© Maze Impact
MSM is an early-stage venture capital impact fund that invests in companies addressing social and environmental challenges. We invested in 37 impact ventures over the past 3,5 years. Our team regularly holds growth discussions with the aim of supporting MSM portfolio companies. During these meetings, we came up with the hypothesis that the companies that deliver quality and diligent reporting are also those that perform the best.
In the well-ordered idea of how we think the world makes sense, the notion that diligence equates performance, holds appeal and offers a sense of control to both investors and founders. So often, the world is the opposite of linear and the most obvious assumptions are in fact quite paradoxical.
<aside> <img src="/icons/search_gray.svg" alt="/icons/search_gray.svg" width="40px" /> To test this hypothesis, we setup an empirical study to test if diligence — in the form of founder reporting — equates to performance. In short, based on our portfolio, we found out that diligent, timely and high-quality reporting is a trait of high-performing venture teams.
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As all venture funds, our remuneration is tied to the performance of our portfolio. In our case, there is an added layer: impact. As an impact fund, we link our carry directly to the overall performance of our portfolio companies, which encompasses their financial and impact performance. If our ventures do not achieve their social and environmental goals, our remuneration is affected accordingly. We have written about it here in case you want to read it in more detail.
In a context of fast-paced decision-making with imperfect and insufficient information, having access to data is a lever for better decisions. Reporting is one of the many sources of data that allow us, as partners to our portfolio companies, to transform information (a raw material) into knowledge (an outcome). Knowledge is where insights that can be predictors of performance derive from.
This is not the first time we used data to verify preconceptions about the natural order of the venture world. A few moons ago, we thought that events could be a source of high-quality pipeline for new investments — demo days, pitches, talks. We built a dataset that backwards-mapped our pipeline to find that from a funnel perspective (i.e., from being logged in our platform, into becoming ‘interesting’, us ‘doing work’, moving to ‘deep analysis’, eventually to an ‘IC discussion’, to be on the 0,5% companies in which we invest), we had zero portfolio companies that we met at events.
Conversely, MSM portfolio founders and co-investors share with us only a handful of ventures from the universe of those logged on our platform, but they are far more prominent on those at the later stage of our decision-making funnel and in our current portfolio. As a result, we doubled down on our existing founder and co-investor networks.
We live, and we learn (we hope). In our case, we have built a growth platform that serves as the solid ground upon which we test our assumptions to continuously learn. You can read about how we built this in-house platform here and here.
To find whether there is a link between reporting and performance, we adopted a causal-comparative approach in the analysis of a dataset specifically built for the purpose of this research. The dataset was used to perform an exploratory data analysis that aimed at identifying potential causes of relationships between the different features available.
The dataset included the following features: