(#9)HAK podcast: Methodologies for prototyping and validating early stage ideas at a low cost: A conversation with Nick Martin, MISSION+ CEO
Nick Martin is the CEO of Mission.Plus, a digital innovation studio that combines engineering, design agility, expertise and commercialization to deliver market ready tech products.
In this episode we will deep dive specifically into methodologies for prototyping and validating early stage ideas at a very low cost.
Website URL: https://www.mission.plus/
Nick’s LinkedIn: https://sg.linkedin.com/in/nicholasrjmartin
Andries De Vos: What was your founding vision for MISSION+, and what was the origin story behind this?
Nick Martin: Every journey has a starting point.
For us, one of the reasons we co-opted the word “mission” into our company name stems from the desire to understand our intrinsic motivations or purpose. At this point in our journey I would say it’s still evolving from the genesis stage.
If I go back to my personal story, I was struck by herd mentality and I went into a bank, and then I broke away. Then I fell into a startup that I really enjoyed working on. We were issuing Visa debit cards as a non-bank. There were a number of achievements, and there were a lot of mistakes, a lot of learning. We were lucky enough to get to a stage where we could sell it and move to the next chapter. I really started thinking a bit more deeply about what was going to drive and motivate me when I was offered a role to work in the Investment team of an early stage investor.
One of the reasons I joined was that I was interested in sharing but also increasing my learnings. An attraction point was the asymmetrical access to the number of different people that you meet as an investor, who are starting companies at different stages, with different business models, in different industries, with various strategies to grow, the pure volume of what comes across your desk is overwhelming but I was inspired to see if I could make sense of it.
It was actually during that period that the fund, which had invested in about 50 companies at the time, was keen to evolve into a venture builder. So, I was asked to work out what the model meant, and how the team could support it. Later on, I was also encouraged to start a new company, which is today MISSION+.
I think having a safe space to work on something while not taking too much personal risk actually allowed us to evolve MISSION+ differently. I admit to being more conservative with it, but not because I got scared by the risk that I see a lot of founders taking. I felt I had to start MISSION+ as a boring business model on day one, doing things like building technology for other people, using the skills that we had and what was around to generate value. In terms of what we offered to the client and delivered on software engineering, it was achievable. On the flip side, it gave us an opportunity to make sure that we generated the right cash flow so that we could develop operations experience. It gives us space and time to determine our own mission and work out what it is that we want to do.
Andries De Vos: So where are you landing with this? Did you figure out where you take this next? How is your vision evolving?
Nick Martin: One of my friends has recently said, “Look, I like the Ocean's 11 thing that you're doing.” I hadn't thought about it, apart from the fact that he made reference to a movie, that what we've been doing is assembling a lot of people that we've been inspired or interested to work with. It's not always the case of “can we afford them?” It’s about what motivates them to give up what they're doing and work with us.
Right now we're still in the stage of just ensuring delivery for client satisfaction. Have we got to that next stage yet of where we're taking bets outside of the professional services? We are slowly getting there. I'd say probably our first is in prototyping, but there's probably other areas where we're cautiously dipping toes in water as well.
Andries De Vos: Is there something that you guys think you understand that others haven't? Or is there an assumption behind the MISSION+ that is guiding how you're building your business model?
Nick Martin: The initial goal was just sustainability via earnings, making sure there’s the financial base. I think that P&L stability allows us to take small bets to test ideas, because right now we're not building IP as much as delivering IP for others. I think having a roadmap that allows us to look after clients while testing other strategies will be what defines us.
Andries De Vos: What is the economics behind this? How much retained earnings do you think you need to have in order to make how many bets? What does that ratio look like?
Nick Martin: Right now, we make sure we're comfortable with taking money out of retained earnings to test something and decide how long we want to test it. With prototyping in the last part of 2020, we knew we were going to hire people but we decided to not have full paying clients. Without full paying clients, we didn't have to offer any warranty on the output, because we're still learning in this example. We hired people in Singapore, which comes up sometimes at a higher rate of monthly expense than other countries, but we wanted them to be near.
We took risks on people at different stages in their career to see how they would deliver in a space that we were not really clear about.
This is possible if offset by areas where we're growing, making sure that if we've got $100 right now, for our next wave of clients to support that, the next contract value should be somewhere between 5% to 20% of that $100, this allows us to incrementally improve our run rate.
