We recently had a conversation with Dana Wright, partner at MATH Venture Partners, exploring how she started in the industry, the importance her network plays in the firm’s growth, and ideas for the future.
MATH was started by Mark Achler and Troy Henikoff, longtime business partners and friends going back 25 years. The company was founded on two key principles:
- That customer acquisition drives outsized returns, not technology as one might believe.
- Experience as operators can be leveraged to help early-stage companies.
When Dana first joined MATH, Mark and Troy had already launched the firm and she had just exited from a private-equity backed company. It was a later stage company that was a spin-out from ConAgra Foods, in the commodity merchandising and trading space. At Gavilon, she had been the head of strategy, in charge of long-term planning, board relations, and the firm’s corporate development function, including M&A and integration efforts. Gavilon spun out in 2008 and made several acquisitions. After a large buy-side which involved integrating two business units of similar size, Gavilon sold in a multi-step transaction for more than $4.5 billion. Dana stayed for a year after that, and when it came time to leave, that exit gave her the financial ability to pick what she wanted to do next. She decided that early-stage companies were her passion. She understood the “deal” side of things but had zero network in the space and a limited network in Chicago.
Dana moved full time to Chicago in 2014 and started doing early-stage angel investing. She started writing her own checks first and began connecting with a lot of entrepreneurs. It was at this point that she reached out to Troy. Troy was running TechStars at the time, and Dana was keen to become part of the TechStars network as a mentor.
Unfortunately, her first attempt was a “no”. Troy was understandably protective of the TechStars network and Dana hadn’t done any deals yet, so he didn’t know her or her level of investment. The second time she reached out, she simply said, “Okay, I’ve done six angel deals, we’re co-invested in a deal together and I’m involved in multiple angel groups, can I be involved now?” Finally, she had earned her way in. Then, Mark and Troy sold her on MATH’s investment thesis. She became a limited partner in MATH 1, but was still trying to figure out whether she wanted to operate at the early stage level or whether investing was enough.
She was to join MATH as a part-time EIR. She helped with sourcing and the investment team, performed due diligence, and got involved with some of the MATH portfolio companies. However, her old team was pulling her in another direction and she sat with her feet in both boxes for a little while. After a year of being in between, Dana decided that she wanted to go all-in on the venture capital side. Mark and Troy asked her to be their third partner, and Dana joined MATH Venture Partners full-time.
Now let’s get to the questions…
What would you say sets your firm apart from your peers?
I think there’s a bunch of things, but I would say the first one is that our focus is not on an industry, nor on a particular type of business model, but rather on companies that can scale customer acquisition. When we talk about having an unfair advantage in customer acquisition, that is not something that you can just figure out using a formula.
We fundamentally believe in 1) finding leverage in the customer acquisition model, 2) getting solid unit economics in place before scaling, and 3) looking for capital-efficient businesses that can scale efficiently. If you take on big capital before figuring out those things, you’ll scale inefficiently and waste a lot of money. We believe in establishing a strong foundation first then securing capital so you can scale fast once you’ve figured out the fundamentals.
How do you suss out if someone has an unfair advantage in user acquisition?
There are lots of examples, but I would say it’s all judgment, especially at the earliest stages. We’re trying to figure out if a particular type of leverage in the sales model or acquisition strategy actually exists. Is it visible in the earliest stages? Or, do we have a thesis on how it will come about? We’re looking for incremental pieces of evidence to prove our initial thesis along the way.
An example would be a “land and expand” model, where you might have an initial customer acquisition process and initial contract that pays back. But, in addition to the initial unit economics, there is a 20-fold opportunity to expand. This could be one contract into other parts of the business, or product expansion. Another example is a leveraged sales model where there’s a one-to-many relationship, so you’re selling through a reseller, or through a particular channel strategy. Sometimes it’s from the network effect – especially in a lot of our marketplace businesses.
We’re looking for those things that get the flywheel going and provide the early proof points that those things are working and can work at scale. Let’s not forget product-led growth either. There are more and more examples of where the product itself is leading viral growth. The economics in those businesses are just better than a traditional BDR-Sales-Customer Success model.
