How We Invest. What’s Our Investment Process?
How we go from first meeting to final decision
This is Part 2 of our three-part series to provide improved transparency to founders about Dynamo Ventures and how we operate. Over the series of posts, we cover (1) what we invest in, (2) what our investment process is and (3) how we support founders and their startups post-investment.
In this blog post, we outline our investment process and what founders can expect from Dynamo Ventures as we evaluate an investment in your startup. We have been operating within the model since mid 2019 and ironing out some of the kinks along the way. We now feel comfortable enough to publish it for full transparency, thereby making ourselves more accountable to founders whether we invest or not.
If we haven't been sufficiently clear around the process, please do call us out on Twitter, LinkedIn or by email (hello at dynamo dot vc). Your feedback would be welcomed (but please be gentle).
As investors, we sometimes overlook the lack of clarity about our investment process and how investment decisions are made. While investors look very similar from the outside, their inner workings can differ greatly. Every investor has their particular approach that can vary based upon their personal experience, the dynamics of the partnership, the investment stage, and governance.
In this post we describe the Dynamo Ventures investment process and our approach to internal decision-making protocol. We will continually update this post as we refine the process based on startup feedback and our efforts to improve our decision-making process.
For the purposes of this blog post, we are only describing our investment process in relation to new investments, not follow-on investment decisions.
Dynamo Ventures is a supply chain and mobility investor, focused on pre-seed and seed-stage opportunities, and invests only in enterprise startups.
For further information about our investment thesis, check out the blog post “What Do We Invest In.”
- The final decision by Dynamo Ventures to invest is based upon a unanimous agreement between all of the Partners - all four Partners need to be a “yes.”
- Our aim is to make a final investment decision and present the startup a term sheet within 4 weeks of the initial Partner discussion. Note, where we are not leading a deal (and subject to be the lead investor), an investment decision can be made in a shorter period of time
- Dynamo Ventures is a seed fund that invests between $250k to $1.25M which is typically between a third and a half of the total investment round. We typically co-invest alongside other investors
- We can either lead an investment or follow - our portfolio split is about 50/50. Note: for investments outside the US or UK, we prefer to invest alongside a local investor
We do accept inbound requests via our personal emails or our collective email email@example.com. If they fall outside the scope of the fund, we will notify you within a week.
Otherwise, we will review the opportunity internally and pass to a Venture Fellow to reach out or notify you that we have decided to pass on the opportunity with some high-level feedback within a week of the original inbound inquiry. As a note, Venture Fellows are part of our six-month program exposing recent graduates to the world of venture capital and startups. They are trained to conduct outbound, have first calls, and play an important role in the diligence process.
After the opportunity has been passed to the Venture Fellow, it will follow the process outlined below in “Outbound Efforts.”
As an industry-focused fund, we have a good understanding of the subject matter and what we are looking to invest in. As such, Dynamo Ventures have a very active outreach process that is managed by our Venture Fellows.
You might receive an outreach email from one of our Venture Fellows whose primary objective is to make contact and better understand what you are building and the stage of your business. The timing can be “hit or miss” but we try to begin a relationship early.
The Venture Fellow call notes are circulated and discussed between the Partners based upon our knowledge of the market and potential opportunity. We will let you know within a week whether we would like to “dig in” or not. If we would like to proceed, we will introduce you to one of our Partners to set up a call within a week.
If we decide to pass on the opportunity, we will notify you within a week and provide some high-level feedback. Note: we clearly have limited knowledge of your startup at this stage and so can only provide a limited amount of feedback.
After the opportunity has been passed to a Partner it will follow the process outlined below in “Qualified Introductions.”
We consider an inbound opportunity from a known party to be a qualified referral. There are effectively five steps that we take after we receive one:
- The referral opportunity is reviewed by one of the Partners to ascertain whether it falls within the scope of the fund and is likely to be something we would consider for investment. If the answer is positive, we will ask for an introduction and aim to speak to the startup within a week of the referral
- Following the initial Partner call, the notes are circulated and discussed with at least one other Partner. If we choose to progress, a second Partner call is organized within a week
- Again, new call notes from the second Partner are circulated and discussed with the remaining Partners. If we choose to progress, we will organise a call with the remaining Partners within a week of the second Partner call. Note: for positive opportunities, we aim to have a startup speak to all of our Partners within two weeks of the initial Partner call
- In parallel to this, we will start to prepare an “Opportunity Analysis” after the second Partner call. This document collates all the materials associated with the startup and research/diligence we have undertaken about the sector. We may ask for data-room access, if available, and undertake commercial due diligence
- If we remain positive on the opportunity after all the Partners have spoken to the startup, we will continue to “dig-in” further and undertake further due diligence including calls with personal references, third parties within our network, and potentially other team members
This work comes together as a draft investment memo and term sheet that is presented to all the Partners for final discussion and approval. If the investment is approved, the term sheet is issued to the startup. It is our aim to complete our due diligence and present a term sheet within 4 weeks of the original Partner call
If we decide to pass on the opportunity at any stage above, we will notify you within a week of the previous contact and provide feedback as to our reasons for rejection.
Summary of Process
Conflicts of Interest
Dynamo Ventures takes conflicts of interest very seriously and will not invest in startups that are competitive with pre-existing portfolio businesses. During our calls, we might highlight startups in our portfolio and confirm whether they are competitive or not. Note, we will not forward any materials that you have shared with us to portfolio companies or anyone outside of Dynamo Ventures without your express permission.
Read Part 3, How We Support Our Portfolio Companies
October 12, 2020