How we evaluate VC funds at Titanium Birch
Hi, I’m Val. This is my first blog post. I joined Titanium Birch about nine months ago, and I’ve been focusing on investments. Right now, we’re building out our venture capital portfolio. That means meeting a lot of fund managers and deciding which ones to back.
We all have mental heuristics, and pitches can trigger some of our biases. A compelling pitch can make us feel like we’ve already reached a view before we’ve tested anything. Case in point: not long ago, we sat down with a fund manager who said many things LPs presumably want to hear: hands-on with founders, strong DPI, disciplined on price, and large GP commitment. Everything looked good on paper… but good pitches usually do.
Our diligence process is designed to help us push past our biases so we can make clear-eyed investment decisions.
When we evaluate VC funds, we focus on these key questions:
Can we trust this team?
How does their strategy work?
What are the risks, and can we live with them?
Can we trust this team?
One signal that helps earn our trust: how managers respond when we ask about things that haven’t gone well. In our view, a good GP is willing to walk us through specific mistakes from earlier funds. Not vague “the market shifted” explanations, but specific ones: “We overestimated the tech angle in a sector where the business model was fundamentally traditional.” Not only does a good GP name what they missed, they also change their process to prevent the same mistake from happening again. In one case, when we asked if a manager’s current approach would have caught past mistakes, they said they couldn't be sure but believed so. Their candour added to their credibility.
We also try to hear a manager’s story from multiple directions through one-on-one conversations with team members across different roles and levels of seniority. In one of our due diligence processes, each employee at the VC firm described to us a singular culture, not with memorised catchphrases, but by giving many concrete examples of behaviours showing their team is candid about mistakes, quick to learn from them, and focused on delivering results. Consistency across people with different perspectives and incentives is difficult to fake. On the other hand, if we’re talking to different people associated with one team, and their accounts don’t add up, it’s hard to feel confident that we are getting an accurate depiction of reality.
We pay attention to what portfolio-company founders tell us too, especially those whose companies have struggled. How does a GP behave towards struggling founders? Do they stay engaged? Do they help the founder work through something very difficult, or step back? In one case, a founder told us about how the GP encouraged them to return capital to investors when it was clear their business wasn't working, rather than trying yet another pivot. It's one data point, but situations like this show us whether a GP will do what they think is right even when it's uncomfortable.
We also focus on understanding whether a GP's interests are aligned with ours. In one fund we assessed, the GP commitment was mostly cashless. When we asked about the structure, the GP explained why it was set up that way and what it meant in practice. The commitment represented a significant portion of the GP’s personal net worth. They had real skin in the game, and the GP's willingness to walk us through it openly mattered as much as the numbers themselves.
How does their strategy work?
For each VC fund we underwrite, we need to understand how the strategy actually works. Sometimes the pieces don’t add up. A hypothetical solo GP who invests in hundreds of companies but claims they spend months to build conviction before backing a founder? That does not sound plausible, unless they have more than 24 hours a day. A concentrated seed fund that spends three hours before writing a check seems to be taking a lot of risk per bet with very little process. We must understand the mechanics in order to assess the return potential.
We aim to understand a GP’s end-to-end investment process. Only when we can clearly picture how the machine works can we build conviction. For example, we came across a sector-specialist fund where the team spanned technical, operational, and financial backgrounds. Members of this team had domain expertise and were deeply entrenched in the ecosystem. This positioning gave them access to opportunities rarely surfaced through competitive processes and more attractive valuations. The GP had the experience and credibility to improve operations at portfolio companies, and their track record of value-creation made their portfolio attractive to strategic acquirers. Before committing to an investment, the GP would approach potential acquirers to test appetite and map out viable exit routes. The strategy had delivered strong realised returns, and now we could see the link between the GP’s supposed edge and the outcomes, and we believed the process could be repeated.
Understanding a GP’s strategy also influences how we interpret metrics, like loss ratios. For example, when a fund continuously provides follow-on capital to its portfolio companies, struggling companies stay funded rather than being written off. The loss ratio stays low, but it may reflect the strategy's mechanics rather than the GP's skill as an investor.
We also want to know that a GP can run a fund, not just pick deals. How do they navigate portfolio construction and capacity, cash flow and exits, LP expectations, and the tension between holding out for the right deal and needing to put capital to work? One GP we talked to had a clear view on how many companies the team could actively support and was candid about where their team was stretched. A GP who can talk through these trade-offs has thought about the business, not just the deals.
What are the risks, and can we live with them?
We want to know whether the GP recognises their own vulnerabilities and has reasonable mitigations. For example, we focus on understanding key-person concentration. Some GPs engage with our questions about the risk directly and realistically; they can articulate who steps in, what gets put on hold, and how long stabilisation takes. That's very different from a GP who meets the same question with a pivot or a shrug. The question is not whether the risk exists; it is whether the GP understands it and has engaged with it thoughtfully.
We’re also cautious when too many things are new at once. A strategy that’s unproven in the market is one kind of risk; a manager executing a strategy they haven’t run before is another. Either on its own might be worth underwriting if the rest of the picture is strong. But if there’s no track record for either the strategy or the team executing it, it’s hard to build conviction, no matter how compelling the thesis sounds.
We can’t mitigate every single risk, so we must decide which risks to accept and live with. Take, for example, a manager whose strategy leaves room for potential conflicts of interest to arise. These conflicts might be easily managed with a clear policy. But if the manager chooses not to put such a policy in place simply to preserve flexibility, we are less willing to accept that risk, because we think it could have been easily mitigated. By contrast, for a GP we flagged as having substantial key-person risk, adding another GP might have reduced that risk but would likely have affected team dynamics, incentives, and culture. In that case, rather than forcing a mitigation, we focus on whether we understand the trade-off and are comfortable underwriting it.
Improving our process over time
After each diligence process, we run a formal retrospective. Where did we spend time that didn't help us reach a clear view? What questions could we have answered earlier? What slowed us down?
In a recent retro, we realised we'd spent early calls gathering basic factual information. Those calls could have gone to higher-leverage questions about judgement and decision-making. We now front-load basic information-gathering and factual clarifications over email before our first conversation, so call time goes to things requiring discussion in real-time.
We’ve also started stress-testing portfolio projections at the company level in addition to running the fund-level math. Rather than taking target outcomes at face value, we ask: what has to happen for a given company to achieve their targets? How plausible is that path, really?
Lastly, we’ve started sending surveys to GPs to understand their experience with us during fundraising, because we want to be great partners to them, long before we make an investment.
If we expect our managers to learn from their decisions and refine their process, we should hold ourselves to the same bar.
If you're a VC manager raising capital and think there may be a fit, reach out at pitch@titaniumbirch.com.
Disclaimer
The content in this post should not be taken as investment advice and does not constitute any offer or solicitation offering or recommending any investment product.
