Making quality decisions

At Ulu Ventures, we seek to generate attractive venture returns using a disciplined, repeatable decision making process that analyzes risk-reward trade-offs. This approach makes us conventional in the world of institutional investors, but contrarian in the world of venture capital.

Ulu has created a proprietary, disciplined investment process that aims to reduce risk and produce better, more consistent returns. All investment decisions are evaluated using this process and must exceed Ulu’s minimum risk / return criteria regardless of stage or sector.

Ulu’s process is grounded in the principles of decision analysis, a rigorous and sophisticated set of tools that have been adopted as best practice in industries analogous to venture, such as pharmaceutical research and development and upstream oil and gas exploration. All three industries require large amounts of capital to take ideas to scale, face significant uncertainty, and achieve success (if ever) many years after the original investment. At Ulu, we believe we are the first firm to apply this best in class decision-making process to venture.

Ulu’s process aims to: 1) structure intuition and apply it intelligently to investments, avoiding cognitive biases common in venture capital, 2) systematically identify key drivers of risk and uncertainty, streamlining due diligence, and 3) calculate the probability weighted cash-on-cash return for any investment, ensuring consistent decision making across stages and sectors. Ulu’s target return for each investment is a probability-weighted multiple (cash on cash) return of 10x or greater.

Listen to Clint Korver talk about Principle-Driven decision making . . .

The value of decision analysis in venture capital

Decision analysis helps Ulu make faster, more informed decisions. It helps us structure judgment and quantify intuition in forms that can be easily discussed and tested with logic and evidence, driving clarity of thought through a disciplined process. The goal is not “the right answer”—the goal is to apply intuition intelligently to an investment and to guide useful decision-focused conversations.

The use of decision analysis helps us identify risks to which we might otherwise have been blind. The enthusiasm of the entrepreneur is catching, but decision analysis forces us to slow down, go back to the fundamentals in a disciplined manner, and make investments with our eyes open to the risks we are taking.

We believe that our disciplined use of decision analysis directly supports our commitment to finding and funding diverse founder teams. In fact, “entrepreneurship as equity” is a creed for us and diversity is part of the core outcome metrics on which we evaluate ourselves. Decision analysis is what helps us deliver on those outcomes. Hear Clint explain how decision analysis helps us level the playing field by helping minimize our biases.

After we have invested in a startup, our entrepreneurs are able to use our decision analysis to make the decision architecture clear to other investors participating in the round. These investors can put in their own assessments into our structure and discover whether the investment is a good decision for them or not, thus inviting greater consistency among investors.

Decision analysis also helps Ulu fairly and transparently price a deal. We share our full analysis with the entrepreneur and explain our investing criteria. We have found this principled, collaborative and transparent approach to pricing to be both credible and compelling to entrepreneurs.

Finally, we believe decision analysis helps us to ensure decision-making consistency across the portfolio. Our team uses our tool set each time we write a seed-stage or later check, regardless of sector. We rerun the analysis for each follow-on investment with updated assessments. Follow-on investments must meet the same PWM criteria as new investments for the Fund to invest.

Decision Analysis and Portfolio Construction

In most asset classes, portfolio construction is an exercise in risk reduction. In early-stage venture, however, portfolio construction can be a powerful tool for increasing returns, not just decreasing risk.

Portfolio construction should be designed in context. It should support a fund’s strategy and provide guidance for individual investment decisions. Ulu’s context is represented by the following decision hierarchy.

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