Garnet S. Heraman

Our fund- Aperture VC- focuses on pre seed and seed startups so it’s normal for the board of directors to be nonexistent or only partially formed, often times only with insiders. When there are outside directors at this early stage it’s important to know 3 things: a)the director’s connection to the founder(s); b) her understanding of company mission & purpose and ; c) her specific role in supporting the the implementation of company vision. Eg, in which operating area (finance, sales&marketing, HR, strategy, supply chain etc.)does the director have specific expertise? How will that expertise help the startup succeed? And finally- what is the communication style and process between the director, the CEO and other company stakeholders?

The best way to determine a fair exchange of funding for equity in a startup can be described as a three part triangulation process. First, use a top-down approach- ie stage, market or sector comparables to establish a general baseline number & correlated operating milestones. Second, use a bottom-up approach- ie, your fund’s target ownership and average check size. Third, reconcile the delta between those two approaches by factoring in time to sales milestones in best/worst case scenarios, general market conditions and best/worst case founder dilution outcomes. Interestingly, the personal rapport needed to have a constructive dialogue with entrepreneurs on this matter is almost always a good indicator of founder-investor alignment.

Our fund - Aperture VC - is one of the only debut funds to have attempted a different, more ambitious kind of bottom-up approach to investment selection: incubation. For the last 18 months we collaborated closely with an AI management consulting group that developed powerful intellectual property in the fair lending and algorithmic debiasing space. We helped them select a customer pain point for banks and credit unions, conduct extensive customer discovery and then used this to formulate GTM. To complete this incubation process, we agreed to be lead investor in their first outside financing and also created a syndicate of leading fintech and InsureTech co-investors.

Our fund, Aperture VC, believes in the validity of both the top-down and bottom-up approaches to investment selection. The latter has clear benefits that stem from analyzing actual performance data from operations, as well as detailed customer &market feedback. The granular understanding- of founder/team vision, sales dynamics, scaling potential & competitive pressures - you get from bottom-up analyses is an invaluable tool for building a top performing portfolio of early stage equity investments. It’s worth noting that the deep knowledge of founder/team functions you get from this approach adds a human element to the resulting investment memorandum that is as powerful as it is persuasive.

As a long time (15+ years) angel, and now VC, investor (3 years) I can attest to the need for balancing your portfolio as well as your life. Portfolio balancing requires constant analysis and course corrections depending on where you are in the fund management cycle- deal selection, company scaling, valuation upgrades, monetizing holdings or engaging with legacy and future LPs. That said, it’s just as important- maybe more so- to balance your personal life with work. Making time for wellness/fitness, family, travel, hobbies, or just down time for contemplation are all great forms of self-care. Being intentional about the necessary boundaries lets you live life to its fullest, and will likely amplify the positive outcomes of your work.

Startup founders tend to be visionaries not CPAs & this cuts to the challenge many have with cash management. Here are some basic tips we share with our portfolio: 1. Know where your cash goes every day. Build good bookkeeping habits right from the start. Messy books reflect poorly with investors. 2. Use credit cards responsibly. 3. Establish spend protocols- rules for card &check use and consequences for breaking them. Measures like having a primary administrator, requiring dual authorization for certain expenses and having separate accounts for payables and receivables can help prevent fraud. Founders who master the nitty-gritty details of how cash flows in/out of their companies manage risk better and make the most of startup funding.