Early-state investing is both an art and a science, it's essential to find the balance. 
Navigating the Startup Galaxy: Networks, Diversity, Deal Flows, and Success
May 9, 2024
Interviewed by Nicolas Sauvage on October 29th, 2020
Bedy Yang spent nine years at 500 Startups and played a significant role in investing in over 2,000 companies around the world. She explained to the Corporate Venturing Insider audience that early-stage investing is part art, part science. The analytical side ensures investors build solid investment theses, define market opportunities, and create properly sized portfolios. Creativity comes in assessing the teams behind the startups and identifying patterns that can inform future investment decisions.
500 Startups
Successful investing demands discipline and strict adherence to the investment thesis, Bedy said. A belief in the power of a portfolio large enough to capture as many opportunities as possible drives the investment decisions at 500 Startups. While there is no guarantee of success in any individual investment, the portfolio’s overall effectiveness can be measured by the probability of success across its investments.
“We believe innovation comes from the edges, where entrepreneurs are building tech solutions,” explained Bedy.
She said the investment thesis at 500 Startups has remained remarkably consistent, though the funds’ structure has evolved to allow for more hyper-specialization and flexibility in investing. Specialized funds cater to specific industries or countries, allowing 500 Startups to capture even more opportunities. Additionally, the venture capital firm has built a platform that identifies follow-on investment opportunities, allowing it to double down on startups that show early signs of success.
Bedy is adamant that entrepreneurs and the talents they embody are the most valuable components in venture investing. The way funds are structured can change, but the focus should always be on the people behind the startups. By maintaining a disciplined approach and staying true to their investment thesis, 500 Startups has remained a leader in the venture world.
Early Investing: Art and Science
“A lot about the art of early-stage raising and investing is building trust,” says Bedy. “So the conviction I need is in the founding team and the founding team’s ability to pivot. That’s the biggest lesson I’ve learned.”
With a large volume of deals to choose from, Bedy can afford to be picky in selecting talented people that drive startup success. She said pattern recognition and metric comparison aid in the choice. By leveraging geographical trends and historic deal flows and documenting the reasoning behind each investment decision, a CVC has a better chance of seeing higher returns from their portfolios.
Empowering Diversity & Inclusion through Incubation
Incubators, particularly for early-stage startups, have grown in influence thanks to their unique ability to influence the three distinct phases of investing, Bedy said:
- Deal flow
- Investment decisions
- Company growth
The acceleration incubation program at 500 Startups, according to Bedy, can be a difference-maker in all three.
“The very early stage is where we can become more inclusive, improve diversity, especially for entrepreneurs who don’t normally have the family and friends checks,” she said.
She breaks down the elements that empower inclusivity within her company’s incubator setup, the first of which is the expansion of networks. Recognizing that one’s network often plays a decisive role in opportunities, she highlights 500 Startups’ proactive approach to diversifying these networks, enabling entrepreneurs from various backgrounds to access opportunities that may otherwise be out of reach for them. The second element, the investment team, is essential for having diverse perspectives in the decision-making process.
“Do we have different positions to decide whether the deal makes sense?” she asks, pointing out that embracing diverse viewpoints is essential for breaking down the barriers that have historically perpetuated exclusivity.
The last element revolves around helping companies grow. The accelerator program nurtures growth and levels the playing field for startups from any background.
Building a Winning CVC Team
“It’s not a difficult business, but it requires practice,” Bedy acknowledged. Experience comes to the forefront when building a scaling team that will elevate a CVC. The ideal team composition includes individuals who understand corporate needs and the startup landscape. This harmonious blend ensures a nuanced approach to sourcing, investment decisions, and startup assistance throughout their growth journey.
Bedy suggests that including people who appreciate the dynamics of the startup world engenders a fusion of expertise. She added that seasoned individuals who have served as general partners in venture funds can harness their knowledge to catalyze the team’s success.
Bedy highlighted two investor profiles that she considers ideal. The first is the operator, a person who has firsthand experience as an entrepreneur and understands the challenges and triumphs inherent in the journey. The other is the connector. With the ability to build and sustain expansive networks, these individuals hold the keys to proprietary deal flow. Their connections can also span diverse industries and geographies, creating a rich tapestry of resources the CVC can access to benefit their portfolio companies.
Deal Flows during the Pandemic
Despite the hardships brought on by COVID-19, Bedy said the pandemic exerted a positive force by accelerating technology innovation.
“Technology solves a lot of the problems we have around the world,” she affirmed.
As the world recovers from the outbreak, deal flow is changing, Bedy said. She cited Mexico’s rise in propelling over 2,000 applications for deal flow. The surge of interest is a direct testament to the power of network effects. She emphasizes that a strong brand and momentum can attract entrepreneurs seeking funding.
However, she also warned the audience about the challenges of network expansion. As the startup ecosystem continues to grow, more networks are being formed, leaving individuals grappling with the dilemma of where to invest their time. Bedy explains that COVID interfered with the intrinsic need for human interaction. Despite these challenges, virtual platforms have allowed for greater growth of networks, as proximity is no longer an.
Building on this, Bedy highlighted the importance of nurturing relationships within these networks. She believes the results garnered from networks are directly proportional to the investments made in relationships and consistency. Bedy recommends proactive steps toward building and expanding new networks, as they can yield fruitful results.
In a landscape defined by connectivity, innovation, and the power of networks, Bedy Yang’s insights stand as a testament to the transformative potential of fostering relationships, embracing diversity, and navigating the intricacies of the startup ecosystem. From her experience at 500 Startups to her exploration of the art and science of investing, Bedy emphasizes the pivotal role of networks in driving deal flow and startup success. Her wisdom extends to the construction of winning CVC teams, the role of incubators in fostering inclusivity, and the positive potential arising from technology innovation amid challenges. Ultimately, her perspective underscores the enduring impact of strategic relationships and the tireless pursuit of innovation in propelling the startup landscape forward.
