For the next instalment in our Operational Leaders series, we speak with Andrew Baldwin, who worked to build out the VC tech-stack at Connect Ventures, a thesis-led VC firm that’s invested in product companies including Typeform, Citymapper, Soldo, TrueLayer, Curve, Kheiron and Second Nature. Andrew joined Connect in 2019 from J.P. Morgan & Chase & Co., and he sat down with us to talk about his VC tech stack, ESG data and portfolio management.

How do you think about your VC tech stack? Does it sit primarily within the investments, operational or back office functions?

We think about the tech stack holistically: front to back, from the very initial stage of the VC’s involvement to the end. This includes investment tech as well as back-ops and finance, and it’s actually the latter two of these which make up the larger proportion. When it comes to investments, many partners still tend to reach out via the old tried and tested methods, such as inbound and outbound messaging, relationship-building and referrals from other VCs.

Some companies use data and tech far more to make investment decisions, but on the whole, it is definitely more of the operations and back office. We have a document that we use for fundraising presentations that outlines our VC tech stack and we split that into different categories: deal flow, market data, fund and portfolio management, fundraising, LP management, and then Connect Internal. Our target is to have the best tech within those functions as we believe that will allow us to excel.

What kinds of data does a VC need to make effective decisions? What tools do you use?

Some funds use data all the time in their decisions and others barely use any at all. I believe we sit roughly in the middle. In collating and analysing this data, we have some critical pieces of technology that we would struggle without. One in particular on the deal flow side is our CRM, Affinity. We see over 1,000 deals a year, with only 10 companies making it into the portfolio. It’s essential that we keep track of those relationships and communications – and how far along the process each company progresses, and why they may not have.

One of the struggles we’ve had is knowing what kind of data to add to the system. When we started about 3 years ago, we logged every deal and added so much information that it became a very time-consuming process. We want to have enough data to be able to draw valuable insights, but need to balance that with being efficient. It’s a fine line.

A second challenge is fund and portfolio management. Particularly as you scale, this becomes a big task. We have an internal phrase to describe the need for efficient management: keep your house in order. You need to know what’s happening with your portfolio and your funds to make sure that you are making the right decisions.

As for the internal side, we use a tool called Notion. We use it for everything from investment committees to employee handbooks, and any kind of deal flow analysis. I produce a lot of data insights and analysis, and I share these through the Notion platform. One of the great things about working in a VC is that we can also use our portfolio companies’ solutions. We use Charlie HR for our internal HR management, Soldo for our expense management, as well Typeform regularly.

Another interesting point that I have led on has been the market data side. Obviously there’s a lot going on in the market and it’s easy to assume that you already know the current trends. But until you see the hard data, you can’t assume anything. We have started using CrunchBase and a tool called Tracxn to see how deals are being done in the market. We try to look at the top of the funnel and assess what deals Connect Ventures could potentially see in a given period. We can then compare it to our deal flow, work out in which areas we may be missing deals, and revisit our processes to maximise market coverage.

How do you choose a new tool to add to your VC tech stack? What are the main criteria that you work against?

When it comes to choosing a new tool, I would draw out three major criteria that we consider:

• Coverage. We’re a European investor which predominantly invests in European companies with a few exceptions in the US. We need to find tools that are built for the European markets.
• Scalability. VC funds scale up very quickly. A tool that works for a 1 or 2 fund structure quickly becomes restrictive once more funds are added and initial funds mature. It’s important to consider how tools can scale up alongside us and are still effective as we grow.
• Functionality. While many tools claim to be the all-in-one solution for all our needs, from experience we know that often these tools overstretch themselves. In my view, it’s better to look for the solution which is right for a specific issue rather than one that tries to solve everything sub-optimally.

Considering market trends, there has been a large shift in the industry to incorporate ESG far more into portfolios. How are you collecting this data and what are you doing with it?

It’s vital to collect data on portfolio companies. When I first moved to Connect, we sifted through board packs and extracted this information manually. However, that was unscalable. Following this, we moved onto Airtable to collect KPIs via forms. These are sent out to the portfolio companies on a quarterly basis. These typically ask for basic information such as revenue, headcount and cash burn. It’s only more recently that we have looked at ESG.

We tend to think about ESG by splitting it into two sections. The first is internal, so we look at how Connect Ventures as a fund thinks about ESG and frames its goals, while simultaneously measuring our emissions and our impact. Second, we look at the portfolio as a whole: how we can track the portfolio’s impact and how we can tweak, amend and update our investment process to make sure that ESG is kept front of mind. We use a tool called Plan A for that.

When we look at how we can collect ESG data on the portfolio, we are very aware that we’re a seed stage investment fund. Collecting emissions data from a company where there are a couple of founders and maybe one or two employees is understandably hard to do. We understand that it may not be a priority for these companies initially but what we want to do is kickstart that thought process at an early stage, so when they develop and have the resources, they can start tracking all the data that will be asked of them at Series A. Incoming regulations mean they will eventually have to report on this, and we want our companies to hit the ground running. So, at the moment, we’re surveying the portfolio, raising awareness and gauging the companies’ views on sustainability. Soon, we will start requesting KPIs.

These KPIs will incorporate broader topics like employee diversity breakdown, and then for later stage companies, we will start adding more direct sustainability and emissions questions. In terms of what we do with that data, it forms the basis of our quarterly reporting, our portfolio review, and fundraising materials. We now have a history of data across different sectors, so can offer feedback to our companies as to how they compare to other similar companies in the portfolio.

When you’re considering dashboarding and portfolio management, have you encountered any problems? If so, how do you break these problems down?

Dashboarding fund and portfolio management is my bread and butter. I really believe in its value. The first issue we have encountered is being able to show time series data. So much of reporting is simply a snapshot in time: you have your quarterly reports and quarterly KPIs, but unless you have an Excel sheet for every month where you may be tracking a new FX rate, new KPIs or company valuations, it’s difficult to give an overarching view and display progress. It’s also a lot of work to update month to month.

Another is scalability. It’s very easy to dashboard for one or two funds, provided those funds don’t have 100+ companies in them. However it very quickly gets out of hand when you have more funds and when they are maturing, for example when they are raising an external Series D round or even just an option pool increase and you have to track all the necessary information. This is the problem we had with Excel and Airtable initially. You can do it, but we had Excels with thousands of lines and about 30 different tabs.

Finally, sharing and presenting the data. Knowing how to share the data and how it will look when presented among your team or your LPs. You need a tool that can be accessed at any point, by any team member, which is updated with live information. We built a secondary tool on Trello to ensure we’re on top of that, from large updates such as a new investment or a company raising a large follow-on round, to smaller updates such as a new ownership percentage or a change in liquidation preferences.

Finally, given the threat of economic uncertainty, how do you see the industry responding and what do you think will be the main impact in the next 2-3 years?

When it comes to new investments at seed stage, there’s no real change. People still have really great ideas and need funding; these ideas aren’t going to slow down. However, the wider economic environment makes that slightly more challenging. While early stage investments may not be impacted, we are seeing the late stage funding drying up a bit. There are some concerns there. A task we have undertaken recently is working out how we can help our portfolio companies and make sure they can extend their runway to last until the market improves and they can then obtain funding.

Obviously, there are companies that will struggle and may even close down early, but that’s the nature of the business. If you’re a good company with a solid product, go-to-market strategy, and sufficient runway to build and start creating revenue, you’re going to maximise your chances of success. Overall, though there are some real concerns, I feel more optimistic now than I did six months ago.