Why your investment decisions should be data driven
SyndicateRoom (SR) is reimagining the way individuals can tap into the powerful returns of startup success stories. By using data-driven methods to identify the most powerful early-stage startups, SR’s Access EIS fund targets 3.5x returns on a curated portfolio of 50 startups. As a startup itself nearing its 8th year, SR has had a tumultuous and exhilarating history of strategy re-development, swiftly changing markets, and homing in on its unique value. I’ve spoken with Tom Britton, SyndicateRoom co-founder, about his exciting journey at SR.
Mary Letey: Tell me about SR’s data-driven Access EIS fund. How did you turn to data to supercharge your fund?
Tom Britton: We looked at all the private market funding data available, analysed it, and recreated the markets yearly in our models. Effectively we found that if you had invested in the 670 startups from 2011 (startups with at least one seed round), the value of your portfolio would increase by 20% year-on-year; this translates to an eight-year holding period with 3.5x return. The next question was how to get access to the best of those deals. We identified 150 angel investors that covered all the deals that did well in that cohort. It’s a really well-connected network, and we spent a lot of time reaching out to those angels. By the time we launched, we had 35 angels, and now we have 60.
ML: With the data-driven fund and using data to identify and follow the best angel investors, it’s important to examine the inherent bias there can be in some investment deals for minorities. This raises interesting questions about how you manage data responsibly and ethical machine learning. What are your thoughts on aspects of society seeping into the models?
TB: Our aim is to remove bias from the investment decision. If you were to look at the cohort of 150 angels, you’d be absolutely right to predict that most are white males over 45. We don’t get an ethnicity field from the startup and founder data, but we do get gender. One thing we’ve attempted to do is include a higher ratio of women angels in the group we co-invest with than the original ratio in the 150. We recognise that if we were to not weight in that way, it would be predominantly male angel investors and keeping a cycle going in a way.
TB: We’ve also joined AngelAcademy, which is a network focused on investing in women-led companies and women founders. It’d be really cool to do that for an ethnicity perspective as well; we haven’t done that yet but I’m sure that’s something we can add in the future. One potential idea is to profile the angels but is it also possible to profile individual companies and select them before they reach the angels. The goal would be to try to get more weight to underrepresented founders. There’s so much we can do with the data that we haven’t had the capacity to yet, but we have cool plans for the future.
ML: In your last 8 years at SR, can you single out a great/terrible experience that you as an entrepreneur learned a lot from?
TB: Wow, the whole thing has been a learning curve. Early on there are things you think are the right thing to do, but in hindsight, you realize your naivety. Founders are often told to “fake it till you make it” and act bigger; after trying to do that for a while, I think it’s the wrong way of doing things. You invariably get called out.
ML: “Oh you’re not actually that big?”
TB: Exactly, and then you have to continue that conversation in foolishness. Another thing: early on, reaching out to more experienced investors and advisors is so important. Sometimes I just wouldn’t do it because I assumed they wouldn’t give us the time of day. If you just send a nice message to them, show that you have done your research, and kindly ask for 10 minutes of their time, more often than not people say yes.
ML: You miss 100% of the shots you don’t take.
TB: Exactly, it’s all about getting over that fear of rejection!
ML: What’s your experience with funding?
TB: We initially raised from angel groups that were local to us, which was the right thing to do at the time. Afterwards, however, we weren’t very strategic about the raises, which was a mistake. We were taking money wherever we could get it from when we should have been trying to find the right partner to build the business. It doesn’t make sense to just take capital; I want a partner who’s going to give us advice and a strategic edge and open doors.
ML: Tell me about your strategy shift from private crowdfunding to a VC fund over the years.
TB: The business started in 2012 and kicked off in 2013 with the idea of allowing a wider audience and individuals to invest in angel deals. We would source startups, give them a quick review and polish, and then put them on our platform for our network of investors. This model had a strong growth period, as many startups do who find themselves in a hype cycle: crowdfunding was very popular at that point in time. Technically speaking we weren’t doing crowdfunding, but we decided it’d be good for traction to latch onto the crowdfunding wave.
TB: Needless to say, after a few years of crowdfunding being “interesting,” that market as a whole began to slow down. Crowdfunding platforms had tens of thousands of small investors who’d put a small amount of money in mainly B2C businesses whose brands they could identify with and associate with. On the other hand, our platform had quite a few B2B and IP-heavy opportunities, and so we never hit the virality coefficient of having a mass audience of small investors. This led to inefficiency. Companies would come to us interested in being listed on our platform, and due to the inefficiency and variability of our operations, we couldn’t give them a satisfactory and consistent answer. We didn’t want to be branded the “leftover deals” platform with lower returns than promised.
TB: Behind all of this, the fund came to be because of market surveys. There was a demand for access to the deals and the tax reliefs associated with some of the deals, without having to pick and choose which startups to invest in. While building this in the background, we realised that we could do a fund more efficiently than the co-funding platform and get the buy-in of the better companies that we wanted. Just over a year ago, we shut the “crowdfunding” platform off to focus on the fund. Instead of claiming we were investing in the best deals with the best investors, we needed to prove it with data, and the rest is history!
ML: How has COVID-19 affected their operations and investments, as well as SR’s operations? Have you noticed a shift towards digital investing?
TB: We’ve done over 30 investments since lockdown kicked off. We haven’t noticed that shift thought. The angels we’ve spoken with have told us that investing is a bit of a pain, but they’ve continued looking at the deal flow from people they trust or people who’ve met team members previously. They do multiple zoom calls instead of a single in-person meeting in order to gauge team dynamics without the aid of working environment observation.
ML: Looking back on 2020, what do you think the data for this year will show and how will it fit into your model?
TB: It will be very interesting to see that data. We’ve been trying to see what data for 2008 shows, but unfortunately, it’s not well reported. We’re putting that project off until we have more staff to focus on that. Of course, things are reported completely electronically now so we’ll be able to see the impact of the pandemic and this recession on VC and investment in the future for the years to come.
ML: What’s one piece of advice you’d give to a starting founder / entrepreneur?
TB: Sit on your idea for a while; if you still love it a year later, go for it. Or six months, or three months. All of your ideas can sound great. Never love your own idea too much, and if you really love it, give it time to develop. We tried so many things that didn’t work and, had we not jumped to try them, we probably would have realised anyway that they weren’t the way to go.
ML: Do the market research!
TB: So much market research! Know what you’re getting into! And then have fun doing it.
— Written by Mary Letey
Embryo Ventures is an innovation and venture partner to visionary entrepreneurs and organisations. We are passionate about backing ventures that are destined to make their impact on the world.
