030: Building an Investing Thesis: Strategies for Successful Seed Investments

Claire England (00:00:00) - 90% of startups fail. A good professional diligence effort can drop that to 50%. A lot of angel investors who are trying this asset class for the first time don't know what a good due diligence effort looks like. Perhaps they're investing in sectors they don't know well, one of the things that I thought was really intriguing about being a part of an Angel network and leading that community, was seeing investors learn from other investors.

Christopher Nelson (00:00:33) - Hi. Welcome to Tech Careers and Money Talk. I'm your host, Christopher Nelson. And today we want to talk about something that's really important for technology employees, which is your venture portfolio. Many of us, as we get into technology, we're earning equity and we're building wealth. We started investing back into tech, but there's so many ways to do it. And like anything else in your portfolio, you need to be disciplined. I'm excited to introduce everybody today to Claire England. Claire England is an investing partner with GPG ventures here in Texas, and she also spent a good portion of her career working with a lot of limited partners like yourselves, investing in ventures, helping people, putting together a thesis for their portfolio.

Christopher Nelson (00:01:23) - We're excited to learn that from her today, and we're also going to hear about her story of how she started in public relations and then went into the VC world to be the partner that she is today. Excited to introduce you to Claire. Let's get into the conversation right now. Welcome to Tech Careers and Money Talk. Excited that you joined us here today. I'm excited to introduce everybody to Claire England. Claire is an investment partner at GPG ventures and a former Kauffman Fellow. She's been in venture for over ten years and started her career in public relations, which I think is so interesting because many people have this concept that you either have to be in product management, you have to be a CEO to get into a venture. But Claire's here to buck that trend and tell us how it worked for her.

Claire England (00:02:10) - Yeah. Thank you so much. Welcome. Thanks so much, Christopher. It's great to be here and I'm excited to dig into some portfolio theory. But first we'll talk about my background a little bit.

Claire England (00:02:22) - So yeah I'm, I'm a bit of a unique bird when it comes to venture. Because not only do I come from a PR marketing background, but I spent the first decade of my career in social impact nonprofits, and I've only come across a, I don't know, 3 or 4 other VCs who spent some of their career in nonprofits. So this is definitely a unique path. Actually, a lot of the people I know who have broken into VC did so through first investment banking, getting a finance degree or an MBA. It's certainly become a lot more common in recent years for people to break into VC after having been with a startup and having some success, and in entrepreneurship. So I love seeing people who come from a product background or CEO background, because they know what that entrepreneurship and founder experience is like.

Christopher Nelson (00:03:19) - But for yourself. I think it's also important to understand that marketing PR for startup companies and for venture capital firms is critical in their growth as well. So it seems like your trajectory you came in with having some PR experience and then you started working for a startup yourself.

Christopher Nelson (00:03:40) - Was that sort of the gateway to getting into venture?

Claire England (00:03:43) - I did, yes, that's correct. I spent a couple of years running client accounts for a social media services startup and caught the tech bug, caught the entrepreneurship bug, and really started exploring the entrepreneur ecosystem here in Austin, which, you know, in the 2010, 2011 was still still developing, but certainly growing. It's become a whole nother beast now. It's so much larger and exciting here. But yeah, I was that opportunity to leave nonprofits and work with a for profit startup really catalyzed my interest in innovation. And what's fascinating, though, back to the nonprofits, is how similar, you know, there really are some parallels between nonprofits and startups. Both have to, at least for early stage startups, have to work with fewer resources. With limited resources, both nonprofits and startups have to fundraise. Not all of them. Obviously, on the startup side we'll fundraise, but a lot of them need to to really grow.

Claire England (00:04:56) - And then startup leaders, founders and nonprofit leaders are very mission driven. So, you know, the goal oriented and mission driven. So it's been interesting to me. I know I don't fit the mold for a lot of VCs, but I actually think that this background in social impact and PR and marketing is kind of an advantage for me as a VC. I bring a different perspective, and I think it's valuable to have different perspectives in VC.

Christopher Nelson (00:05:33) - 100%. And I think the fascinating thing that you highlight, too, is that when you have experiences and you're able to tie the results in those experiences and the commonalities in those experiences to then where you want to move into. And I tell people this when they want to do career pivots all the time, you can then start mapping things out that are similar. And I would actually state that from your experience, if you're in a nonprofit and you're familiar with a, you know, let's say you need to raise funds or die, then when you come into a startup environment where people are focused on the technology, the build, and they need that kind of support, you can you can play an instrumental role in helping, whether it's a startup or whether it's a VC, really get traction quickly.

Claire England (00:06:24) - Indeed. And beyond that, VC and and I would posit startups as well, in a lot of ways are a people business, relationship, business. And having spent so many years in fundraising and media relations and marketing, those are all very relationship driven. So there's something to be said for VCs who have high EQ and can build effective relationships with founders and know how to support startup leaders and their fellow investors. So I think all of that is very important for VCs and any type of investor, not just professional VCs. And it's something that Kauffman Fellows believes very strongly in, is high EQ and developing the fellows as leaders for the future of venture capital. And I can say I'm not a former Kaufman fellow because we're fellows for life. Once we're in the program, we're in. So even though I did graduate from the to year program in 2018, I'm still very active in the Kauffman Fellows Network, and it's incredibly valuable for those of us who are part of it.

Christopher Nelson (00:07:42) - Yeah. Walk us through real quick. Give a highlight to people. Listening is as to what that is. And then also what you like for yourself. Where was that in the development of your career and what did it mean to go through that program? And now continue to participate.

