Hillside Ventures: Year in Review
From launching Hillside, operating fully as a fund and investing in startups, HV team members provide insights into their 2021 experiences as well as their thoughts for the new year.
Foreword: As we leave 2021 and enter the new year, Hillside is excited to recap our first full year of investing. By no means have we found the secret to venture or do we claim to be accomplished, seasoned investors. In fact, it is quite the opposite. We have far more questions and unknowns now compared to when we began investing in early 2021. But throughout these past 12 months, we can confidently say that everyone involved in Hillside has learned an immense amount about what it means to be a venture investor. Hillside is excited about the four promising ventures that were backed in 2021, and we are looking forward to an exciting year full of capital deployment and supporting the future generation of entrepreneurs.
Stats (deals looked at, capital deployed, team members added, jobs/internships, anything else):
Deals Looked at: 550+
Deals Made: 4 ($100,000 in total deployment)
Team Members added: 8 new analysts
6 team members placed in investing, startup, or consulting roles
General Recap: We started off 2021 with a heavy emphasis on sourcing and due diligent efforts. These efforts were quite unorganized and haphazard, which resulted in three months of no investment. Around mid-February, we were able to implement more process-driven sourcing and diligence infrastructure, which we’ll touch on later. Making our efforts centered around process allowed us to source and diligence our first deal, Evolved Play. Throughout the first two quarters we brought 3 deals to our investment committee, two of which were approved (we lost out on one of the approved deals) and one of which was denied. The summer was quiet on the deal front, as several of our team members transitioned out of the fund and the rest of us had summer internships. However, we did take this time to focus on improving our existing infrastructure and building the robustness of our network and community, a topic that will be explored later on. Q3 and Q4 of this year is really when we felt we got a rhythm going within the group, ebb and flow in a sense. Along with onboarding a handful of analysts, our team went to two conferences (Insurtech Technology Conference in Las Vegas and the EnVest Summit in San Francisco) and closed on three deals. Since the start of our fall semester, we’ve prioritized sourcing and due diligence for the fund. Through our emphasis on sourcing and diligence processes, it was important for us to build team communication and create efficient workflow to complement the investment efforts.
A key finding since we began full operations is that iterating, improving, and remaining flexible is highly important for a group of first-time investors and fund operators. We also have begun to transition some team members to the operations side of the business. While we make sure all members of the fund get the opportunity to source and work on deal teams, we have also found there need to be team members focused on operations and human capital management. Because of this, Hillside will add a COO and a Chief of Staff at the beginning of 2022. The results from our tangible operational work from Hillside provided students with intangible learnings that couldn’t be replicated in the classroom. At every stage of our operational process, from formation to building and supporting, Hillside has always been met with some sort of pushback from people, especially those from a non-venture background. As a fund, we have always understood and respected that skepticism, and we have embraced that debate and conversation over the merit of a venture fund run by students. In this first year of operation, both the results from the “first inning” and the intangible learnings, experiences, and growth of the team show the early success of the fund. Yet, as we look back on the past year, we would be remiss to not mention how many instances where our novice and inexperience showed. Some of these missteps did have more pronounced results than others, but for the most part, we can look back and develop from them essentially. Regardless of the mistakes, they have all proved to be valuable learning experiences that have allowed us to grow and make improvements to operations, firmwide strategy, processes, and a variety of other aspects of the fund. 2021 was an exciting, informative, and encouraging year for the fund, we are excited to share some key learnings and experiences with you all.
Iterative Process
This year has offered an incredible time of growth for Hillside. Every aspect of the fund’s operations has become far more robust and our headcount has nearly doubled as we head into 2022. Through our efforts in building this program, it became clear that we are just as much building a startup as we are investing in them. With this understanding, we knew that establishing processes would be crucial as we drive the growth of the fund, especially given that each team member will leave the fund once they graduate.
Hillside set out to build frameworks and efficient processes that would meet the needs of the fund today and in the future. Hillside has focused on three key areas for process building, however, many more have been identified over the past year. Sourcing and deal flow is the first area where the team has worked to establish processes that grow along with the fund. Having a sustainable pipeline is a must for any new venture fund, but building one is a task that never ends. As a firm that doesn’t have a strong name brand or extensive inbound deal flow, it is inconsequential that we give ourselves a large field of play. An extensive and attractive top of the funnel is one of the biggest assets for a new venture fund. Because we are not full-time, ensuring that we can build that pipeline in an efficient manner is one of the most important and challenging aspects of operations.
