PS#064: My 3-Step Annual Review Process

Personally, I believe that reviews are a key piece of the puzzle for all top performers.

It doesn’t matter if you’re in venture, startups, or some other industry entirely. Those who review their performance are able to adjust, adapt, and keep improving. Those are the individuals who outperform their peers.

Today, I am going to share the process I use to review our deal flow for the year.

I follow a simple 3-step process…

1. Organize the data.

2. Review the details.

3. Think through the strategy.

It sounds simple on the surface, but the devil is in the details. I’ll walk through exactly what I mean for each of these steps so that you can perform this for yourself.

While this works especially well for those in venture, this process was just as useful for me when I was still trying to break into venture. It helped me think through the mechanics of being an investor, created a level of accountability (something I needed in an ambiguous industry), and produced results I could use in interview processes.

Alright, let’s get started.

Step 1: Organize the data.

First things first, we need clean, organized data.

As with most review processes, we want to start with the data – the underlying evidence of what we actually did over the course of the year.

For venture investors, this means reviewing our deal pipeline.

The pain of this process will vary depending on how organized you’ve been throughout the year. If you were organized, this should be a breeze. If not (don’t worry, I’ve been there), there may be some pain in going through this review process. I’d recommend learning that lesson now so that you can be better prepared for future years.

So, what do I mean by “organized”?

Great question.

It’s all about tagging, categorizing, and organizing your deal flow. For each individual deal, I recommend categorizing them by…

• Thesis

• Industry

• Geography

• Financing stage

• Progress in the deal funnel

You can certainly get more granular, but this is a great starting point. The whole idea is to help you understand where you spent your time.

If you’re like my team, we review thousands of deals each year. We want to know where we focused our efforts, so that we can decide if this was a good idea, bad idea, or something we want to change going forward.

Step 2: Review the details.

OK, we’ve got the data.

We have a sense of where we spent our time. Now, it’s time to dig into the details.

I’ll take the entire deal funnel for the year and go deal by deal, company by company. I’ll usually do this by going through each of the categories that I outlined above to provide more context. It helps me think about each deal/opportunity within the context of my investment mandate.

So, what exactly am I looking for?

I’m looking for potential opportunities.

The funny thing about venture is that it actually takes quite a long time to do a deal. You’re often getting to know a team/company over the course of many months (if not years). Many (if not most) of the deals I’ve done have happened after I’ve known the team for 12+ months (and in some cases, multiple years!).

I’ll go through the entire funnel to find opportunities that should be prioritized for the next year. Since I already organized the data (i.e., Step 1), I’ll also have this prioritized list organized based on the categories we identified above.

Once we’ve organized the data and have a list of prioritized companies, we can start thinking through a strategy for the next year.

Step 3: Think through the strategy.

I approach my deal flow strategy in two ways…

1. Theses

2. Targets

Let’s chat about each of these in a bit more detail.

Theses

In Step 1, we talked about organizing our data to understand how we spent our time throughout the year. Once we have this data, we can start to analyze it.

Here are some of the questions that I like to ask myself in this process…

• Did we spend our time in the right places this year?

• Should we have spent time elsewhere? If so, where?

• Did we find enough or all of the companies in X thesis?

• Were we looking in the right places?

• What could we do differently to make sure we find all of them?

• Were we looking at the right stage (i.e., seed, early, late, etc.)?

• Were we looking in the right locations (i.e., geographically)?

• Were we looking in the right industries or theses?

• Were we talking to the right investors or ecosystem players?

• Are there new areas where we would like to focus?

• Are there areas where we would like to stop spending time?

Essentially, I want to think about where I spent my time and whether or not it worked. Based on the data and my answers to these questions, I’ll adjust my approach for the new year.

Targets

In Step 2, we discussed creating a prioritized list of companies. For these opportunities, I believe in taking an account-based-marketing (“ABM”) approach for each company. I think through how I can make sure I’ll have the opportunity to invest in the company’s future round.

This will include thinking through the following questions…

• What is the timeline for their next raise / investment opportunity?

• How can I be valuable to the startup before investing?

• How can I create an opportunity or position ourselves for the future round?

• Is there a way to avoid a competitive process and secure allocation?

• Who else might be interested in this company?

• How can I stay close to those investors (if I’m interested in following)?

• How can I stay ahead of those investors (if I’m interested in leading)?

• How can I position myself as a “must-have” investor?

• What value can I bring to the table?

If you’re sitting back, waiting for deals to come to you, it’s going to be tough. There’s simply too much capital chasing too few deals. Figure out how you can demonstrate value and position yourself for those potential opportunities.

Step 4: Plan for next year.

We’ve got the data, details, and the overall strategy.

In the next issue, we’ll discuss Step 4 – how to pull all this together into a comprehensive plan for the year. We’ll build out our goals, KPIs, systems/processes, and the “red flags” that will let us know that we are off track.

As I’ve mentioned before, venture capital is a “1% better every day” type of industry. We need to make sure we consistently put in the work to increase the odds of finding great investments and lay the foundation for a successful fund.