I Fought the Law (and the Law Won)
Write-offs are a necessary part of venture investing. They are unavoidable if you do enough investing for long enough and because of this, all venture funds build write-offs into their models to demonstrate how the winning companies can provide returns that both compensate for the losses and deliver high performing results as a portfolio. But most venture funds write off their underperforming companies long before they are actual losses by not investing any more time in them, quietly removing them from their webpage and never discussing them publicly. At Active Impact, we are striving to be different. First, we promised founders that as long as they are willing to keep fighting, we will be in their corner fighting to the end (in fact, this is one of our core values). Second, we promised investors and our followers the highest levels of transparency which means that you can't just share the good news, you also have to share the bad. And, these setbacks are an opportunity to do a post-mortem and learn what we could try differently next time and to share these lessons. By the numbers, we have now invested in 37 companies, exited 7 of those and we just had our first write-off. So far, we are well above average on both exits and survival rates.
So here is a brief story about Anshula and the company she founded over 10 years ago called Sametrica. Anshula is a warrior and deserves a massive amount of respect. She entered into the impact and ESG measurement space before almost anyone else did–she knew the material better than most and built a strong MVP. She worked to serve and educate some of the largest brands while keeping her company alive for years with no additional funding, often by going without pay herself. Thank you Anshula for all that you did. We know that you exhausted every possible option to survive for as long as you could.
For our part, we got some things right and we got some wrong. We picked the ESG measurement market before most investors and it's now very large. We scored Anshula very high on tenacity which proved to be true. We declined follow-on financing even though our fund had capital reserved because our job is to concentrate capital in our top performing companies (Sametrica only received $250K from us 5 years ago, while our top companies have received 10% of the fund). Some things we got wrong were: insufficient diligence on the minimum financing required to achieve initial milestones, macro headwinds on ESG, and most importantly, gaps in the leadership team on product and sales. We have always believed that we can help founders hire what is missing, but we now believe that there is a minimum level of experience required on the team at the time of investment in a few core areas. These lessons are now documented as part of our learning catalogue and have changed the nature of our due diligence process for the last few years. We hope they have made us better investors.
