Masterclass Live! How Strawberry Creek Ventures Evaluates a Deal

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  Speaker 1:
  Welcome everyone. We really appreciate you taking time out of your day to join us. I’m Matt Caspari and I’m the Managing Partner of Strawberry Creek Ventures, which is Alumni Ventures’ UC Berkeley-focused fund.

  Before we dive into the presentation, I’ll start by reading a few legal disclosures. We are speaking today about Strawberry Creek Ventures, our parent company Alumni Ventures, and our views of the venture capital landscape. This presentation is for informational purposes only and is not an offer to buy or sell securities, which are only made pursuant to the formal offering documents for the fund. Please review important disclosures in the materials provided for the webinar, and you can access those at avfunds.com/disclosures.

  And a few quick housekeeping items. You won’t be on camera and you’ll be muted throughout the entire presentation. We are also recording this presentation. Within a few days of this webinar, you’ll receive an email from us with the recording. We’ll also include a link to our fund’s data room if you’re interested in potentially becoming an investor in our latest Strawberry Creek Ventures Fund. You can learn more there, and we’ll also include a link where you can book time with our team. So if you’re interested in learning more and talking with us directly, you can do that. We’ll also add that information into the chat.

  If you have questions as we go through this presentation, feel free to enter those into the chat. They’ll come to me, and we’ll get to Q&A at the end. We’ll do our best to answer as many questions as possible, especially if we think the questions are relevant to a significant portion of the audience. If we don’t get to your specific question, we’ll follow up with you afterwards.

  So just in terms of setting the stage, a quick introduction to Strawberry Creek Ventures. Again, we’re a venture capital fund that’s organized around the UC Berkeley alumni community—so, Go Bears! We are part of Alumni Ventures, which has raised well over a billion dollars from individual accredited investors across its network of funds.

  We’re here to build wealth for Berkeley alums by creating diverse portfolios of 20 to 30 venture-backed startups. We have a really large community that we’ve built around Strawberry Creek Ventures—over 30,000 people. We’ll talk a little bit about the team that we have, our investment committee that supports us, that brings decades of experience, and we’ve built a really large portfolio of over a thousand companies across Alumni Ventures. We’ve invested in over a hundred companies as part of Strawberry Creek Ventures, and our community across the entire Alumni Ventures platform is over 600,000 alums from leading universities.

  So I’ll talk a little bit more about myself, our core team. I’ve had long-term ties to Berkeley. I graduated from the full-time MBA program back in 2006. I was focused on entrepreneurship at Haas and started a venture-backed company called Aurora Biofuels, based on technology that we licensed from the university. We won the business plan competition the year I graduated and went on to grow that company to over 100 employees. We raised well over $100 million in venture capital, and we eventually sold that business to Reliance Industries, a Fortune 100 conglomerate out of India.

  Over the years, I’ve maintained my ties with Berkeley. I’ve been a long-term mentor and advisor to many Berkeley entrepreneurs, and it’s really exciting to be in a role here at Strawberry Creek Ventures where I can invest in and support other entrepreneurs—and really do that with a focus around the Berkeley ecosystem.

  Joining me running the Strawberry Creek Ventures team is Carl Choi. Carl is also a proud Bear, so he was part of the full-time MBA program, graduated back in 2016. While he was at Haas, he had leadership positions at the Haas Tech Club, an investment club, and was also a mentor at Berkeley SkyDeck.

  Prior to moving into venture capital, he was an investment banker at JP Morgan and also gained operating experience at Riverbed Technology and Upwork. So we’ve got a great team here focused around Strawberry Creek Ventures.

  So we’ll start this presentation really at a high level. Some of you may not be very familiar with the venture capital asset class. So at a high level, we’re talking about investing in private companies as opposed to companies that are listed on public stock exchanges. These are typically companies that are startups—meaning that they’re relatively young in their life cycle—and these companies have the potential to grow into large, publicly traded companies.

  Many very famous brands and products or services that you use probably every day—we’ve got some logos here on the slide—started as venture-backed companies. When these situations work out, there can be really spectacular returns for early investors. One example is Uber. It’s been out there—a lot of press around Uber’s IPO showing the returns that very early investors in that company had, which was well over a thousand times their initial investment.

  While there can be some spectacular winners, many companies don’t work out. So it’s a high-risk, high-reward opportunity—investing in early-stage companies that usually have a strong technology angle to them.