At the moment, we're just keeping an eye on the original business but making sure that through putting those numbers away, we can say where we want to make bets.
Andries De Vos: Have you conceptualized how big the bets need to be? It is 20,000 per bet, 60,000 per bet?
Nick Martin: I'd say we haven't had enough bets to conceptualize the range. It was commented on by someone whose opinion I value, who said ”Oh, look, your sample sizes are too small.” That's probably where we are. I think what we'd probably do instead is not constrain ourselves but do what makes sense for the risk that we're taking. Obviously, at some point we have to be critical about looking back and reflecting on the evidence of what we've achieved. In one case we were pitched a partnership opportunity, someone had come to us and said, “Look, we like what you're doing. If you can invest time and resources with someone that we think has some promise, would you be open?” It's an area where we think the business model has an option to scale but we're not really sure if that's the case just yet.
Andries De Vos: Do you have things that you're not doing in your model?
Nick Martin: One thing that we don't touch is non technology delivery such as customer validation. This may be a bias that I have from when I was working as an investor. You could continue providing an offering of services and then at some point, you are doing the job of the person that you're being paid to support. We highlight the many tools around. “Now that you've got this product, this is what you should think about - how you go out and get it in front of your customer”.
We believe the client has to develop the ability to talk to their own customers, solicit feedback so we can improve collectively. It's a line that we don't cross at this time.
Andries De Vos: That's a great point, because we have a similar philosophy but a slightly different take on the asset that we're building at Slash. For every single capability, we're building a specialist in such a way that we can externalize the capability - a bit like Amazon did with AWS. If we build a growth team for our own company, it can provide service to our portfolio. I take your point that at some point, you have to draw a line, which is what the entrepreneur is expected to do. We've taken a fairly ambitious view, an empire building view that we can build more and more capabilities that we can offer, in whichever format. That's a commercial negotiation whether it's a fee or equity, or something else based on our own ideas. It's a big part of the package, if we factor it all in from a financial standpoint in order to de-risk our equity portfolio, but indeed, there has to be an expectation setting with the founder. That's essentially the direction we've been taking so far. It's quite interesting to see we're now in the early stage of that process. I think pre-typing and prototyping is fascinating. I see you're positioning more in the prototyping phase space, but help me understand how you came up with it. When was your “Aha!” moment when you started prototyping?
Nick Martin: I would say it actually came from two different angles. One was our technical adviser Ned's, and one was mine. We weren't even looking at it as an “Aha!” when I was at the investor but a lot of people were coming to us asking for a lot of money to build something that they hadn't yet gone out and validated. It could be a $300,000 raise with $50,000 of that going to building this two-sided marketplace MVP as one example. We thought, before you go and build a two sided marketplace, shouldn't we get some guarantees or commitments that the two-sided marketplace is what the customers want? I kept going back and forth with a lot of founders on this same topic.
Unfortunately, the market was quite frothy, and a lot of people were getting offers or interest to go build things elsewhere because the two sided marketplace business model was going to scale the investment if it worked, whereas we were being a bit more practical and prudent about growing the business idea a little more sustainably. I think we were a bit of an outlier. We thought, “what if we just validate this so that the person either gets the guarantee or we get the guarantee together?”
The first time I ran a design workshop, I really hadn't spent a lot of time with the process, but it was just reading the book and saying, “Okay, well how can we do this with three different founders, just to see if we've got enough certainty on whether we want to work with them and what they want to do?” The problem/solution and decision steps that you see in the design thinking process were relatively well-run with the band that we pulled together.
However the prototyping step was terrible. There was actually limited to no prototyping capability amongst us. If you've read the stories about how the example of the robot gets built overnight in the hotel, these prototyping steps evolve very quickly. You either need someone who can do something very fast or, in our case, you have to rely on smoke and mirrors.
We finally got the person with the marketplace idea around to the idea of testing before building. She couldn't co-opt her technical founder to spend any time on it, so we ended up looking at an equivalent website that existed in the U.S. and getting her to just cover the name of that website, go to five customers to present it as something she had built, and ask for feedback.
In that case, it was really important because the assumptions that she had actually developed, which were true in some cases were generally dispelled. If anything came out of that exercise, it was just an “Aha!” moment when we realized $50,000 was not needed to build an MVP at that stage. We continued a few more design thinking sprints with limited to no effort on prototype, just because again, we didn't have the capability. As MISSION+ was evolving and I was telling these stories to Ned, he thought that it was actually more achievable, not just with our team, but with the low code tools. That's when we started first, taking prototyping to low code.
