The fund has no carry, and the first sift is done by robots
Investors are throwing money at AI startups (perhaps not as much as you might think), so it’s no wonder that we’re starting to see them leaning on the technology to leverage their most precious resource: Time.
In an effort to reduce bias and capture a more diverse group of founders, Kentucky-based Connetic Ventures has developed a piece of software that acts as its top-of-funnel. Called Wendal, the platform assesses founders according to 13 entrepreneurial traits to determine if a meeting will prove fruitful or not for investors. The test takes 15 to 20 minutes, and the fund promises to give founders a decision within three days.
Wendal’s genesis was sparked during an idea-storming session for angel investors who wanted to find and support startups across Indiana, Kentucky and Ohio efficiently and effectively.
“In San Francisco or New York, you can raise money, hang a sign up and have enough deal flow to support an actual fund,” said Chris Hjelm, partner at Connetic.
Outside of these major funding hubs, you have to be more discerning. The question was how. Knowing that the team is at the center of any startup, the fund went down what Hjelm described as a “behavioral psychology rabbit hole” and sought the help of an industrial psychologist to define the optimal entrepreneurial behavioral profile. They then built Wendal.
I tried the platform out myself, and my fictional company (based heavily on my real company that failed spectacularly) was recommended to the investment team.
Wendal’s not all that’s unique about this firm: it also has no carry component. Unlike most VC firms that get to keep 20% of the money they generate for their LPs, Connetic wants to make itself available to retail investors through financial advisors. It charges a 1.9% fee instead of a direct upside on a startup’s success.
All of that had me curious about this venture fund, so I caught up with Hjelm to talk about the fund, the metrics that Wendal measures, how it plans to make its fund structure work, and more.
Equity in the machine
By taking the pitch and the human factors out of the equation, Connetic believes it has developed a much more equitable model to determine who should receive funding. But any AI system is only as good as its training data, so it’s logical to wonder about Wendal’s fairness or its capability to determine if a startup’s founder is right for a given market. But Hjelm believes the platform has been built to be equitable and that the data bears out this assertion.