Claire England (00:07:58) - So Kauffman Fellows are in the vein of the Henry Crown Fellows, the Eisenhower Fellows, these are top notch fellowships for people in a certain career or wishing to have a certain focus. In the case of Kauffman Fellows, I think it's most akin to an MBA for venture capital. It's a two year program. We meet in person during those two years with our classmates for modules quarterly, and it is leadership development. It's developing us as an investor and helping us become the best version of ourselves, professionally and personally, that we can. And that sounds a little foo foo, but it works. And I think it's incredibly valuable. And there's a reason why it's become known as a top program for venture capitalists.

Claire England (00:08:50) - There are 880 of us worldwide, and I think now 58 countries. So it's a really incredible network. And the class before mine in 2015, they started allowing institutional LPs into the program. So that has just crystallized even more the value of the program, because we're surrounded not just by other GPS from VC funds, but also, um, LPs, institutional investors from whom we can learn. And every class, at least during my time, also had people from 500 startups and endeavors. So entrepreneurs support organizations too. So having that broad swath of people from the ecosystem is really valuable. Um, yeah. I didn't expect to make dear friends in a VC program, but I did. And Kaufman Fellows is worth being a part of for those who are considering it.

Christopher Nelson (00:09:49) - Now, as your career was growing inside of the venture capital world, was it this experience that really helped round you out and fill in some of those, those other areas for you to make you the complete VC, if you would?

Claire England (00:10:04) - I don't think any of us is ever a complete VC.

Claire England (00:10:07) - We're always aspiring to be better and always learning or we're not doing a good job. But, um, yes, I think Kaufman Fellows was a big piece of that. But when I was nominated to Kaufman Fellows, I was leading the Central Texas Angel network, which is a top 10 to 15 most active angel group in the country at the time when I took over the reins and during my tenure, the board and I took. Get to number one in the country in terms of both deals funded and dollars invested. So that experience, I think, alongside my Kauffman fellows, time really crystallized my knowledge base in investing, both with angel investing and VC. And I think that if you're a really good angel investor and spend a lot of time thinking about and digging into due diligence with your angel investing, you can be just as good or better than most VCs.

Christopher Nelson (00:11:11) - That's a very interesting perspective. What I'm hearing you say is when you start at that micro level and you know the level of work, the level of unknowns that you need to do to be placing small amounts of capital in many times over, it's really those repetitions that then get you into that mindset of how you can continue to grow in that, in that profession.

Claire England (00:11:36) - Exactly. And not only that, but you, you one tends to think differently about one's investing and and and the thesis when you're writing a check from your own bank account versus writing a check that is from LPs who've invested in your fund. So there's a bit of a different mindset with angel investing. But yeah. Back to your original question. I think a combination of learning from very experienced investors when I was running the LP community, the Angel network and Kauffman Fellows. And then when I stepped down from leading the Angel network in 2019, I had a chance to join a portfolio as a fund manager. And I've been a partner in two funds at portfolio, which is really that helped me uplevel my skill set as well. And Trish Costello is not just the founding CEO of Portfolio, but she was the founding CEO of Kauffman Fellows. And I've learned so much from her as well and from my fellow partners at portfolio.

Christopher Nelson (00:12:43) - Wow. It sounds like. It sounds like. Then once you got in and you really started to figure out where you could play in the VC world, that the learning never stopped, the opportunities never stopped.

Christopher Nelson (00:12:56) - And now here you are at I mean, it was the move to um, GPG. GPG. Yeah. It was very recent.

Claire England (00:13:08) - It was just a little over a month ago. And it was time for me to go back to full time work. I've been a part time fund manager and doing a lot of consulting over the last four years, including being executive in residence for Techstars Tulsa and being a partner with Lotus, which is an impact advisory firm. I wore a number of different hats and loved every minute of it, but having the opportunity to go full energy put all of my energy into one role. And working with just a stellar team at GPG ventures, I'm very excited to be opening their Austin office. They're a firm that's based in Dallas with an office in Houston, so I believe we may be the first, perhaps the only firm in Texas to be a VC firm. Now, there are others who have multiple offices around the state, including Capital Factory. But I believe that we're the first VC firm to have three offices in major tech major Texas cities.

Christopher Nelson (00:14:13) - And what kind of investments will you be placing in that firm?

Claire England (00:14:16) - We are focused 75% on health care and about 25% on general tech, B2B, SAS, AI, ML, enterprise. On the health care side of things, we do just about everything but health care services. So we've invested in therapeutics, diagnostics, and medical devices. Pharma is under the therapeutic side. Um, consumer health and health, IT, health tech. And there's a lot of digital health in Austin. So it's yes. And with the medical school being here, we still have oh, as compared to Boston or San Diego or even Houston, we have a relatively nascent healthcare startup community, but it's growing fast and there's a lot of excitement. There are a lot of exciting things happening here.

Christopher Nelson (00:15:07) - And what is your thesis for your fund? Is it going to be a new fund you're opening or you're in office supporting some broader funds?

Claire England (00:15:16) - I'm building out the Austin office to support the opportunities that we have as a firm, firm wide.

Claire England (00:15:24) - So we operate differently than a lot of other VC firms in that we don't have a fund out of which we primarily invest. We have a couple of opportunity funds which are for follow on opportunities. But when we first go into a deal, we partner due diligence together and make an investing decision together. And we all co-invest together, usually with our families. And then we share that deal to our LP network. And before I joined in between the Houston and Dallas offices, that's a network of 650 unique LPs, high net worth and family offices, 500 of whom are based mostly in Dallas, in Houston. So I'm now adding my network of high net worth and, you know, accredited investors and family offices to the GPG network. And so each time we do a deal, we create an SPV, which is a special purpose vehicle to invest together with our LPs and in that opportunity. So we're giving individual accredited investors and family offices a chance to see deals that they might not otherwise see, especially when we're opening up a room in the follow on rounds for our portfolio companies.

