Less than 10 percent of venture capital funds goes to women, founder of color, or those within the LGBTQIA+ community.
Using a fully automated and data-driven fund, Covington-based Connetic Ventures wants to change that.
And in many ways, it has.
In fact, Connetic is the only such VC fund in the Midwest that uses this type of analysis, and one of the few organizations that has completely automated the process in the country.
Its system has benefited the region's landscape by tapping into majorly underrepresented founders.
"We want to be the easiest investor to work with."
"The hottest topic in venture capitals is underspending [with] women and minorities and venture capital groups," Chris Hjelm, principal at Connetic, said in an interview with Cincy Inno.
It's true; typically, only about four-to-eight percent of capital goes to these groups, Hjelm said.
"For us, we remove the human element completely," he continued. As a result, Connetic Venture's portfolio is 42 percent women and minority-founder based.
According to Hjelm, that's eight times the national average.
"We removed the human bias and those are the results," Hjelm said. "We take for granted that it’s a crazy statistic."
Those startups that receive funding from Connetic begin by applying on the firm's website. The process involves an online screener, a sort of Q&A "that will determine if your company fits our funding criteria," its website states.
"We'll only talk to the companies that pass all three sections," he said. "Less than five percent of companies pass all three. It's not saying they’re bad companies, but [that they] don't fit whatever we're looking for from a stage/valuation perspective.
If the applying startup does make it through the screener, Hjelm said that it could receive funding in as little as 24 hours, as compared to the typical range of three to four months, with a two-week average.
"Last week, from first contact to participating in the round, was 18 hours," Hjelm said. "It’s a very different model."
"We want to be the easiest investor to work with," he continued. "We don’t lead rounds, write term sheets, negotiate on valuation."
Or keeping startups "fundraising on the leash from a lot of VC, [where they] can't get a yes or no."
Connetic also hates the idea of cash-strapped startups being put "through the ringer" financially, constantly paying fees to just get their foot in the door for funding. As such, getting started with the firm is free for organizations.
Hjelm added that Connetic is industry-agnostic in terms of the startups it funds, but that it has a particular focus on "anything tech related," spanning the gamut from health care companies to fin tech organizations and beyond.
Now its fifth year of existence, the firm is raising its second fund. It's the result of years of hard work that began in the Queen City.
"Brad Zapp is our managing partner," Hjelm explained. "He had just sold his wealth management company, which manages a couple hundred million dollars, and was focused in the Northern Kentucky area. He was looking for his next venture, contemplated retiring [and then] found an app in the Apple store."
The app? ChoreMonster, led by Chris Bergman. Zapp reached out to Bergman, and the two became good friends. If Bergman was an example of Cincinnati's startup landscape, Zapp realized, then he wanted to be a part of it.
After researching the ecosystem, Zapp realized that there was a capital shortfall in the city and in the region, and that he and a team of like-minded folks could really shake it up.
"It's evolved a lot since then, but [Connetic was created to] capitalize in the underfunding in Cincy," Hjelm said.
Eventually, Connetic expanded to areas like Chicago and Pittsburgh in an effort to generate better returns.
As the company grew in scope, it also started to bring in the data analysis element that it's now known for. It was then that Hjelm and others joined the team.
"We're the complete opposite of what a venture team looks like," Hjelm said. "I don’t have an any exits under my belt ... but we’re all financial and data people."
The internal team wasn't the only thing that grew; so did Connetic's portfolio, which includes such Cincy startups like Cladwell, Choremonster, Eccrine Systems, Spatial, Astronomer, ConnXus and more.
These companies — the successes and the failures — inspire the Connetic team, Hjelm said.
"We want to strive to be as innovative and smart as a companies we invest in."
