I’ve written before to entrepreneurs reminding them to always self reflect, be honest with themselves, and to follow their entrepreneurial gut instincts. This is a follow-on post along the same lines but blending together the York IE hybrid model of startup engagement.
A couple weeks back we rolled out our annual reporting package to investment partners and advisors of York IE. Twice a year, we report out on the investments made to date and performance of the portfolio of our B2B SaaS investments. Our investment cycle year is broken up into two six month cohorts and goes from July 1 to June 30 where we aim to execute 10-15 deals annually, so the reporting packages will grow bigger and more complex as we enter into year two and beyond. We recently publicly announced our latest cohort and six months earlier announced our inaugural cohort. To date, we’ve now formally invested in 15 startups with one more in closing.
We add new investment partners (high-net worth individuals) and their expertise and capital throughout each cohort who then receive a piece of every single deal we do. They give us a five year pledge and an annual capital commit. We charge no management fee and offer a unique model where we get rewarded on the upside gains. If startups don’t win, we don’t win. With that, it’s an evergreen and growing investment vehicle so investors, allocations, deal sizes, etc. are always expanding with each new cohort. It’s certainly not a simple operational thing to manage. But it is what we believe to be a better model, aligned with entrepreneurs moreso than the traditional venture capital LP, with aligned incentives as we bring our operational growth and go-to-market prowess to the companies we back.
On the efforts of the tremendous work of our market analysis, investments and communications teams, the reporting packages include: overview email, overall investment strategy and highlights, a portfolio wide investment summary, company profiles, company highlights, investment rationales, deal allocations, account statements and more. We’re investing heavily in our operating team (now 12 deep with five contractors and five interns!), so we’ll continue to be able to scale our own business model (yes, we’re a startup too!).
We differentiate from traditional venture capital firms as we innovate in several key areas for our investment partners. Some examples listed below:
- Transparency – we have an always on open door policy, data room in our tech platform, and incredible reporting
- Operator Point of View – we invest as operators, meaning we ask ourselves if we’d take an executive job in this company to scale it
- Go-To-Market Expertise – we’ve built it, we’ve documented it, we’ve advised it, we’ve mentored it, we’ve created a coaching tree. This is our bread and butter
- Speed/Velocity/Urgency – we move quick, make decisions quick, report quick, we pass through gains and losses as they happen
- Mechanics – we are not a traditional fund with traditional fund mechanics with passiveness as the forefront. Our investors are engaged and involved
- Economics – we charge no management fee and our economics are on the carried interest on a deal by deal basis. Pass through losses and gains, one K1
- Resource Access – many of our investors leverage our analysts, content, back office, marketing teams personally and for their startups
- Technology Platform – we’re building our own SaaS-based market data and analytics platform and sharing access with investors as we build modules and workflows to support our investment and advisory business
- Layer On Investment Opportunity – many times our investment partners who get an allocation in every deal we do, want to do more. We do too and have used our AngelList SaaS syndicate fto top off rounds on top of our captive syndicate
Bringing to the forefront the first three bullets above and to connect to the ‘startup gut check,’ one specific to York IE’s captive syndicate membership is that we include what we call a ‘Confidence Indicator’ in our reporting. All investment firms provide mark to market valuation indicators based on follow-on financings or material events, but these snapshots tend to be conservative and only based on brass tax facts. This is of course important to measure the financial performance of investments, but, in early stage startups, doesn’t give enough of a directional score. Given our model, actively involved as consultants/advisors via our service modules, and focused on transparency, we decided that crafting up our own scorecard was a good way to annually pulse check each company deal by deal, but also in aggregate view.
As with all methodology oriented things, the key value is always in the context and details, but this simple approach also challenges our operating team to prioritize where to spend active time in our advisory and consulting business. We do our best in scoring the Confidence Indicator based on our operator-first entrepreneurial instincts — just in a collective of companies. This also enables us to score honestly how we believe York IE is doing overall and do our best to remove bias.
Confidence Indicator Legend
Positive (+), Comme ci, comme ca (~), Negative (-) —> with context.
As is clear and often echoed: startup investing is risky and volatile. It takes thick skin to invest in this alternative asset class and thicker skin to actually run one of these companies as an entrepreneur. We want to be accountable with our founders to both – operating and investing. With York IE, we are focused on the earliest stage startups, so the tumultuousness and pressure is heightened. There is little room for distraction or error. Startups have positive and negative swings daily, weekly, monthly, quarterly, yearly. It’s the nature of the investment class. Throughout the lifecycle of all startup investments they go from + to ~ to – in wild swings. Startups are unpredictable, risky and scary rides and can have quick swings for the upside and down.
So, whether running a startup, investing in them, creating a new company to help do both, follow your entrepreneur instincts and do your own version of the startup gut check on a consistent basis. You can use the confidence indicator for all facets of your business to directionally measure the headwinds or tailwinds you may encounter. We’re here to support!