Christopher Nelson (00:16:46) - That's really exciting because I know being in LP gives the opportunity to get into some first look situations that you have and be able to then bring capital alongside essentially larger players. So I just wanted to finish that thought because I like that model too, because then incentives are aligned whenever you get the opportunity to go in first with GP's, there's a lot of incentives aligned there. So I didn't know that.

Claire England (00:17:17) - That's great indeed. Yeah. And the traditional model in VC is to create a fund raise from LPs, both high net worth family offices and institutional and then invest out of that fund. But I personally know a number of high net worth and family office LPs who like to do direct investing. And so instead of having that be kind of a secondary. Opportunity. Almost an afterthought to a fund makes that our primary focus. And the fund is the secondary. So it's kind of flipping the script a little bit on in that respect.

Christopher Nelson (00:17:58) - Well, it is and I think, you know, and now I'm getting really excited to talk about portfolio structure and those things as well, because, you know, as a very active LP myself, what I really enjoy about that is direct investments can be much more intimate.

Christopher Nelson (00:18:13) - Number one. Number two, they can also be much more impactful. I also enjoy to like going into what I consider general VC funds, more blind funds where you're putting the dollars forward and then the, you know, the GP's are essentially managing that where here I can actually have if I have a health care thesis in my family, or if I have a thesis that I really want to go invest heavily. Making the direct investment gets me a lot closer to what I'm trying to accomplish in the building of my portfolio.

Claire England (00:18:47) - Indeed.

Claire England (00:18:48) - Yeah, yeah. And I don't think one is necessarily better than the other. I think it's valuable for LPs to have a differentiated strategy across VC to pick some great GP's who you believe in as an LP and invest in them and, and let them use their expertise and find great deals to invest your capital out of their funds. And then also if you have the inclination to do individual deals, you know, the other thing I've heard from LPs is some just frankly, don't have time to do a lot of individual direct investing.

Claire England (00:19:27) - And so a model like CPGs like our my new firm, where we are the lead investors and we invite LPs to join us in that opportunity, means that we're the ones who will be following up with with the founder and checking in and make sure things are going well. And if we have a board seat or an observer seat, we will be paying close attention to how that company is doing. So we're operating as a professional VC in that capacity, but inviting our LPs to come alongside us in that journey and joining that SPV with us.

Christopher Nelson (00:20:03) - Right, right. And that and that to me is the value because as you stated, right. We want a very rich and diverse portfolio. So this to me is another when you're thinking about the VC, you know, section of your portfolio, now you have an offering where you can have the direct investment alongside a mature and experienced operating partner that's driving that. And so it's definitely, you know, less overhead 100%.

Claire England (00:20:30) - A little bit, perhaps a little bit easier than straight up angel investing on one's own 100%.

Christopher Nelson (00:20:37) - Yes, 100%. And hopefully.

Claire England (00:20:39) - A little bit.

Claire England (00:20:39) - Better De-risked as well.

Christopher Nelson (00:20:42) - So let's let's talk a little bit. I'd love to understand if we're sort of putting a bow on this career section where you are now, what you know, what do you think some people get wrong LPs get wrong about venture investing or seed investing.

Claire England (00:20:58) - Mm.

Claire England (00:21:04) - When it comes to individual angel investing. I'll put that one. I'll address that one first before I go into the fund discussion. LPs who are doing direct angel investing, and especially when they're doing it on their own, I think can be a mistake because you don't know what you don't know. And many angel investors will see failures up front and decide this asset class isn't for them. And perhaps they're just investing in some deals that a friend or a neighbor has brought to them, or a family member. 90% of startups fail. And a good diligence, a good professional diligence effort can drop that to 50%. This is according to the research that's out there. A lot of angel investors who are trying this asset class for the first time don't know what a good due diligence effort looks like.

Claire England (00:22:07) - Perhaps they're investing in sectors they don't know well. So one of the things that I thought was really intriguing about being a part of an Angel network and leading that community, was seeing investors learn from other investors. And I think that when you have a chance to. You know, portfolio theory is all about diversifying one's portfolio. And we tend to as business leaders invest in what we know. But if we're going to really have a diverse portfolio, we need to invest beyond that. How in the world can we possibly invest in what we don't know, unless we surround ourselves with people who know those sectors, we're going to make poor investment decisions otherwise. So I think that number one is don't go it alone. As an angel investor. I think that's one of the top pieces of advice I can give any potential, any LP looking at this, at this asset class and on the fund side, make sure you've done a really thorough job of diligence seeing that fund manager. Look at their history and make sure that you're seeing really accurate data around their past portfolio performance and what that looks like.

Christopher Nelson (00:23:29) - Well, Benjamin Franklin, due diligence is the mother of luck. So I love that because that's something that I see in trying to help people understand all the time. And this is why this podcast is here. So we can have conversations around career equity you make and the money that you invest. It's so important to understand that a community of like minded individuals is critical in being successful as an investor. And that stat that you rolled out in, I think that is compelling because the more you do due diligence, while the broader stats that 90% fail, those are people that are taking on family, money, family and friends putting in their own money. But when you look broader, you need to then understand when you're writing the check. If you have a portfolio of ten companies and then half of them succeed, half of them fail, well, then you're probably going to come away with some upside in that scenario.

Claire England (00:24:27) - Exactly. And we'll get lots of thoughts on portfolio theory. We'll get that shortly I'm sure.

Claire England (00:24:34) - Well.