  Our approach at Strawberry Creek Ventures is to build portfolios of 20 to 30 companies as a way of creating diversification to help reduce the risk. And we create diversification by investing in companies across different stages. So we invest from the very early, what we’d call seed stages, through Series A and B, and even into later-stage growth rounds—can be Series C, Series D and beyond.

  So we invest across stages, we invest across sectors—we invest in all of the key areas that the venture dollars flow into. We also invest across different geographies. So that’s a way that we are able to create diversification and invest in 20 to 30 companies per fund. And we typically deploy a fund over about a one-year period.

  So getting into the heart of the presentation today, which is really around how we think about investing—how we approach evaluating companies and deals—we look at hundreds, probably even thousands, of investment opportunities per year. So we really need a process of filtering the information that comes in and finding companies that we think have the potential to deliver strong returns.

  Over the years, we’ve developed a methodology that we use. We have a scorecard system that guides our assessment of opportunities and establishes important characteristics that we want to consider and think through as we’re working through our due diligence process here at Alumni Ventures.

  So our firm, Alumni Ventures, has been around for about a decade. We’ve refined and distilled this methodology over time, and the scorecard is a way that internally facilitates our conversation. We’re able to have a common framework as we look at opportunities, and we think a lot about the wisdom of small crowds and having conversations around certain characteristics of an investment opportunity.

  And we will get into the detail with some really specific examples of how we use this scorecard—what’s in the scorecard. Also, just note that the scorecard is what it sounds like. There is actually a score that comes out at the end. In order for us to move forward with an investment, we actually need to achieve a certain score.

  But it’s not an absolute measure of a company’s worth. It’s a tool that we use to facilitate communication around the team, identify key risks, make sure that we’re going into investments with eyes wide open, and making sure that we’re identifying opportunities that really are a strong fit with our investment thesis and model—that we think can drive returns at the end of the day for the investors in our funds.

  So we’ll go through four key categories. Within each of those four key categories, there are several buckets—as we’re going to go through quite a few different aspects that we look at when evaluating a deal.

  So the first one we’ll go into is what we call deal dynamics. This may be a little surprising to people—this category isn’t very focused on the company. It’s focused more around the round—the composition of the round.

  Alumni Ventures is a co-investor, meaning that we do not lead rounds. Another venture firm will step up to negotiate the key terms of the deals with the entrepreneurs. They’re very often taking a board seat, and we come in and co-invest alongside them. So for us, understanding the dynamics around the deal is really important.

  The first sub-bucket under deal dynamics is the round composition. We look at—is the round being led by a new investor? That typically is a positive signal if the company is able to attract a new investor to lead a round. So we generally would score round composition higher if a new investor is coming in.

  If existing investors are leading the round, we tend to view that as a more neutral or possibly even negative signal—that the company wasn’t able to get someone new to come in and lead the round.

  We’ll also look at the behavior of insiders. Are they making a pro rata investment? Are they investing their typical share in the round? Are they doing more than that? Are they doing less? So these are key aspects for us around round composition, and that leads to a score.

  Very related is the valuation and terms. If a company goes out to the venture capital community and they have multiple competing term sheets from new outside investors, you can look at them as having run a process and achieved a certain valuation and terms—that’s coming to them from the market.

  We can also look at a lot of data. We were named the most active venture firm in the U.S. the last two years by PitchBook. We’ve invested in over a thousand companies. We have a huge dataset around valuations for companies at different stages and sizes. So we’re able to look and see how we think that valuation and terms compare to what we’re seeing as a market.

  If it’s more of an insider-led round, we need to often do more work to feel that the valuation and terms are market. If it’s a group of insiders that are pricing a round, we need to be a little more cautious that that price is actually accurate relative to other things that are out there.

  Finally, the other thing that we look at as part of deal dynamics is the amount of runway that a startup has. So runway is the number of months they have to operate. We really do not like situations that we kind of call bridge rounds—situations where maybe the company is raising six months of capital to try and get to a larger fundraise. That’s a risky situation. We’d rather just wait for that larger fundraise to occur.

  It depends a little bit on stage and the details, but we tend to like to see something like 18 to 24 months of runway. That usually is giving the company enough time to really hit some key milestones, hopefully have some real value creation, and then go back to market and raise their next round of funding.

  So those are kind of the three key buckets that we think about, assess, and ultimately score around deal dynamics.