It could be any of those things! But, we absolutely don’t say: “You have to get to $1 million in ARR (Annual Recurring Revenue).” Some firms go by: “We’re not interested until you reach this level” and they use an arbitrary sales number as a proxy for product-market fit. We are really digging into the business model more deeply than that.
How would you say your network development efforts flow into other key elements of your work, like deal-sourcing, diligence, and portfolio support?
They all are connected, but the deal sourcing aspect definitely holds a lot of weight. Let me step back and give another component of MATH that may be different. We are pretty much industry agnostic and also business model agnostic. We have about 60% of our company’s total dollars invested in companies that are SaaS models, another 25% in marketplace models, and the remaining being a smattering of other things. We have a really broad network geographically as well. About 50% of our deals are in the Midwest, around the Chicago area, with the other 50% all over. Ultimately, those different nodes that you put into the network really make the difference. So if I have to go to Austin and Dallas four to six times a year to see portfolio companies, I make sure that I spend extra time with the Texas ecosystem that can benefit from a connection to us. I’m looking for the angel groups, the accelerator programs, the individual angels, family offices, other venture funds, as well as entrepreneurs that are all early-stage. Those can be good referrals, so I continue to cultivate those relationships.
In COVID times, you have to be more intentional with those actions. If you’re not proactive, you’re going to lose that connection with people. If I have an upcoming board meeting for a company, it’s my reminder to set other meetings with people that I usually check in with around those times. I’m making sure that I don’t allow the lack of a travel schedule to let me get lax on making sure I create those connections at those times. I always try to build in an extra day just to connect with people in the network.
Separately, I am a constant recruiter, I probably spend 30% of my time just talking to entrepreneurs and executives in the space. I fundamentally believe that the difference in most of our companies is the people that join them. I spend a ton of time with just outreach conversations, with some of those leading to unexpected connections.
Do you have a system or tool that helps you maintain those relationships?
We do. We have a really small team, we’re a small fund, so we have limited resources. We went through a process to find a more VC-specific CRM tool that could accommodate everything that we needed.
The interesting thing is that the value of my network is not the value of Dana’s network. It’s the value of the combined MATH team network. I don’t know how you leverage these combined networks without a really good system. We’ve now got one that can take care of all the different components, it can track co-investors, deals, and deal-sources. It can track multi-relationship layers as well including LPs, corporate contacts, and interactions across all these areas. Assuming we’re all using the system in the same way, we can get a lot of leverage out of it.
We’ve talked a bit about deal-flow sourcing. Do you have any unique techniques that you think others would find interesting in that space?
I think we all do it a little differently. The unique thing about MATH is that currently, we have three managing directors and no principals or associates. We’ve talked about whether we want to hire additional associates. What we’ve found is that a lot of entrepreneurs are told “Don’t talk to the junior associate”. That’s very frustrating for an up and comer in the VC space, trying to build a track record.
There’s a big debate about sourcing. Do you only source for warm intros? Or will you take cold outreach? As long as the cold outreach isn’t a blast email or generic message on LinkedIn, and shows some personalization, I will 100% always take a 30-minute call. The reason is, I think that you get into your own bubbles in terms of your network, and having been from outside of the industry and having to really fight my way into the network, I realize how hard that is.
Sure, you can get a warm intro if you know the right people. They say it’s a sign of scrappiness if they get the warm intro versus the cold intro, but I never want an entrepreneur to think they can’t get to us because of some blockade. We make ourselves available through office hours or an initial screening call. In many cases, the first meeting is an advice meeting – especially in the early stages. I’m really focused on making sure that we’re open to cold interactions so that we’re sourcing from diverse pools.
Would you say those sentiments around warm v. cold intros are unique to MATH or are the times changing for Venture Capital in that sense?
I think it’s changing, and I also think it’s unique for partners to do that. In a lot of firms, there are a lot of people that send cold outreach that are sourcing deals. I think it’s unique for partners to take those cold meetings, but everybody has to manage their time. It’s a trade-off. If you say, “Okay, I’m going to hold open office hours during these times. I’m going to review any new or inbound outreach during these times.” It doesn’t take very long to figure out whether there’s a real opportunity or not. I might also go back and forth with emails a couple of times. I have a standard email that I like to send when somebody blasts an email to me, I cut and paste my response to see if they come back with a more tailored pitch around customer acquisition or something personal. I definitely think it is unique at the partner level.