Christopher Nelson (00:24:34) - No, we're going to get into that right now. So we're going to take a little break right now. And we're going to be right back with Claire England. Okay. And welcome back. We're here with Claire England and we're excited in the second half of the show. We really want to talk about portfolio theory. We want to also talk about Claire and I met at a conference and she has just started. You know, we just started jamming a little bit on portfolio theory. And then she started sharing with me how seed investors need to develop their own portfolio thesis. And I said, please stop. Don't tell me anymore. I want to record this, and I want to share it with the listeners of Tech Careers and Money Talk, because I think they're going to get so much value from it. So why don't you kick us off and let's get into this conversation of developing a thesis for your seed investing portfolio.

Claire England (00:25:30) - Thanks, Christopher. So this was actually a project that I developed when I was in Kauffman Fellows.

Claire England (00:25:38) - So as part of the two year program. And here's another reason why I liken it to a mini MBA. We have to do a thesis project. And in my case, I created. A whole white paper and slides around why creating an angel investing thesis is important. So it's called a framework for angel investing, thesis development, and a few things about why this is critical. First of all, VCs write a thesis for their fund. This is part and parcel. Super important for venture capitalists to have a thesis for how they plan to go about doing their investing. And some people will also call it portfolio construction. But essentially it's your investing thesis. And I posit that it is as important for an angel investor or an individual LP to develop their investing thesis as it is for a VC. Um, for starters, it's really critical to help focus one's investing efforts. If you know exactly how and where and why you want to be doing this, this asset class, it can help you.

Claire England (00:27:05) - Having a thesis can help you conserve your time and energy. Um, at least two thirds of angels work full time. You know, I think there's a misconception out there that a lot of accredited investors are ultra wealthy. And that's not the case. The minimum barrier to entry for being an accredited investor is a 200 K salary as an individual, or 300 K if you're counting a spouse or $1 million in assets not including one's primary home. So a lot of people qualify as accredited investors and don't even realize it. Another reason why I think it's important is a thesis. Remembering one's thesis when you're doing the angel investing can help you make more clear headed decisions. When you're faced with uncertainty, when you're trying to make those decisions around what are the what, you know, is this really the company I want to invest in? There's a lot of uncertainty around startups, and knowing your thesis and embracing that can help you make more clear headed decisions.

Claire England (00:28:12) - And then so go ahead.

Christopher Nelson (00:28:14) - Okay. Because it sounds like then as you write out your thesis, then you would go and you would find some quiet time away from investing, away from investments.

Christopher Nelson (00:28:26) - And you write out your thesis for your seed investing portfolio and I do and so and so I'd like to try and bring this to life a little bit, because I was literally talking to a friend the other day who, uh, you know, had had one of his seed investments, you know, pop and, and he was getting bought out and it was great thing. And so for his particular thesis, he went, rode it out and he leveraged it to be this, this reminder when you get swept up in the emotion because think sometimes like this is where these types of artifacts help us remove the emotion from the decision and remind ourselves of when, you know, before we had all this dopamine swimming around in our brain because of a great meeting and great ideas of really where we want to place our dollars. Yes. And it sounds like that's what it is.

Claire England (00:29:24) - Exactly.

Claire England (00:29:25) - And interestingly, you're actually starting down the road of developing a thesis by saying it's for seed investments, because that's one piece of developing your investing thesis is what stage are you only going to do seed, or do you want to seek out some later stage opportunities? Do you plan to do follow on rounds in your existing portfolio companies, or are you just going to invest one and done? Will you use your pro-rata in future opportunities when that company goes back to raise their series A or their series B and beyond? So it also includes planning for the pace and sizing of your investments.

Claire England (00:30:07) - So I think of one of the things that. What individual investors need to be thinking about is this is a high risk asset class. Some people call it gambling. And I think that there are certainly some parallels there. But to avoid it seeming too much like gambling, it needs more forethought. So providing yourself a roadmap for how you want to build a portfolio and helping you just plan that out, like you said, getting away from the investments, stepping away from all the distractions and composing this. And we can get into some of the thought process around how you can do this in a minute if you'd like. But yeah, in my experience, historically, less than 15% of angels I surveyed had a fully developed thesis.

Christopher Nelson (00:31:13) - I think that there's a lot of challenges there, and this is exactly why I want to share all of this information with people. I want to be able to, to bring people like you here. Because what I found. So I started a private equity company that helps people, helps technology employees diversify into real estate, commercial real estate, private equity, because there was literally a void in their portfolio.

Christopher Nelson (00:31:36) - And from the hundreds of conversations I've had with accredited LPs, I would say 80% of technology employees, their portfolio looks like this. 30%, 40% or 50% is in a single tech stock, which is the company that he worked for.

Claire England (00:31:54) - Um hum.

Christopher Nelson (00:31:54) - Right. And then you're going to have maybe 40% is just in broad market funds, the rest in the market, and then they're going to have the rest is going to be in VC. And their entire portfolio does not have a purpose or direction other than growth. Right. When I ask people, what do you want this to do? I just want it to grow. And I think people need to and especially technology in place that puts so much time and effort in their work, you know, spend so much time developing their careers. They need to understand the playbook of how you take it, take back, take a step back and put some thought into this. And so when you think about somebody’s, you know, personal net worth, and this is one of the things that I, I try to get people to think like, what do you know of investors or targets.

Christopher Nelson (00:32:50) - Because we're not, we're not trying to give advice here, people. We're just trying to understand what's theoretical, what we're seeing out there in the market. Is there an allocation that you, generally speaking, see, you know, people who manage their portfolio with maturity allocating to venture.

