We recently had a conversation with David Mann, partner at Dundee Venture Capital, exploring how he started in the industry, the importance his network plays in the firm’s growth, and ideas for the future.
Let’s start with a quick intro…
Sure – I’m the Chicago-based partner for Dundee, and we lead seed rounds in some of the Midwest’s best technology companies. Investing between the coasts is our true focus – we operate from mountain range to mountain range.
We like to lead, take board seats, write checks from $500,000 to a million dollars, and go from there. I originally met Ablorde when he was at Pritzker Group and we were both on the investor side. I was fortunate to learn about 4Degrees soon after, alongside one of my partners. I’ve always been impressed with him and what he’s doing.
How did you get started in Venture Capital?
From 2006 to 2010, I was investing more in private equity. It just so happened my interests shifted towards earlier stage businesses that were much more technology-related than your traditional private equity companies. So, I just made the switch.
I started to remove myself from the private equity circle and network my way into the venture capital circle in Chicago. I then started writing checks between 2010 to 2011, within a family office structure and we created Lakewest Venture Partners. LVP invested through 2015, and all the while I continued my on-the-fly learning of what it meant to be a VC. This culminated in the formation of the current Dundee partnership in 2016 when we launched our first fund.
What would you say are the keys to success in VC, either at the company or personal level?
On a personal level, I’m sure everybody could come up with different ways to look at it. In my mind, I think about persistence. You don’t just learn a particular set of ratios or financial modeling skills, and then suddenly be able to become a VC. You can’t really do that anywhere, but there’s more of a pathway into other lines of work than there are into VC firms. If you want to be a lawyer, you go to law school, then you have to get a job as an associate – you sort of figure it out from there. If you want to be in private equity, many of the private equity folks learn some of those financial modeling skills and start as financial analysts. There’s a little bit more of a pathway to it.
I gravitated towards VC when I did because it didn’t have that pedigreed requirement, at least here in the Midwest. Still, you have to be smart, you have to be hardworking, and you have to have an understanding of what it means to back companies with the most likelihood of success – and the related contributing factors. That really appealed to me because I could control my own entry into the field. That’s where the persistence comes in, essentially. Controlling your own entry into the field does not mean you wake up one day and walk in – you have to go through the process.
Learning how you can be valuable to companies as you are gaining knowledge through them. Continuing to hone that ongoing conversation with the rest of the ecosystem is ultimately what allows one to blossom in the space.
What sets your firm apart from your peers?
There’s a number of things. We’re taking a somewhat unique approach in terms of leading priced seed rounds in an institutional style, in-between the coasts. There are a lot of very good firms that deploy capital in deals that others lead or put together largely syndicated deals. There isn’t a significant number of people that are leading those deals throughout our region. We’re not the only one by any means, but we have a unique approach that way. We have an operational focus with a variety of members in our team having operational experience, in either traditional businesses or with venture-backed startups. This means that as a team, we have a perspective on what it takes to grow a technology business from an idea and a laptop into a million-dollar revenue business with backing from the largest venture capitalists in the world. So that kind of perspective I think is really useful for the way we guide companies that we work with, and certainly is something that they like to hear.
How would you say your network development efforts impact other key elements of your work, like sourcing, diligence, and portfolio support?
For me, it’s primary – there’s no other way to put it. I had been intensely focused on the value of the network well before I was involved in VC. It’s been important to my personal life and career since I graduated from college. It’s what has driven a variety of tweaks in my pathway over time. I recognize tremendous value in the network, and that only gets more important when one is looking for resources to improve, whatever situation that may be. For the sourcing function, the network is critically important because conversations fill in the blanks – be it with other founders, other VC’s, service providers, or accelerators, it could be anybody! Introductions to seed-stage founders are critical to what we do.
We don’t have the luxury of looking at all of the past seed-stage financings that occurred over the last two years and then go calling on all of them to see if they are series A targets. We’re not series A investors so there’s much more importance on trying to understand who is doing what at the earliest stages so that we can get to know them and find out how we can help them. We’re talking to businesses that are new in their space, have a new technology offering, or a new take on whatever it is. As generalists, we have to become experts in our potential portfolio industries very quickly. You can read a lot, which we do. You can research a lot, which we do, too. But you can also talk a lot to valuable, trusted sources within your network that can help you understand. Is it really a problem? Does the background of these founders match up well with solving the problem? Etcetera. So in all regards, the value of the network is primary.
How does your network development help you support your portfolio companies?