You mentioned junior associates – what advice would you give to someone who’s just starting out in venture?
I give advice depending on the individual, where they are coming from, and where they want to go. So many people say, “I want to get into venture, I just like technology.” Okay…what do you like about it? “Well, I’ve just always been intrigued by it.” I have a lot of these career level conversations that are very general and they have no idea why they want to get into venture or what really interests them. Especially when they’re just trying to get in, we always talk about having a thesis. It could be wrong, but start with a thesis, source some deals, and then start to really develop your own thought process around how you want to evaluate opportunity. I think what happens in some of the bigger firms is that the junior level team isn’t able to really develop their own thesis. They’re always thinking about, “How do I source something and get it through to somebody else.” But, I think in order to grow into a strong investor, what is important is to develop a strong point of view around what you think is going to win and why. Whether it’s a particular industry that you’re interested in, a technology that you think has real promise, etc., do something that you love. Don’t do it just because you think, “If I make the crossover, I will make money.” Rather, have a point of view about your idea. Then, try to prove it by learning and making iterations, so that you can add value and really know why you want to do it.
What would you say are the keys to success in this field, either at a company or individual level?
I’m an outcome person. The problem with that approach is that the feedback process is really long in venture capital and returns can be 10+ years out. You have to look for incremental proof points along the way, and that’s difficult to do. I think too many VCs and entrepreneurs focus on how many rounds of capital have been raised and not enough on the real business fundamentals and growth milestones. It’s not to say that I don’t think raising that next round is not important. It 100% is. It’s just that companies need to position themselves for fundraising from a position of strength and not because they are rapidly burning cash without real business proof points. Ultimately, we measure KPIs (Key Performance Indicators) for each one of our companies to try to show progress along the way.
At the end of the day though, success is measured in relative returns. Are you a top quartile or decile performing fund relative to similar-sized funds in your same vintage? That is only known after all the funds are completely liquidated, so you must be comfortable with not having that feedback loop along the way.
Do you have any predictions for the future of the industry? I know 2020 has been interesting, to say the least, but what do you see for the rest of this year and the coming years?
I wish I knew! I’m still worried about the macro portions of specific areas and businesses, and I think the election and political environment is really weighing on my mind right now. I believe 30-40% of the population is going to lose their minds on election day no matter what happens. I am worried about how divisive everything is and the level of debt that’s out there. I also think we have not yet realized the full economic toll of the pandemic. There are third and fourth level effects that just haven’t been realized as yet.
That being said, there are winners in this environment and there always will be. If you look at tech as an industry, recent events have accelerated the adoption curve on a lot of things that were going to take a longer time. Telemedicine is an example. You can look at Zoom, or DocuSign, and all the related remote work companies. I think there’s going to be a mass exodus from the cities, and people are going to start living where they want to live instead of where they want to work. So if you believe all of that, then there are lots of new opportunities that have actually been created. But, it’s not the same as it was historically.
A key example is the food industry. We have a fair amount of investment in restaurant tech, and some of it is in delivery and infrastructure, so that’s good. Some of it is related to products that rely on a more traditional restaurant model. If you believe that the density of the cities is going to change, then many restaurants will need to follow that trend and there will be a massive shift over time. I’ve seen some estimates saying 20-30% of restaurants in city centers will close; that is a massive shift that everyone needs to think about.
Is there anything else you’d like to share?
I think that networking is such an interesting and personalized thing that you can’t really see it or institutionalize it well. In terms of sales, we are seeing more companies willing to have more first meetings, because having a Zoom call is easier than finding time to meet in person. At the same time, Zoom fatigue is real. People are doing all kinds of meetings constantly. So I would just say, tailor your approach and make sure it makes sense for your people. With people that I know, I tend to do more traditional phone calls and “Walk and talks” so that I can get out of this little box and away from the screen. For people that I don’t know as well, I still like to use Zoom so I can make a visual connection with them. I think it’s about being really intentional right now and making sure that you don’t allow the current rules of engagement to stop you from expanding your network.