Claire England (00:33:07) - Oh my goodness, that's a tough one. Because, you know, we had 200 LPs in my Central Texas Angel network. And that meant when founders would ask me, well, what are the LPs like? Like that's 200 different ways of doing investing. So every person has to approach this from their own financial situation and determine what's best for them. Now, that said, there are some good broad guidelines around developing an investing thesis, and some of these are rooted in portfolio theory and portfolio diversification. Historically, and this is probably ten, 20 years ago, this would have been true if, if not longer ago. Historically, one could invest in ten startups and expect five of those to fail or not return much of the original investment, and then expect a few to return 1 to 2 x, maybe three x, but you're looking for that one.

Claire England (00:34:15) - That would be the ten x plus that would balance the portfolio and to help you return better than you would in the public markets or real estate. Now that has changed. And now experts are saying that to really diversify in this asset class, you need to have a portfolio of 20 to 30 startups. Now, if you're balancing that with fund investments, then you can think about how that looks as well. But I think, you know, first of all, most of the people who explore the venture asset class are folks who already have their tech stocks and public market stocks, like you mentioned. And then their next move is to go into real estate. So whether they do some commercial real estate investing, multifamily or single family home investing, that is typically the next step. And then the venture asset class is the next one. The advice I give individual investors who are considering getting into this asset class is this is not the place to risk your nest egg. It's a high risk, potentially very high reward.

Claire England (00:35:32) - But keep your nest egg in something more secure. And know that this is a longer term play. The average time to exit in startups over the last few years has been 7 to 10 years. Right now that's even getting longer because of the lack of IPOs. So this is a longer term high risk category. But conversely, high yield and high reward. There's a reason why the private markets are known for making people wealthier. It is an opportunity for that.

Christopher Nelson (00:36:15) - It really is. And you, you brought up something that I'm curious if you have insight into. But, you know, as we spoke, as I spoke the other day, you know, there's 732 unicorns, right? So private companies have valuations over $1 billion. I track this because I look at, at the the equity compensation side of for the listeners here. And um, what I'm finding is that more companies are trading privately on secondary markets and that is actually growing in size and scope. Are you seeing that from your side as well?

Claire England (00:36:54) - Yes, I.

Claire England (00:36:55) - Think that's.

Claire England (00:36:56) - That's.

Claire England (00:36:56) - Absolutely accurate. I think that's a growing space in part because of where the markets are now. And that's part of why I pushed back gently earlier when I said, you've already started developing a thesis, when you start calling it a seed thesis, because I think that it does make sense to consider secondary markets and later stage opportunities when one is developing a venture asset class thesis.

Christopher Nelson (00:37:26) - And it's I just think too, it's so important that people get versed in venture in private equity in general. I read this very telling article by The Atlantic the other day that now 20% of the public market has gone private. You know, versus it was 4% in 2004. But now here we are in 2024. And you think about that. All the private equity companies that are taking public companies off the market, going private, and they're talking about that market cap, we're talking about understanding how to do due diligence, thinking about privately traded secondary markets. All of these are going to be important tools that people have in their investing toolbox to be able to build wealth going into the next 10 or 15 years.

Claire England (00:38:17) - Indeed. And to that point, I think one of the things that's well, we have an example in our own backyard, Dell went private after being right for many years. So I think if you'd like, one of the things we can dive into is how specifically to go about developing one's investing thesis for venture asset class, because I do have some guidelines on what that looks like and when you can find that time to set aside and kind of have some quiet where there aren't any distractions. I think this could be a great thing for listeners to do.

Christopher Nelson (00:38:59) - I think that's great. Let's get into that, Claire.

Claire England (00:39:02) - Sure.

Claire England (00:39:02) - So for starters, I think it's a really good idea to outline your personal values, your strengths, your expertise, your interests, your passions. What do you care about? And conversely, what do you not care about? Because that will guide a lot of your future decisions about your investing thesis. That in itself can be a more lengthy exercise, but I think we all have a pretty good sense of our own strengths and expertise, our interests and our passions.

Claire England (00:39:34) - So listing those out, going ahead and putting them down on paper or on a whiteboard and then starting to think about your appetite for risk. So. Identifying what your appetite for risk is can help you determine how comfortable you are for certain valuations and terms. And for those who aren't familiar with the venture asset class. One of the things I would do before even developing this investing thesis is read the book Venture Deals, maybe even do the course. It's a free course. The book is written by Bradfield and Jason Mendelsohn to angel investors turned professional VCs who are incredible teachers, and they work with Techstars and Kauffman Fellows to create this free course that is offered usually twice a year online. And you can kind of do it at your own pace. So I would start there because I can start getting into terms that can sound, you know, confusing. If folks haven't haven't dug into what a term sheet looks like and what the valuation or cap looks like. For instance, I know a family office investor who was new to the asset class and was so excited about an opportunity that she decided to even against the advice of the angels around her, she decided to go in on a deal that did not have a valuation cap, and she got burned.

Claire England (00:41:16) - Those are the kind of things that if you have a thesis and you've spent some time thinking about deal terms and valuations and caps, you can you can have your own guideline for what you're comfortable with and what is going to leave you burned later on. Similarly, I would think about follow on rounds. So if you're going to have a seed thesis and only seed, and that's the only stage at which you're going to invest, then you're going to have to be really disciplined about saying no and letting founders know up front when you invest that, that's the the that's the single time you're going to invest and you're not worried about. About your pro rata, about maintaining that in future rounds. You're just one and done. There's nothing wrong with that as a thesis.

Claire England (00:42:13) - There are, you know.

Claire England (00:42:15) - One of the most fascinating events I held was a luncheon, an event at CTN was when I invited investors with different approaches to building their portfolio, construction and their investing thesis. And each one of the three had a different plan for how they handle follow on rounds.

Claire England (00:42:34) - One never did follow on rounds. Another one followed in, followed on to just about every deal that they thought was doing well. And the third one only followed on when an institutional investor was leading the next round and was de-risking it to an extent by doing that.

