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 Jonathan Asmis, Co-founder of Landed . . .

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

Listen to Clint talking about our investment process (short version).

Here is Clint talking about how we build a market map (detailed version).

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.