As first-time investors, it can be difficult to distinguish signal versus noise when diligencing an opportunity, especially with the lightning-quick pace of fundraises we have seen over the past 12 months. Building a tight due diligence process that doesn’t sacrifice the quality of work and allows us to analyze the truly important aspects of each opportunity is of the utmost importance. Thankfully, Hillside has been able to learn from some of the best venture investors who have helped us develop a holistic and dynamic diligence process that allows us to focus on the salient points of each deal.
Our recruiting pipelines continue to expand and we have dedicated efforts toward finding ways to deliver the most informative and accessible content for both our community at UConn as well as our greater network. We are looking to build our brand internally at UCONN as well as externally within the Student VC ecosystem. We want students to have a sense of who the go-to-people are in relation to entrepreneurship, essentially that would become Hillside. To build an internal flow of students seeking entry into the fund and use our own external efforts to find students to support the program. We source candidates based on previous VC, startup or entrepreneurial experience that would fit Hillside Ventures. Candidates that don’t fit this criteria would be recommended to the Intro Course and build those skill sets. Our interview process is highly flexible and has changed to fit the candidate pool. Once we establish ourselves more, it’ll be more stringent on VC or startup experience. We interview them and evaluate on behaviorals with a mix of VC technicals. Based on team fit and knowledge of the startup space, the individual gets to join Hillside as an analyst.
We are specifically looking to broaden our reach within UCONN, especially the different schools and communities that encompass the University. Through building relationships with the School of Engineering, College of Liberal Arts and Sciences, School of Business, and many more, that’s a way of creating a diverse pipeline of students into the fund. Our process requires seeking, building, and maintaining relationships with the different schools.
We encourage and invite all students regardless of race, religion, gender, or sexual orientation to join our Hillside community. We want different ideas and solutions to be applied to venture, a space that traditionally lacks diversity to begin with. Due to our positions as students and the term of the fund, it’s apparent we focus on recruitment as it relates to Hillside’s future.
As a rule of thumb, it is important that the fund aim to find the balance between structured processes and open-ended workflows that allow for dynamic situational creativity and process improvement and optimization over time. Seeking out this balance has highlighted the importance of iterative processes. As each process is improved upon, new challenges always arise in the form of finding new ways to improve operational capacity, efficiency, and flexibility. These challenges are part of what makes building Hillside so exciting.
Dealing with Mistakes and Losses
As Hillside Ventures has grown and developed into becoming what it is today, the ascent and building process hasn’t been an entirely smooth journey. Venture itself moves fast, and losing out on deals is commonplace for every investor. Yet, a higher concentration of losses or mistakes can be difficult to stomach for young investors. Because of this, Hillside found it extremely important to build a culture that can absorb setbacks swiftly, and learn and grow from them while finding the next deal. Being able to do both in tandem can be difficult, and can only be achieved through work that isn’t visible to the public. Since Hillside’s inception, we’ve learned that building a venture firm involves much more than sourcing, conducting diligence, and signing term sheets. The unseen work (i.e managing essentially) is oftentimes the work that determines the overall outcome of the fund. Between building culture, establishing team chemistry and trust, creating efficient workflows, dealing with adversity, and learning the nuances of this space, a sustainable strong performance for an emerging fund can only be attained if there is significant attention directed towards these areas of operation.
As the Leadership Team, it was apparent that we had to quickly build a team of students passionate about driving entrepreneurship at the university and outside of the University. We looked for the intangibles during the recruiting process that allowed us to select team players for Hillside. We looked for those who can instill the vision that Noah had, believe in what Hillside can become, and hopefully work towards it. On the operational and processes side, we encourage all ideas from analysts to improve as a program. We are constantly seeking ways to make something easier and efficient for us to run Hillside smoothly. Even on the investing side, we want to be involved and take the necessary risks in the venture space, we want to be active participants in the market. We’ve learned immensely through actively doing deals and learning from experience. We can say we “lost” out on investment opportunities through not understanding the vision of the founder or poorly articulating the company to our Investment Board. With the help of Greg Reilly, we’ve tried to emphasize the importance of how we frame our “losses”. We are bound to experience them given our early stage as a program but what’s most important is how we are reacting to it.
Venture capital itself is a game of wins and many losses, and many times these losses aren’t immediately visible. Hillside operates with this in the back of our mind, and it is a core tenet of what we teach all incoming analysts. This is vastly different from what our team members have experienced for most of their lives, where grades for tests, quizzes, and projects are given within days of completion. Not being able to know the result of your work for years is a difficult concept for students, largely because the feedback delay is not something they are familiar with. Therefore, developing strong teamwide conviction is key. There can’t be any second-guessing after a decision, and until the feedback cycle is completed, we want the conviction in our work to not waver one bit. This is accomplished through teamwork, a concept that all of our teammates must value to the highest degree. This aspect of teamwork and team-wide conviction have been baked into our sourcing and diligence processes, and are principles that we believe help us rebound from losses and correct mistakes.