Christopher Nelson (00:42:54) - Interesting.

Claire England (00:42:54) - How different do.

Claire England (00:42:55) - You think those three portfolios were in terms of performance?

Christopher Nelson (00:43:03) - I'm thinking that there was probably a shift of return level of 30 or 40%.

Claire England (00:43:08) - Zero zero. There's no difference.

Claire England (00:43:10) - There was no difference. I mean, it was minuscule. Minuscule difference in the portfolio success and unrealized and realized for these three portfolios, the the ways in which they were handling follow on opportunities into their existing investments. And the reason was because all three of them had a thesis and they stuck to it. They knew what they wanted to do and they stuck to it.

Christopher Nelson (00:43:40) - When. And so as you set a thesis, a thesis would have some tuning right as you go through. Would it have some level of.

Claire England (00:43:51) - So I'm only halfway through the development.

Claire England (00:43:55) - You're getting to the last point.

Claire England (00:43:57) - So okay. Got it.

Claire England (00:43:58) - The next point would be to spend some time thinking about your mindset. Are you more diligence focused or are you opportunistic, meaning are you more focused on the metrics of. Of Marcus size and revenue and go to market strategy? Or are you more of a gut feel investor, or are you somewhere in between? And how are you going to think through diligence versus your gut feeling? How are you going to balance those? How much diligence do you want to do? How much do you think is important? This is also something to keep in mind when once you've developed this thesis, you can actually apply this to how you think about investing in funds as an LP. So you can talk to the GP you're thinking about investing in and ask them, are they more diligence oriented or more opportunistic? They might have partners with different approaches. You know, there are very successful VCs out there who go almost exclusively on gut, and then there are very successful VCs who go by metrics and stats and data.

Claire England (00:45:07) - So it can be and sometimes those VCs, those GP's are on the same team and they balance each other. So um, another point that I think is really important is analyzing your deal flow. So recognizing market trends. So back to the personal values. You've already. You've already determined your strengths, your expertise, your interests, your passion that will tell you the sectors you want to invest in and then spending time recognising market trends in those sectors and exploring new sectors as part of diversifying that portfolio. And ideally, as you're developing this thesis, you're not just thinking about the sector. You know, if you can surround yourself with other good investors, other people who are exploring this asset class or already know it, then you can invest alongside them, knowing that they know their sector and you can diversify more into other sectors that way. So putting all of your baskets in B2B, all of excuse me, all of your investments in one basket, B2B SaaS.

Claire England (00:46:21) - Right.

Claire England (00:46:23) - In one sector, not going to be as diverse of a portfolio as I would be ideal.

Claire England (00:46:30) - Do you want to expand into health care or climate tech or CPG? What do you want to avoid? What do you know you're not going to be any good at? And to your point. Finally, a thesis is never static. This is something that you should re-evaluate at least annually. Because you grow and you learn as an investor if you're doing it right. And as a result, you'll find that there are things in your thesis that you'll want to revise or expand upon.

Christopher Nelson (00:47:03) - And I'm sure there's room in there. Right. You're incorporating your lessons learned all the time.

Claire England (00:47:09) - Exactly.

Claire England (00:47:10) - You're constantly reevaluating as you learn lessons, as you realize, oh, gosh, I didn't do a thorough enough background check on this. On this founder. I didn't work my network to find out the pros and cons of this person as a leader or. The founder told me that the market was this size, and I didn't check to make sure it really was.

Christopher Nelson (00:47:40) - And so are there guidelines when you think about the 20 or 30 investments as far as what kind of diversification that you would want across, let's say, industries or, you know, let's say channel models, B2B versus B2C.

Claire England (00:48:01) - Here again, it has to do with your comfort level. A lot of investors I know in Austin in particular, historically have been more comfortable with B2B, B2C. It is a tough space. But then a lot of the Bay area investors are much more comfortable with B to C, so it depends largely on your own knowledge and expertise. What is your business background? Where do you think you can have the most impact with your angel investments? One of the reasons why people get involved in this asset class is it's one of the only ones where you can really be hands on and have a chance to be a resource for the founders in your portfolio.

Christopher Nelson (00:48:47) - I want to pivot the conversation a little bit. I think. I think we walk through the thesis building, but let's let's touch base on this, where so many people that I know think that once they stop working full time in tech in a corporate role, whether that be for a startup with a B for a public company, that they they no longer have a opportunity in tech.

Christopher Nelson (00:49:11) - When I think they couldn't be more wrong that in this ecosystem, in growing these amazing companies, supporting different founders, there's a myriad of roles that are available to them. What are you seeing out there where you could take somebody with deep industry experience and they can work in this ecosystem.

Claire England (00:49:33) - Oh, I would want to immediately introduce them to some of the accelerator leaders around town because the, you know, whether it's whether it's Capital Factory or Techstars or Sputnik ATX for Austin locals, there are accelerators and in most significant startup communities all around the US and internationally. So as long as you're in a community that has some level of startup support, then you can find an accelerator and plug in and become a mentor. Now, I think it's important for those who have never been a mentor to startups to realize that this is not going to be a paid role, and you should never ask for payment as a mentor until you've developed a really deep relationship with that founder. And usually it'll be the founder who asks you if you would join them as an advisor.

Claire England (00:50:29) - And they offer you some stock. So, you know, it's giving back. You've been successful in your career. By no means does that mean your career is over. You have a chance to teach founders to support startup leaders in your community and beyond. How and why they can be successful. And if you have specific experience. Say you spent your career in marketing or product development. You can bring a level of expertise to the table that is unique and that a lot of companies could really use.

