Building Your Track Record
Among the operator-investors, venture capitalists, and active angels that we partner with at Conduit, there is a single recurring theme that is correlated to long-term investment success.
To secure allocation in the most competitive deals, and in turn, maximize upside potential on your investment or your fund’s capital allocation, you must build a compelling track record.
However, building that track record is often nebulous and requires a significant amount of time invested on a daily, weekly, monthly, and yearly basis.
Without diving into the weeds of that process too much, our team at Conduit sat down to discuss our two key takeaways: determining your niche and establishing your reputation.
In the process of securing allocation in competitive deals, there are essentially three components: seeing the deal, picking the right one, and winning it. We’ve written about this process in the past, which you can find here.
As we pointed out, in order to see the deal in the first place, it must find its way organically into your inbox through word of mouth. To put it bluntly, founders and investors in the space with knowledge of the fundraise must think of you immediately as a relevant introduction.
In order to maintain that “top of mind” mindshare, you must become widely known for a niche investment vertical or stage.
For example, if there is a highly competitive backed e-commerce infrastructure company raising a pre-seed round, that deal will find its way to investors that are known directly for that sector and that stage, and then slowly find its way through broader concentric circles of investors.
If you are an e-commerce investor, typically involved in Series A rounds, it will slowly find its way to you depending on the quality of your network. However, by the time it hits your inbox, the round will likely be overcommitted. The quality of your network, specifically with regard to your sector and stage focus, will determine the quality of your investment opportunities.
By exposing yourself to high-quality opportunities, with the right reputation, you’ll be able to build your track record and in turn maximize your financial upside.
Recently, former Shasta Ventures Partner Nikhil Basu Trivedi wrote about the rise of solo capitalists, noting that key benefits of doing so include faster decision making, ownership flexibility, and creative financing options.
More specifically, Nikhil adds, “The importance of an individual’s brand has been steadily increasing in venture capital for quite some time. Founders are more often than not picking an individual partner who they want to work in a financing round, based on the relationship built with them, and based on their brand and expertise, instead of the firms.”
The founder’s decision-making process about what distinct partner they want to work with is highly motivated by said partner’s reputation in the market.
In turn, that reputation is driven equally by investment niche as well as personality, ethics, and values.
While everyone’s personality is slightly different based on life experience, sought-after founders raising a competitive round will typically opt for investors of high ethics and values on their cap table. At the end of the day, founders want folks on their cap table who they trust and can call when things go sideways or not accordingly to the plan.
As the saying goes, it takes decades to build a strong reputation and only one poor judgment or decision to ruin it.
With that said, determining your investment niche and slowly building up your reputation will lead to an improved track record and an optimal investment upside over time.