  On the right-hand side—just point out a specific example of a company called Aase, which is an AI-first, low-code software development company. The company’s CEO is a seasoned entrepreneur that had previously built a venture-backed company that went public. So at the time of our initial investment in 2022, Foundry Group, a new outside investor, led the round. So again, as we assess that situation, we’re going to score the round composition highly because you have a new outside investor coming in.

   

  Speaker 1:
  That firm is really well recognized, well established, manages over $4 billion in assets, and has a lot of deep domain expertise in investing and leading Series A rounds. We looked at the valuation and terms that they set and assessed that, and then also the conviction that they had in terms of the size of their check. So that’s another thing that we will look at as we’re assessing the deal dynamics—how does the size of their lead check compare with their typical investment?

  And then obviously, how much runway does the company have? In this case, they had definitely significant runway with a sizable Series A round coming together.

  So that’s deal dynamics.

  The next category that I’ll talk about—which again, in our position as a co-investor, is really critical to our assessment—is around the lead investor. So I gave you an example with Foundry Group, but I’ll go a little bit deeper here.

  We first are looking at the firm that’s leading the round. What’s that firm’s track record? Have they been around for a long time? Are they on Fund 10, or are they on Fund 1? What’s been the track record of that firm? What’s their reputation?

  There are a lot of well-established brand name venture firms that we co-invest alongside a lot. We’ve invested dozens and dozens of times with these types of firms—names like Andreessen Horowitz, Sequoia, Khosla Ventures, Luxe Capital. So those are examples of firms that we would score highly. But there’s also a lot of more specialized firms that we think highly of that may have really strong track records at certain stages or sectors.

  So we assess the lead firm that’s leading the round. We then assess the conviction of the lead investor. So what is the size of their check? We will talk to the lead investor. We’ll ask them what their typical check size is for the type of round that they’re leading. We’re really wanting to understand how much are they writing into the deal, but also their conviction. What work have they done? What’s their thesis? Why are they stepping up to lead this round? What do they see as the upside potential?

  So those are all key areas that we assess as we look at the lead investor. And then finally, we’re actually assessing the individual who’s leading the round within that venture firm. So we’ll look at that person’s experience—do they have relevant investing experience at that sector and stage? Have they backed companies that have gone on to create significant value and drive significant returns? Do they have relevant operating experience? Do we think this individual—who’s often taking a board seat—can really add value to the company going forward?

  So those are all aspects of assessing the lead investor.

  The example we’ll give here is Granata Bio. It’s a biopharma company focused on women’s health and infertility. In this case, GV—or Google Ventures—was a new investor leading the round.

  GV is the venture capital arm of Alphabet. It’s been around since 2009 and has invested in over 500 companies across a range of industries. But in this case, importantly, they’ve done a lot in life sciences and healthcare and have a really strong track record there.

  Even more specifically, they’ve invested in the fertility sector. And as we did some additional diligence, we saw that they had made an investment in a company called Kindbody that had done really well. So in this case, we have a lead investor that has a long track record generally, but also in this specific sector that we’re considering investing in.

  On their team, the lead investor who sponsored the deal—Kathy Friedman—has over 40 years of experience. She’s been on the boards of leading biotech companies, including Grail and many others. So you have someone with deep expertise and knowledge and a track record in this sector.

  So those are examples of the types of attributes that we’re looking for in a lead investor to give us confidence and move forward in our diligence process, feeling that we’re investing alongside a strong lead—which again, really is critical for us in our role as a co-investor.

  So the third category—I think it’s probably more typical of what people think and expect that venture capitalists are looking at. So we’re really assessing the company.

  We’re looking at things like customer demand, business model—what are the profit margins? How scalable is it? What’s the momentum of the company been?

  So there, if the company has revenue, we’re really assessing revenue growth—looking at year-over-year: how is this company performing relative to other companies that we see in similar zones?

  We’re looking at the efficiency of the company—how much capital have they raised before this round, and what have they achieved with that? Companies that have made a lot of progress on little capital will score higher than ones that have burned a lot of cash and we feel haven’t achieved much with it.

  And then also competitive moats—how easy is it to replicate this company? Do we feel that they’ve got novel technology or other ways that they’re creating moats against the competition?

  So I won’t spend as much time on this one because I think it’s fairly straightforward—understanding what we’re assessing here in terms of these key buckets. But I’ll walk through a quick example.

  Hayden AI, which leverages the power of AI and computer vision to solve complex challenges in urban environments. We’ve invested in the company three times. At the time of our initial investment, we really liked the team’s background—how they were solving customer problems. We closely monitored the company, and at the time of our second investment, they had accelerated their revenue and had some major contract wins selling into different transit authorities, including in New York City and also in the Bay Area.

