Our data-driven approach to VC

This article was originally published in MSM's Medium Account here.

In MSM, we invested in 37 companies in the past 3.5 years, putting the average at one investment per month. To invest in these 37 companies, the MSM investment team assessed more than 15,000 opportunities throughout these 3.5 years. But where did we find these opportunities? In this article, we break down how our investment funnel used to be structured and how we applied a data-driven analysis to change how we source new investment opportunities in the impact sphere.

From a venture capital perspective, having a strong pipeline of potential investment opportunities is crucial. A pipeline refers to the collection of potential investments that a VC firm evaluates and decides whether to pursue or not. To have a steady stream of potential investments, VCs need to diversify their sources of leads and opportunities.

© MSM investment funnel

Where do we find investment opportunities?

MSM ensures a high-volume funnel mainly through 6 sources/networks:

1. Co-investors: strong relations with other funds that operate in the same stage as MSM are essential to access a high-value and curated list of opportunities. The investment and growth teams have been developing these relations with the aim of positioning MSM as the impact partner of choice for early-stage funds across Europe.
2. Accelerators: accelerators that target early-stage companies are a great source to feed the top of the funnel. In particular, MSM relies on our partner maze X, which targets newly-founded impact-driven teams. This close partnership allows MSM to have an insider view of the startups and follow their progress throughout the program. MSM has invested in 3 companies participating in the maze x program, accounting for 8% of our portfolio.
3. Referral Network: MSM also taps into our close community of founders to access interesting opportunities vetted by them. These include our portfolio founders, MSM Venture Partners (who are part of our extended team and support us with sourcing and our founders with growth), and the founders we’ve interacted with across time. Still, we did not necessarily invest in their companies.
4. Direct inbound: As part of our platform work, MSM also wanted to ensure that founders who could not reach us through their networks and enjoy what VCs call a warm intro have the opportunity to share with us their companies and investment opportunities. For this, we’ve created a section on our website where founders can send this information — see here. We have a good example in our portfolio where a direct LinkedIn message resulted in one of our first investments — kudos to tl;dv for the initiative.
5. Direct outreach: Part of the opportunities MSM assesses come from the proactive work that our team does by identifying promising sectors we would like to discover and potentially invest in. For this workstream, MSM usually conducts market research, most often in the format of a market mapping that we publish, to identify the early-stage companies in that sector that we would like to reach out to. The final step is to find someone in our network to introduce us to the founders or to cold email (aka stalking them on Linkedin).
6. Events: Tech events are a good source of volume and to be exposed to several ventures at once. In the early days of MSM, we relied on these events to grow MSM as a brand name for impact and to increase the top of the funnel of our pipeline.

However, not all sources result in the same outputs.