What Are We Looking for In An Investment?

By Giselle Melo

Untapped & Undervalued markets

At Matr (matter) Ventures, we want Founders and Investors to benefit from learning about how we make investment decisions and remove bias at multiple stages of the investment lifecycle.

Though we are a first-time fund manager, we are highly process and numbers-driven.

Because I’ve observed the disconnect between Founders and Investors too many times, I’ve created a three-part newsletter series to provide insight into our:

1. SELECTION PROCESS
2. Due Diligence Framework
3. Venture Fund Model

This newsletter will tackle #1.

THE SELECTION PROCESS

Like at most VC firms, we make our base investment criteria public, but we believe founders and investors can benefit from learning how investment decisions are made at various stages of the investment lifecycle.

We aim for improved communication throughout the Selection Process to shed light on factors that aren’t typically made public, such as the firm’s internal dynamics.

If a Startup meets our base requirements and moves on to the next stages of the Due Diligence Process, the results that follow may depend not just on the Startup but on internal factors at that given time.

As a former Founder, I know that fundraising is hard and that more information and communication is helpful for both parties. At every turn of the fundraising process and during a Startup’s growth or scale stages, we want to help Founders make smarter business decisions and safeguard their mental health whenever possible.

REASONS FOR not INVESTING

It’s never easy to pass on pitches, especially after building genuine relationships with the brilliant people behind them throughout the Selection Process.

One of the most significant (but least obvious) factors in passing on a deal is opportunity cost. In other words, we must ask: is this deal better than the next ninety-nine we will, see? If the answer is no, it doesn’t mean that the Startup is bad. To better understand a pass, it helps to understand the constraints on our end:

1. We have a set amount of capital that we can allocate.
2. We like to invest in priced rounds at the late seed stage and Series A round.
3. We can’t invest in our startups’ direct competitors as that is a portfolio conflict.
4. We prefer to invest where we add most value to Startups, which goes beyond just capital.

When a startup pitches us (timing) is crucial. To get a sense of the numbers, we’re projected to meet with over 100 Startups, investing in 1 (one) of them on average. This means that we invest in the top 1% of companies that pitch us (yes, we say no to ninety-nine out of every hundred or more Startups). We mostly share this with the aim that Founders not take it personally.

Priced rounds are valuable when an entrepreneur is working with an investor they are excited to partner with, and we hope to be that partner. We understand the rationale and cost-saving for founders raising capital with a safe or convertible note — and these are not deal breakers for us. But, as the standardization of terms for raises of >$250k per investor has improved in the past several years, we find priced rounds to be the best and fair practice — and help protect early investors like us.

We don’t invest in competitive businesses because it’s challenging to be a strong advocate for either one of them. So, for example, if we had a relationship with a central bank that was open to a partnership, and if two of our portfolio companies offered an AML solution, which of the two startups would we suggest they partner with? Technically we could introduce both companies and let them compete for the business. That’s messy.

We’re a network-driven firm of investors and PowerUp Advisors with diverse lived experiences (many of who have been Founders). With our growing network of PowerUp Advisors, we bring more than just financial capital to the table: we bring Advisory, and we open doors that positively affect our portfolio companies’ bottom line. In other words, we must ask: where can we, our lived experiences and the network add the most value?

We value every Founders’ time and aim to pass as promptly as possible when there is no path towards immediate investment with us. But we also value long-term relationships, and sometimes a “no” for now doesn’t mean a “no” forever.

REASONS FOR INVESTING

We like investment opportunities with advantages and moats that are scalable using technology. We’re interested in business model innovations, proprietary technological advances, large community or culturally-aligned solutions, and unique partnerships.

Our Due Diligence Framework and Venture Fund Model will be covered in depth in future newsletters.

WARM INTROS

We encourage our networks to introduce us to Founders with Mamba Mentality - especially those they know well or have done business with. Of course, we appreciate warm intros, but Founders need not wait for a connection to reach out; they should feel free to contact us directly.

PURPOSE OF A PITCH DECK

The purpose of a pitch deck is not to get funded. The goal of the deck is to land a call or meeting.

The purpose of the meeting is to generate enough interest to enter Due Diligence.

The purpose of Due Diligence is to confirm everything you claimed. This step can take weeks.

After that, we’ll either commit or, if we’re a no, we’ll get back to Founders quickly and explain why.

INVESTMENT CRITERIA

• Founders with a mamba mentality. Unstoppable founders have a clear view of untapped markets or better solutions to existing market problems. Because of their lived experiences and varied perspectives, these founders understand the internal engine that enables their company to scale in areas where others aren’t looking. At times that internal engine is a life-altering solution, a product that addresses a cultural nuance, the key to an unspoken frustration, a superior user experience, … and so on. Why the founder is best suited to build the company — at this time — is also something we look for.
• Market size. We need to see that the market is large enough to be worthwhile. Everyone loves to see the 1 Billion TAM diagram in pitch decks. At the same time, we DON’T believe that chasing unicorns — for the sake of chasing big shiny objects — necessarily leads to higher returns.
• Revenues or Valuable Traction. We look for revenue or valuable traction demonstrating product market fit and the company’s ability to scale.
• At Least One Diverse or Woman Founder. At least one Diverse Founder on the team must have significant equity and control in the company.

HOW FOUNDERS GET IN FRONT OF US

Reach out to us at https://www.matrventures.com/founders.

This article is part of MATR Ventures Newsletter. If you would like to subscribe, please sign up.