Christopher Nelson (00:51:14) - Right? I mean, you could be a SaaS buyer on the business side, who, you know, has been structuring those particular types of deals and can give tons of insight there as well. And I know there's opportunities. You mentioned mentorship advisors. I know we talked about board seats. There's even, you know, the opportunity to consult in different scenarios as well depending on how deep your expertise goes.

Claire England (00:51:41) - Yeah, certainly. And although I do think that a lot of people go into consulting in the startup ecosystem thinking there's a lot of money to be had.

Claire England (00:51:51) - And most early stage startups don't have a lot to hire consultants. So if you're looking to do consulting with startups, I would encourage you to to look at the companies that are really well funded, maybe series B or series A and beyond. But if you're retired or taking a sabbatical and exploring your next thing, getting involved in the venture asset class is a great way to explore that next thing. First of all, or if you're retired or on, just have had your successes. And we're not of the age where we're going to call it retirement. We're going to call it sabbatical. Permanent sabbatical. Um, the other thing you can do is, bring that expertise to bear as an independent board member, independent, meaning you don't have an investment or a stake in that company, and you're bringing an independent mindset to that company's board. Um, you know, one of the things that I think was really interesting about going back to that portfolio metrics luncheon I had at Seton was one of the investors spoke about how his winners were the ones where he had a board seat and wrote a big check.

Claire England (00:53:07) - His losers were the ones where he was passive, either not on the board, not even a board observer, and wrote a much smaller investment. So his takeaway was the diversified portfolio is important. But for him, success happened when he was investing with passion and all in. So you know that that's what I think is an important lesson for thesis development. Another one is, is. We all learn from our failures more than we do from our wins. And when you're thinking about getting involved with startups, know that those failed investments are an opportunity for a lesson learned. So what was the reason behind that failed investment? Was it lack of due diligence on your part? Were you too emotionally involved and funded a cash burn? Um, were you perhaps believing in the fallacy of first mover advantage? Second mover sometimes actually often does better than the first mover. So doing a postmortem on your failures and re incorporating those back into your investment thesis is part of thinking about how you want to be involved in the ecosystem because you when you learn from your failures as an investor, just like when founders learn about their from their failures as a founder, we all become stronger in the ecosystem, become stronger.

Christopher Nelson (00:54:37) - I couldn't agree more because that's it's the process of failures evolving into lessons learned. And I think they can only do that when you reflect on them. Yeah. Otherwise. Otherwise they just stay as failures. You have to process them into a lesson learned. You have to write that script. What does that look like? What was the lesson? What was the takeaway? And then as investors, the more we do that and we fold that into our investing knowledge base, we translate that into our new updated investment thesis. That means that we continue to take risk out of our portfolio, and we continue to put more wins on the board.

Claire England (00:55:18) - Yeah. And one.

Claire England (00:55:19) - One last thought I'll add is that one thing that I think that is perhaps easier to forget than it should be is that when we're investing in startups and investing in this asset class, we're investing in people, and founders need support. They don't just need a check, they need advice and mentoring. And they need us to also ask how they're doing.

Claire England (00:55:46) - Founder. Mental health is a real thing and finding being a CEO, founder, whether solo or co-founder, is a lonely experience and we as investors can help make that a better experience by being we don't have to be rah rah, rah rah cheerleaders. We can be authentic and meet that founder with emotional integrity and support them as we're pushing them to do better.

Christopher Nelson (00:56:15) - Such an important point to call out, and especially, I think, for some of us who, you know, I transitioned from corporate roles into entrepreneurship. And I understand that entrepreneurship is a lonely journey. And especially if you are leading a startup company and people expect so much of you from you. We need to take our experiences that we had at these hyper growth companies, coach them, guide them, be that shoulder for them. And I think to your point, clearly, what I've come to understand is that, you know, we can be in that positive mode. We can be driven on the gear shift, we can be going backward in reverse.

Christopher Nelson (00:56:55) - But sometimes just letting the car idle in neutral is exactly where we need to be.

Claire England (00:57:00) - I'll also add one. One other thing when we're thinking about building our investing thesis. And that is. I'm going to bring up what some people will consider an elephant in the room. But I think this is an important consideration. And that is diversity. Diversity of person. Diversity of sector. Diversity of stage. The research is very, very clear that the best performing companies are those that are led by gender diverse teams and ethnically diverse teams. And if we as investors make a concerted effort to find and get to know a vast. Plethora of different types of founders, we are much more likely to have a successful portfolio and the returns that we want on that portfolio.

Christopher Nelson (00:58:01) - I couldn't agree more on that either. What I've seen as well is the diverse teams, diverse ideas and people that come together, you know, help navigate through all these different situations because of all the different contexts that you can bring.

Christopher Nelson (00:58:17) - And ultimately, what sits on the other side of a company and what you're building is what customer base and that customer base is going to be the same thing. It's going to be diverse. Many of these companies want to go sell, not just here in the United States. They want to sell all over the world. And and so we have to all come together and originate with that same, you know, diversity of ideas. I also like bringing in people who have worked in different sectors. I know for myself, being in, you know, more public tech than bringing in people who were, let's say, in the military and had that experience for a number of years and brings in that diversification of idea. Or for myself, I was at a very large corporation. Then I started going into pre-IPO startups. And so you went from big to small. And so I would always understand where we're headed, where we're going. That was one of the dimensions that I was able to bring to the team.

Christopher Nelson (00:59:11) - All those different ideas, people, thoughts, places, you know, make for a stronger outcome.

Claire England (00:59:20) - Yeah.

