Systematic Investing x Venture Capital: Insights with Romain Serman

At Databento, we're fortunate to work with customers and partners with insightful perspectives within the market data industry. Occasionally, we get the chance to chat with industry thought leaders and practitioners to get their insights on what's driving changes in the market data industry, what they're working on, and changes they predict on the horizon.

We recently spoke with Romain Serman, General Partner at 2|Twelve, also known as 2.12 Angels, to discuss what sets them apart as a VC firm investing in tech disruptors, what VC firms look for when investing in startups, and what might impact startups in 2024.

2|Twelve is a venture capital firm at the forefront of seed-stage investing across the US that uses a "systematic trading" approach. This methodology uses machine learning-based algorithms designed to assess the likelihood of seed-stage founding teams successfully advancing to Series B funding rounds.

With a highly efficient operational process, after two Zoom meetings with the founders, an investment decision is made by 12pm the next day. This efficiency is reflected in the firm's name, “2|Twelve,” symbolizing their commitment to rapid evaluation and investment support.

The firm has a notable success rate and impressive portfolio featuring companies like DevRev, Rocketplace, and EchoLayer (formerly Codex).

It can be difficult for new startup founders to know what VC firms are really looking for when making investment decisions. At 2|Twelve, Romain shared that a few things he looks for are a strong founding team, innovative technology, and market potential.

"A major factor in our investment decision is the strength, experience, and ambition of the founding team. We look for founders with a deep understanding of their industry, a clear vision for their company, the capability to execute that vision, and a “burning desire” to win that usually comes from their personal lives. The team's background, track record, and leadership skills are crucial."

2|Twelve has a focus on forward-thinking companies that are either creating new technology or using it in unconventional ways to push the boundaries of an industry. "We prioritize startups that are developing groundbreaking technologies or using existing technologies in novel ways to disrupt traditional industries. The firm seeks companies that have the potential to change the way businesses work or interact."

Lastly, one of the most crucial aspects to consider is the product-market fit and market potential of the company. "We are interested in companies that address significant problems or needs, offering solutions that can scale and capture a substantial market share over time. "

2|Twelve's process and resources set their companies up for success by using a Tier 1 VC co-investing strategy, outsourcing services for founders, and automating portfolio management.

Aside from their ML-based screening and streamlined approach to making quick and efficient investment decisions, one differentiator of 2|Twelve is their exclusive co-investment strategy with Tier 1 firms in the US. Collaborating with more than 40 top firms to help their founders find a Tier 1 lead investor.

Additionally, they connect their founders with services to support them throughout their growth. Romain added: "Understanding the challenges founders face, 2|Twelve offers outsourced services highly valued by them, such as executive coaching, sales training, CTO/CPO mentoring, and more. This not only helps improve the startups' operational effectiveness but also enhances our chances to win deals. And we love highly competitive deals!"

The firm takes a data-driven approach, utilizing an automated portfolio system to track their companies' performance. "The firm employs an automated system named "Kojak" to monitor portfolio companies, capturing and structuring data from regular investor updates. This enables efficient tracking of key metrics and performance indicators, ensuring that we can effectively oversee a large portfolio with a lean operational model."

With the beginning of a new year comes new fundraising cycles. Romain shared his advice for startups this year: "Companies will have to demonstrate real PMF and traction to reach series A and B milestones successfully. At 2|Twelve, we want to ensure portfolio companies have enough runway to build products people love and design an efficient sales process. As for the rest, we are convinced that the founders know better than we do!"