I wouldn’t call it primary – maybe 1-A, but other than partnering with our portfolio companies to help them grow, set up the infrastructure, and help develop strategy, the other thing we do for portfolio companies is to help them fundraise. We know that our portfolio companies are going to evolve beyond the seed phase in which we invest, and they’re going to need to raise more money down the road. They’re going to need to know who all those series A investors are, and a lot of those series A investors may not be as local as some of the seed firms.
Series A investors from around the country have much more interest in what’s going on in the Midwest these days. So we are constantly developing our networks with larger series A and series B firms nationwide so that when our companies are ready to raise, we are in the position to make that happen. We are in a position to make all those intros. If we’re doing it right over time, all those firms would actually already know about the companies – because we’ve kept them updated long before about our portfolio. It’s just a matter of making the formal connection at that point. That networking element remains part and parcel of what we do, even when we’re talking to those who aren’t specifically supporting our deal flow or diligence efforts.
Do you have any unique insights around deal flow and deal sourcing?
Well, we don’t only rely on the network to come up with deal flow. It’s an important part of what we do, understanding what others have seen and the others that recommend opportunities to us for whatever reason. We have our own proprietary outbound efforts as well.
We do an extensive amount of work trying to figure this out across a variety of markets – finding who is at the very early stage, or at least soon-to-be founders, of new companies that we should be talking to, even before they’re ready to talk to firms like ours. So there are other methods and things we do besides just relying on the network in order to develop that deal flow.
The rest of it is probably the same that you would hear from anybody. We certainly know about the accelerators, we pay attention to all the demo days, the various incubators and all those programs, because great things come out of those as well.
Are you equally receptive to both warm intros and cold pitches?
Yes – one of the philosophies that we have is that any outreach to us and anything that comes inbound should at the very least be responded to. Plenty of stuff that comes in is not appropriate for us, for any number of reasons. I think that being receptive to each request means at least being polite about letting somebody know, “Thanks for taking the time to reach out but this is not for us and best of luck to you.” It may be as simple as that. Certainly, interesting opportunities come in a cold manner as well.
The person who wanted to get in touch with us, who didn’t or couldn’t find a warm way to get in touch is okay too. If it’s a good idea, it’s a good idea. Certainly, there’s a disparity ultimately between the deals that we do. There is a skew towards some of those warmer intros, and I don’t think it’s because of the fact it’s a warm intro. I think those who are capable of starting businesses in really meaningful ways are often scrappy and resilient themselves. They find a way to get that warm intro. So I just think that’s sort of the way it happens, that’s what the numbers show. It’s not that we discount something because it came in cold.
Are there any best practices or unique approaches that you take with your due diligence process?
I obviously can’t speak for every other firm, but think that we have a pretty robust diligence process in terms of how we vet founders, their character, and what we perceive as their important strengths. We’re looking for a founder that’s going to take an early business and grow it significantly. We leave no stone unturned. When we get into areas where it might be more difficult for us to learn about something on our own, we certainly use outside resources in the diligence process to help us do that. So if we’re looking at a company with a particularly complex piece of technology, with a variety of aspects of I.P. protection and things like that, we certainly engage outside experts to help us make sure we understand what it is we’re investing in.
What advice would you give to someone just starting out in your field?
If you’re talking about somebody who is a new associate or new analyst at a firm, I would say don’t think you can sit back and do just the work that is handed to you. For the most part, unless you’re at a massive firm, there’s an expectation within venture that all members of the team have something unique and proprietary to offer to the process. When we hire an analyst or associate, it’s not just plowing through the work we hand them, we expect them to develop their own contributions and perspectives. They need to do their own research and start to learn what it takes to make a recommendation to the rest of the firm. To say, “I found this and I think we should invest in it” is not that easy, but that’s what people are working towards. It’s not like being an investment banking analyst in a two-year program where you’re not expected to do those sorts of things. My advice would be to quickly get to the point where you are directing opportunity to the firm.
2020 has been an interesting year – how do you think recent events will shape the future of VC and private investing in general? Do you have any predictions for the next year?
I think as an industry, we are going to get more accustomed to the fact that good, smart people can do smart things wherever they are. We’ve always been a distributed team that lives on Slack and Zoom, so we’re prepared and accustomed. Some investors who may typically have only invested where they exist might start to branch out, and we may see more competition because of that. We have to be prepared for that. Certainly, just by the virtue that we’ve been operating this way from the beginning, I think that we’re at an advantage.