  And then at the time of what was a heavily oversubscribed Series B round, revenue continued to grow significantly. So as we assess a company—both at the initial investment, but also really importantly if we’re considering following on in further rounds—this execution side of the deal scorecard is really critical.

  We’ll move on to the last bucket we’re going to talk about today from our scorecard, which is around the team. I think this one’s also pretty straightforward. It’s obviously really important to venture capitalists, as we think about an opportunity, to look at the people that are behind it.

  So we’re first assessing the CEO. We want to look at: what’s their personal track record been? If someone started a venture-backed company previously and has had a positive outcome, that’s going to score well on our scorecard.

  If they haven’t done that, that’s okay—we invest in a lot of first-time entrepreneurs—but we’ll look at what have they done? Where have they worked? Where have they gone to school? Have they done anything extraordinary previously in their life? Where did they start out? Where are they today? Is this the type of person that we think has the potential to become a great CEO if they haven’t done that before?

  And then we will look at the key members of the team. So we’re looking again—similarly—have they worked in venture-backed startups? What has their success in those situations been? If they haven’t done that, have they worked in large tech or other similar situations, and what have been the outcomes of the work that they’ve done previously?

  So the example we’ll walk through in this bucket is a company we invested in called Andromeda Surgical. They’re pioneering autonomous robots to make surgery more consistent and error-free. The company’s CEO is a three-time founder, and he created the first-ever medtech company to be accepted into Y Combinator back in 2015. He had good success with that, and he also holds really relevant background with engineering degrees from Stanford and had built and recruited a great team around him.

  So while this was a seed-stage, early-stage investment, we had a lot of confidence in the CEO and the team with a really relevant background.

  So team is critical in all stages of investment—but I think particularly at the seed stage, when there’s not as much customer information or traction, we really care a lot about backing great teams.

  So those are the four key areas of our scorecard that I wanted to highlight today.

  And I’ll move into just a question we often get that I’ll address upfront before we dive into Q&A, which is: how do we access great investment opportunities?

  That really is a core part of the job and what we wake up to do. So the key part of that answer is the secret sauce around alumni networks.

  Alumni Ventures started out around the Dartmouth alumni community, where our founder went to school. And then we expanded to Harvard, where he went to business school, and then started adding additional alumni communities across the U.S.

  And as I think I mentioned earlier, we’re now the most active venture firm in the U.S. We’ve backed over a thousand companies. We have over 10,000 individual investors across all our funds at Alumni Ventures.

  So this has allowed us to create a really powerful network that we’re able to leverage and tap into to identify great opportunities and also win allocations in rounds that are very competitive.

  It’s pretty intuitive to founders that there are ways we can help them tap into our network to build their businesses—whether that’s winning customers, finding independent board members, helping them connect with VCs to raise their next round of funding. So that’s a core part of our value-add to startups and is a key way that we are able to access great companies.

  So I think we’ve got a link here in the chat. So if you are interested in potentially becoming an investor with Strawberry Creek, we definitely welcome you to learn more. I think it’s a pretty straightforward process—we’ve done this now with over 10,000 investors.

  So in terms of the fees that the fund charges, it’s equivalent to a 2% management fee over the 10-year life of the fund. There’s a 20% profit share—so once all of the capital that someone invests is returned to us, including the amount for the fees, after that’s all returned, there’s a 20% profit share.

  The maximum investment amount is $3 million. The minimum is $25,000. Although a lot of people choose to go much higher.

  We often get the question about how much to invest. I’m not an investment advisor—definitely recommend you speak with one—but I think about this as long-term, patient capital. This is an illiquid, long-term investment opportunity.

  I think it’s helpful to think about what percent of your portfolio you might want to allocate to the venture asset class. There are a lot of diversification benefits of going into venture, and historically the asset class has really strong returns—particularly in the top quartile of venture performance—so significantly outperforming public market benchmarks.

  So we obviously think it’s a really compelling opportunity. We are raising our current fund, which is Strawberry Creek Fund VIII. So again, you can book time on our team’s calendar to learn more about that.

  We have our next close coming up at the end of October. There is a fee discount for people who commit by that date. And then the final close for the fund is at the end of December. So you’ve got a little bit of time to learn more, ask us any questions, and if you’d like to get involved, we’d love to have you.