How to Create a Venture Portfolio, According to Leaders at Techstars & Founder Institute
Are you a startup ecosystem leader or prospective new fund manager, interested in creating a winning venture portfolio? In the video and highlights below, leaders from Techstars and Founder Institute share methodologies and best practices to recruit founders, identify winners, cultivate growth, and ultimately build great businesses.
In this virtual roundtable, Sunil Sharma (Managing Director of Techstars Toronto), Ryan Micheletti (Head of Global Operations at Founder Institute), and Janet Todorova (Co-Director of Founder Institute Sofia) offer expert advice and answer questions from worldwide attendees.
Watch the full-length roundtable, or see the highlights below:
[FI] is an incredible intake program for early-stage investors. I use FI as a funnel that can go into investments from Techstars [and other later-stage accelerators],” says Sharma.
Playing the Long Game
Micheletti insists that VC success is won in a marathon, not a sprint:
A lot of people want to break into venture capital and, the way I look at portfolio building, you have to take the traditional models and use them as a framework. The traditional thought is:
One of three VC invested companies will return money to the fund, one will break even, and the other will fail. 16% of all seed funded companies have an exit. No one gets into this game trying to get rich, quick.
You have to take this larger approach of building companies over time.
Make It Part-Time
Ryan Micheletti highlights that building a venture portfolio doesn’t necessarily require full-time focus:
My main job is Head of Global Operations [at FI] but I don’t build my portfolio there. I build it working six hours a week running FI Silicon Valley, so it becomes this cool thing that you do nights, weekends – when you have time to launch some meaningful companies in your ecosystem.
Sunil Sharma cites FI grads as ones to watch:
Smart investors and other accelerators can see that the deal flow that comes from FI is superior deal flow than most other things that I come into touch with. There’s lots of opportunity to see the companies progress from the earliest stage to the graduation. If people are smart, they should get to know and get after some of these founders because they may end up in your portfolio after the program is over.
Virtual Format Increases Access to Mentors
Sharma highlights the opportunity to not only connect with top founders, but access leading mentors whose involvement speaks to the quality of the entrepreneurs:
Maybe [the mentors] are about to do another round of funding, or they’ve had a recent exit, and could join the bench of another fund as a venture partner or start their new company. Repeat founders are sometimes the ones to catch early.
Janet Todorova notes that virtual accelerator formats attract a greater volume of high-profile mentors, because it’s much easier for them to attend the sessions.
Companies that raise a seed round have a 16% chance of exit, and the likelihood increases from one series round to the next. Micheletti says that optimizing your portfolio for an exit will increase your value to the greater innovation community:
You need to optimize for that one exit and then you continue going down your path building companies, building ecosystems, and helping contribute back to the innovation community. Let’s say one percent of your portfolio exits. That means you need 100 companies. But if you want to be extra conservative, you need 300-400 companies.
FI Graduates Equipped with Alumni Support Team
Graduates of Founder Institute programs not only prove their ability to complete a rigorous 16-week program packed with business-building sprints and tangible deliverables, but leave equipped with an alumni success team – much to the benefit of potential VCs:
We have an entire grad support team that goes in and helps provide extra alumni support to the ones that are taking off and are really building something great. [The team] does nothing but focus on helping the graduate companies grow. We have three post-graduate programs: Funding Lab, VC Lab, and Venture Lab (geared towards Series A companies)," says Micheletti.
Vet for Winning Founders, then Winning Ideas
Micheletti cites FI’s “founder first” mantra as its “special sauce” in creating winning companies:
We take people with ideas at the earliest stage and turn them into entrepreneurs. We’re really looking for talented people – people with high fluid intelligence, high openness; we have this thing called the Entrepreneur DNA assessment, a psychometric test [that predicts the likelihood that someone can become a successful tech entrepreneur regardless of their idea, locale or demographic.] We’re really looking for talent.
Read more about the Entrepreneur DNA Assessment at FI.co/DNA
How VCs Use FI to Consolidate Workflow
Sharma and Micheletti highlight how being an FI mentor or local leader allows investors to consolidate workflow by simultaneously checking in with their existing portfolio and gaining intimate access to vetted prospects:
I have to keep in touch with all of my portfolio companies. As an angel investor, you need to talk to your CEOs and co-founders every so often so [FI] is a way to blend that together because they’re doing FI and we can catch up there and get the numbers,” says Sharma.
I work with and train all of our leaders around the world and the ones who are successful already have a tie back to the ecosystem. Maybe you run Startup Weekend or you’re an investor or you run meetup events; there’s got to be some kind of channel that you have,” says Micheletti.
VC Lab vs Leading Institute
Interested in running an accelerator, or starting a VC fund? FI Director of Operations Ryan Micheletti explains the differences in ecosystem leadership roles, saying,
Think of [Leading Institute] as the Founder Institute program, but for leaders that want to launch an FI accelerator. On the VC Lab side, it’s all in terms of launching your fund. On average, FI creates about a thousand companies a year, so by 2025, it’s possible FI could have a portfolio of 10,000 startups and a thousand ventures funds we helped launch. And that’s making a significant dent in the universe.
Final Advice for Building Your Venture Portfolio
Be active in your local ecosystem, but adopt an international lens. Consider how you can expand your portfolio, by your region, state or country of origin, or geographically across your professional industry.
Working to run a startup accelerator program can be a stepping stone toward launching a future venture capital fund, because you can build an equity portfolio while working closely with startups. VC Lab is a standalone program for existing ecosystem leaders and prospective venture capitalists, who want to raise capital now to become fund managers as their next career step.