Intellectual honesty is a term that describes how Hillside must operate when it comes to diligence and internal dialogue. Because we are all learning as we go, we must encourage honest feedback and change based on that feedback. As a group, we try to implement honesty, integrity, and accountability within the team, with the end goal of building trust within the team. By fostering a culture of support, we’ve been able to encourage all Hillside team members to not be afraid to fail, because when they do, the rest of us will be there to pick them back up and help them find out how to grow from the experience. To that point, we are first-time investors and fund managers, it is important to get feedback not only from other team members, but also from LPs, advisors, investors, and other friends of Hillside.
One of the most important aspects of operations at Hillside has to do with how results, good or bad, are handled by the team. In fact, it is very comparable to sports or a game, where the mindset of “next” is invaluable. Due to the fast nature of venture, a lost deal from either us saying no or missing an opportunity, it’s important for us to move on.
While those mistakes will be analyzed and remedied, so they are hopefully not repeated in the future, it is arguably more important for us to keep a short memory when it comes to “losses” the team may sustain. This allows us to not dwell on an individual or deal with a team's mistakes, and instead move towards giving them an opportunity to go find the next great deal.
We want to instill that within this program and create a legacy of students who enter any career field to carry this working mindset. Hillside Ventures has allowed the students to build, invest and manage this program, this type of experience isn’t available anywhere else in UCONN. As a team, it’s important for us to recognize our “losses” and hold ourselves accountable, for the future of the program is dependent on the decisions we make now.
Increasing velocity
Since Hillside was founded in 2020, the team focused on structuring and planning the fund. However, by 2021, the team had made significant improvements in fund infrastructure development logistics, giving us the ability to shift our attention to our growing deal flow. In 2021, the pandemic also improved to the point where Hillside's members could attend events, such as the InsurTech Connect and EnVest Conferences. These in-person opportunities allowed our students to make deep connections with founders and key members within each of our verticals–insurtech, edtech, and sustainability. In combination, these two factors left us with an unprecedented amount of deals that we wished to conduct diligence upon.
The team recognized that we needed to increase fund capacity proportionately to our increasing deal volume. One lesson learned from this realization was that team-wide communication was imperative to getting necessary support on every deal. For instance, we structured deal-stand-ups into our meeting times where leads could openly discuss any challenges their team was facing. Additionally, we realized we needed to grow our team alongside our deal flow and are excited to be welcoming eight additional members of the fund for the spring semester (keep an eye out for an introductory post)! We are confident that the lessons we learned in 2021, and our passionate new members, will support us as we look to responsibly increase deal capacity in 2022.
Developing thesis:
From the start, Hillside Ventures has been focused on three verticals, insurtech, edtech, and sustainability (climatetech and cleantech). The selection of these verticals was not random but were thesis-driven decisions based on the attractiveness of the market and related trends, proximity to these verticals, the ability of Hillside to add value, among many other factors. Initially, a wide net was cast, as we tried to find strictly the best opportunities in these sectors. I would describe this strategy as opportunistic because there was a great deal of luck involved in finding good opportunities in each sector. Since the realization that this strategy was unsustainable and would result in an adverse selection of deals, we began to iterate on how we source deals. This iterative process began with the implementation of thesis development within each vertical. By developing a sub-thesis within each vertical we were able to be much more directive with our sourcing efforts. This is how we were able to find our first deal, Evolved Play, and it has played an important role in creating a more attractive top-of-the-funnel deal flow over the past several months. Developing a thesis around an industry requires a great deal of research, conversations, and diligence, and is something that has been beneficial for everyone in the fund. It became apparent that doing research for a class or project as a student compared to a full-on venture investor are two very different things. While this difference did present a bit of a learning curve for us all, the greater levels of autonomy and broader mandate, more hands-on and experiential approach have generated strong results for the fund and for our individual development as investors.
This focus on sub-thesis development was a step in the right direction, but still left us with a lack of dynamism when it came to spotting attractive markets, trends, and problems within the verticals we invest in. While the team realized there was a lack of focus on systematically developing dynamic investment ideas or areas of interest, there was uncertainty around what the logical solution is. Between internal and external conversations, we were able to implement a process that we dubbed as " white paper development, where team members simply write a high level overview of a key problem that is unaddressed, white space in a market, a trend they have conviction behind, or an area of the market they find interesting. We’ve found this process, which we have nowhere near mastered, gives us two advantages that we did not have prior to implementation. The first is quite simple, it is far more efficient than the alternatives. Because our team members often have a full class schedule, extracurriculars, and other jobs it is important that we make processes that allow them to produce exemplary results in the most time-sensitive fashion. This strategy allows the team to both develop conviction in the market along with building a cohort of startups that we can get in contact with. The second aspect of this (getting in touch with the startups) still is a chokepoint for the fund, but there has been improvement in recent weeks. However, it is clear that diligence in several startups that are doing similar things allows us to develop stronger conviction compared to evaluating just one startup. Again, this process is still a work in progress. However, it has been encouraging to see the improvement and iteration that has taken place over the past couple of months. The final piece of this that has been exciting is the bottom-up nature of the fund. We have first-year analysts doing a tremendous job at both building out these and providing process improvements. Establishing “buy-in” around this type of market research and sourcing is critical, especially for a first-time fund filled with first-time investors.
