause a farmer to lose everything if things go wrong. So when a farmer makes a decision to try something new, it is often only a small portion of their farm that they will experiment with, say maybe 5 acres or 10 acres of their 4,000 acre farm. And next year, if they had success, maybe double it to 10 or 20 acres and so on. So companies have to toe that fine line of having a sense of urgency with building a capital efficient business model.
We have a lot to learn. Last but not least, we are focused on being a learning organization. We want to be humble, always open to getting better, pushing/evolving our systems approach, but remaining entrepreneur centric. If we can do all of those, we think there are great opportunities to bring about the change in our food system we need to achieve. Thriving farmers, healthy and nourishing food, a sustainable/ livable environment and attractive financial returns. We are thrilled to have the team we have and look forward to the ones we are adding. Just like our entrepreneurs (and mother nature), we need to be a resilient, knowledge seeking TEAM at S2G. Onward!