Claire England (00:59:20) - And and the stats are there to to back that up for instance at portfolio and portfolio by the way exist to activate women as LPs in the VC asset class because women historically don't don't tend to think of of angel investing in VC is something where they should they should put their money. But women control more than half the wealth in this country now, and they also control the purse strings for 80% of the buying decisions in the home. And that's only increasing. So. One of the things that I think is just proof to the point I was making around diversity and your support for it, is that our best performing fund, by far a portfolio, is the one that is focused on investing in black. Latino, Latina and Lgbtqia+ founders and or companies that are addressing those communities and that fund is unrealized IRR, of course, but it's performing better than the top quartile of funds.

Claire England (01:00:38) - Wow.

Christopher Nelson (01:00:38) - So that's amazing.

Claire England (01:00:40) - There's something to be said for seeking out diversity of person and idea and sector and all of that. I think socioeconomic diversity is important too.

Christopher Nelson (01:00:51) - Truly is. Well, I think that you and I, Claire, could jam for hours more, but unfortunately, we do have to put a bow on this at some point. We always set it up with what we call the fire round, where? I'm going to ask you five questions. Just give me some crisp answers here. What would be the worst career advice that you ever received?

Claire England (01:01:14) - Where's career advice? Oh my goodness. I don't tend to think worse. Oh wow.

Claire England (01:01:21) - I don't know if I can.

Claire England (01:01:22) - Come up with a crisp one. Stay a non-profit.

Christopher Nelson (01:01:27) - Okay. Yeah.

Christopher Nelson (01:01:32) - Did somebody tell you that at some point? Yeah.

Claire England (01:01:35) - They thought that nonprofits were my future, and I thought so too at one point. But it turns out I didn't think of it as bad advice at the time. It turns out that wasn't where I was supposed to be.

Christopher Nelson (01:01:46) - Well, and I think sometimes well-intentioned mentors don't want us to get hurt when they see us taking a risk. But I would say to that person, they didn't know what you were about to become. So anyway.

Claire England (01:01:59) - Neither one of us knew what I was capable of at the time.

Claire England (01:02:03) - In fairness.

Christopher Nelson (01:02:04) - So how do you keep learning?

Claire England (01:02:07) - Oh, how do you not?

Christopher Nelson (01:02:10) - In this day and age. Right?

Claire England (01:02:11) - Yeah.

Claire England (01:02:13) - So I read a lot. Podcasts. I stay abreast of the news. Um, one of the most important ways I keep learning is by seeing startups, you know, have a chance to deep dive and due diligence into sectors I have very little knowledge of. But I learn in that experience, and that's one of the reasons why I love this asset class so much, is I have a chance to see cutting edge technology and cutting edge solutions in healthcare and and other sectors that I would not otherwise be aware of or learn about.

Christopher Nelson (01:02:52) - That's great.

Christopher Nelson (01:02:54) - What do you do to recharge? How do you get away from it all?

Claire England (01:02:58) - Uh, cuddle with my pug. Cuddling that thing.

Claire England (01:03:04) - Yeah.

Claire England (01:03:04) - Pug cuddling is a thing. No, I love to travel, especially internationally. And that for some people, that probably doesn't sound like a recharge opportunity, but it just. It gets me. It's having a chance to see new places and experience new experiences and, and go to a place where I don't know the language. That's the goal.

Christopher Nelson (01:03:28) - I love it. Yeah, I'm the same way. What? Advice would you give your younger self? Starting to work in VC?

Claire England (01:03:40) - Mm.

Claire England (01:03:41) - I don't know if this is advice from starting to work in VC or just advice to younger self generally, but. Stop listening to the negative inner voice. The critical voice.

Claire England (01:03:55) - Um.

Claire England (01:03:56) - I should have got rid. Got rid of that a long time ago. A long time sooner than I did. And I, I think that this is something I don't know if men.

Claire England (01:04:06) - Are challenged by this. I know a lot of women, high performing CEOs and top leaders who deal with negative self-talk, and that's something that none of us need.

Christopher Nelson (01:04:17) - Oh yeah. Yeah, yeah. I mean, I know I can struggle with it too. Being my own worst critic is brutal. And yeah.

Claire England (01:04:28) - It's conscious.

Claire England (01:04:29) - Decision to let that go. And I think it's an important one. We can be the better version of ourselves when we let go of that critical self-talk.

Christopher Nelson (01:04:37) - Right?

Christopher Nelson (01:04:38) - Choosing, choosing which voice we want to support, which one we want to listen to because sometimes it'll be there in the background, but we want to give the positive one more of a voice. So we're going to bookend it with the worst. But I think you can answer this one. What's the worst investing advice you ever received?

Claire England (01:04:57) - Mm. Oh, wow, that's a.

Claire England (01:05:07) - Really tough one. I think some of the worst advice I've seen is to follow on every chance you get.

Claire England (01:05:16) - And I think that's a really bad idea, because you can end up chasing good money with bad. And just sinking money into a hole where that company is just not going to not going to survive. So knowing when to cut bait, cut your losses, admit that that investment is lost is really important.

Christopher Nelson (01:05:40) - I think you're right. You got to know when to stop the proverbial bleeding.

Claire England (01:05:46) - Or don't even start it.

Claire England (01:05:47) - Right.

Christopher Nelson (01:05:48) - Well, well, when you have a thesis. Right.

Claire England (01:05:51) - Exactly.

Christopher Nelson (01:05:52) - Exactly.

Claire England (01:05:53) - Control it. Indeed.

Christopher Nelson (01:05:55) - Well, Claire, I can't thank you enough. Thank you so much for your time. I got so much value out of this, and I'm sure other people will, too. Thank you, thank you.

Claire England (01:06:03) - This was a real pleasure, Christopher. Appreciate your time as well.

Christopher Nelson (01:06:06) - Thank you so much for listening. I would ask that you do one thing. If you can, go to Tech Careers and Money News, you can sign up for our latest publication in Tech and Money News.

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