Solving for repeatability
The biggest question around Hillside has always been the continuity of the fund. With leadership rotating about once a year and analysts cycling through the fund every 1-2 years, maintaining a variety of potential problems present themselves. This means that solving for repeatability is something of great importance for leadership in the formative years of the fund. The Hillside team has always known this would present an internal problem and is something that must be strategically thought about in order to find long-term success. However, this year it also presented itself as an external problem when we lost out on an investment because of concerns over Hillside’s continuity over time. While that is the abbreviated lesson, it taught the team two key lessons. The first is that losing deals is a common occurrence, and when that happens you need to move on fast. It also showed us that being upfront and forthright with founders and potential co-investors when it comes to our continuity plan is key.
Maintaining the quality and operations of the fund is an integral part of our future success. Whereas most funds only add team members over the life of the fund or investment period, Hillside's team composition is highly fluid and uncertain. Developing a strategy or equation for how to repeat, continue, and encourage successful operations, sound decision making, and positive culture. As the early leaders of an emerging fund, there is a heavy responsibility for us to find ways to make sure that happens. Solving for repeatability is and always will be a work in progress, but we are excited to share some strategies that we have found success with thus far.
Avoid extreme specialization: While some level of specialization is needed when it comes to vertical expertise and some forms of tech or product-focused diligence, too much specialization can make the fund rely on a certain team member too much. Hillside is not composed of a couple of heroes and the rest bystanders, the fund is a team that values the input and value of every team member. Even if there is one team member who is exceptional at one aspect of the venture, they will not be with the fund forever, and eventually, their skills will no longer be available to the fund. Additionally, we have a sector research rotation, which allows every analyst to participate in market research and market mapping for each of our key verticals. Along with avoiding extreme specialization, this allows each team member to get meaningful exposure to Hillside’s focus areas.
Results follow learning: No one in the fund, especially those who are first years are seasoned venture investors. There is a learning curve for all that join the fund. It is important to understand the building blocks and core principles of the venture, early-stage startups, and technology in general before someone joins the fund. Along with the fund, we have added an “Intro To Venture Class” open to any student at the university. Beyond getting more students interested in venture capital and early-stage investing, it also gives Hillside a pipeline of students that have a solid base of knowledge and understanding of venture capital.
No task is too menial: Hillside does have a more traditional management structure, but we are all still students. We do not have the same level of skills, experience, knowledge, or investment chops as most experienced venture investors. In reality, we would all join a full-time venture fund as an analyst, and because of this, it is important that everyone participates in every aspect of the fund. There is some separation of duties based on skill and seniority, but when it comes to sourcing and deal team diligence, everyone is expected to do the analyst level work.
Portfolio management is oftentimes a skill most first-time venture investors lack. As student investors, we understand that the value Hillside can provide is less than that of a larger, more established venture fund that is full of experienced and well-connected investors. However, the value that our fund provides must be meaningful enough to get us into deals because we do write relatively small checks. This means that each member of our team must be competent in strategizing ways that the fund can add value. There is a standard set of 5-10 ways in which we can provide value to each portfolio company, but beyond those measures, it is important that we tailor our value add strategy for each portfolio company. Furthermore, providing meaningful value to portfolio companies is something that takes place as long as we are invested in the company. Because of this, the team that led the deal and designed and executed the initial value add strategy will likely be gone before the investment is exited. Because of this, there must always be a team that can consistently help founders and provides value no matter what stage of operation they are in.
Wrap Up: 2021 was a remarkable year for Hillside and all of our team members. Between the wins and losses, learnings, improvements, and fun times the year can only be viewed as a success. Yet there is a long road ahead for us all, both in terms of learning and performance. We are all looking forward to an exciting year filled with new investments, community building, fund progression, and supporting founders. In the coming weeks, the team looks forward to publishing several articles about our expectations and thoughts for the upcoming year as well as an introduction to our new class of analysts. Lastly, we want to thank all the LPs, advisors, investors, founders, and friends of the fund that helped make this year successful!