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.

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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How We Evaluate an Investment Opportunity

Step 0: Screen

With very few exceptions, we read all incoming email regardless of the source. Our primary objective is to determine if there’s a fit to our investment rubric. Where that appears not to be the case, we decline the opportunity immediately.

If, on the other hand, there appears to be a fit, we dig deeper. For example, we review any attachments (we need to see a deck and/or an executive summary), look at LinkedIn and Crunchbase, and check the company’s website. If you’ve been referred, we’ll reach out to those folks at this point as well.

We endeavor to screen every pitch we receive in ten business days, and usually get it done in fewer than five.
If you would like us to consider your company, the best way to reach us is through our contact page.

Step 1: First Call

In almost all cases, the next step is a call with one or more of our venture partners. These calls, from 30 – 60 minutes in length, are a chance for us to hear directly about your business and your “origin story.” Our rubric continues to guide our thinking and our inquiry as we seek to understand your fit to our investment thesis, the market opportunity you see, the quality of your team, your big idea and how it takes form in an offer, and the basics of how you go-to-market.
We describe this as a “first call,” when in fact, this step may require more than one conversation.

Step 2: Second Call

If we’ve gotten this far, we’ve done initial due diligence, talked with the founder(s), and discussed the opportunity at least once in our weekly investment committee meeting. The “second call” is typically the first time the founder speaks with one or both of our Managing Directors, Miriam Rivera and Clint Korver. Prior to this conversation, we typically ask for access to your dataroom.

Step 3: Market mapping

From DA’s theoretical origins, we have customized its practical application for the VC world in a unique-to-Ulu process called “Market Mapping.” It’s a collaborative learning process where the data underlying our decision to invest, or not, are shared with our entrepreneurs.

Market Mapping is a 3-hour exercise with an entrepreneurial team to create a map of a startup’s market opportunity. There’s no pressure on entrepreneurs to “pitch;” rather, it’s a collaborative process designed to help both sides better understand the company’s economic potential. It’s a key step in our diligence and the beginning of our risk/return modeling. Clint Korver illustrates in this video how the market mapping session works

Meeting goals

Throughout the market mapping meeting, our goals are to do the following

  • Better understand the qualitative drivers of a startup’s market opportunity
  • Calculate the total addressable market (TAM) with bottom-up data
  • Identify the key drivers of risk and value
  • Mitigate our cognitive biases by using a common framework and decision criteria
  • Collect key information for our decision model

Meeting Agenda

Segment opportunity into target markets and adjacent markets

  • Create a bottom-up structure for calculating the Total Addressable Market (TAM) of each segment
  • Assess each element of the structure using ranges

After the meeting we use our judgment and benchmark data to assess the remaining factors needed to complete our risk/return decision model. This includes key risks at each life stage of the company, market share, dilution, exit multiples, etc.

So, what do our entrepreneurs think of our rigorous decision-making process? They love it! We often hear this was the most value-added part of their fundraising process. Entrepreneurs who have multiple term sheets often elect to take Ulu’s investment because of the insights into their business they obtained through our process.

Here is Clint talking about how we build a market map . . .

For further reading, here is a Kauffman Fellows Report article by Clint Korver on decision analysis in venture and the market-mapping process.

The videos below provide a deeper introduction to the market-mapping process, and we encourage founders to review them before reaching out to us for meetings.

Here is Jonathan Asmis, Co-founder of Landed . . .

Here is Lisa Gelobter. Co-founder and CEO of tEQuitable . . .

Listen to Clint talking about how the process works.

Step 4: Final Due Diligence

If we’ve made it this far, we’re likely talking about the details for doing a deal together. We sometimes call this the “are you being sued” conversation, because it centers or discovering sticking points that could make the deal hard to complete or that could come back to cause problems somewhere down the track.