Andries De Vos: Do you want to tell me a bit more about those tools and how they have matured over the years? I’d say five years ago those tools were on very few people's radar. Now it seems that the market is evolving so rapidly that they're becoming more and more solid, mature, ready both for budget startup-type projects and enterprise-type of projects. You now have almost a segmentation of tools for different purposes. What's your philosophy on that? What's your take on how that will evolve?
Nick Martin: I'd say that probably 10 years ago, there was a period when I couldn't build a website, and I'd have to hire someone. I'd have to describe my needs and have that whole process of coming back in a few weeks with comments. There were a bunch of cycles, and the project would ultimately land somewhere close to what I need. Then, a website would be there to sell whatever it is, for instance.
When I started speaking with Ned about this he said that rather than asking what low code is, we should think about what the problem with this is. The problem that he came across from all of his time as a career systems architect and engineer was that the requirements for those ideas had always been based on interpretation. The gap that he talked about a lot was either he or his team didn't understand the domain, the business user, or the business unit had poorly articulated the requirements. In total, there was just generally a poor comprehension of requirements. While agile methodologies tighten the loop, there was always this wastage that he used to live with.
When we were looking at his experiences and at low code tools, we just became a bit bullish on the idea that this could usher in a world where a business user could build their own applications. We just realized this couldn’t happen today. We looked at low code tools such as bubble.io and they have a very sharp learning curve, even I stopped and said, “Look, I'm not going to jump into this as a non-technical participant, but in time that will eventually improve.”
There is a transition period now, where it's worth it for us to have people at MISSION+ who can become familiar with those tools and then shorten the validation cycle to develop prototypes for our clients to get enough signals from internal stakeholders, customers, investor - whoever it is that you're trying to get feedback from, to get the confidence before you go to full development.
Andries De Vos: Oh, that's brilliant. I agree. Do you offer this primarily as a service towards new ideas of young startups or do you also offer this for large enterprises? And when you do, how is that different as an engagement? What are the challenges of each?
Nick Martin: Yeah, we've offered it successfully to one large enterprise and worked with about five startups. We chose the startups because they had time and no money. We said, “Look, if you want to test this with us, we're not going to charge you,” or we just priced it to the point where we got their participation and commitment because they felt like they were getting something that was worth the value.
During those experiments, we were testing if the output was going to meet the user requirement for clickable prototype. From our business side, we were asking, can we make this a viable business? If not, what's the cost structure for this in the future? We tested the cycle of what we could do and how much time it would take to deliver a prototype.
So what actually evolved? We decided on the first day, whether it's with the institution or the startup to just to absorb as much information around the idea and the problem solution as we could. Unless the client was really unsure themselves, we would remove the debate and the noise around the problem/solution and just make quick decisions.
We felt that if we could remove a lot of the interpretation or the need to get to an answer in a short period and just start building, the output would actually get to developing some wireframes where we'd have a better conversation. Now, invariably, day two or three (or one rapid cycle of wireframing and prototyping) didn't yield a lot of positive response, but on day five and day seven, a path was starting to evolve. And we found that clients by two weeks got to a point where they were comfortable with an output, which in most cases was just a low-code, clickable prototype.
In some cases, it was built withbubble.io or figma and in some cases, we had to develop a hack together with some basic code. We didn't define the point of how we produced, we were making decisions in each case. It gave us a point of stop-and-handover as in you can now go and talk to someone about this and come back with better feedback.
Andries De Vos: What's the learning curve on these types of tools? Is it something that's in the process of a two-week process the business user can then take it for the next iteration, if they are committed to it and invested in that methodology? Or, do you think it's still too early and they will always need external support?
Nick Martin: At this stage, we find that they still need external support. Only one out of five said they would go and get their hands dirty and use the tools. For others, there is still a gap. It's not like me jumping into Squarespace to build a website by the time we finish this conversation, it's not there yet.
What we were really trying to do is also evolve the mindset of spending as little as possible to get to a point where you validate, test, and come back with confirmation before you commit resources.
Now, I would caveat all of this by saying that it is not viable for us to continue doing this with a parallel business, which is professional services. In some cases, we were stopping ourselves from doing the next round of launch. But it’s the right thing to do. We had one person who was quite committed to deploying their own capital towards building an idea before the two week cycle. At the end of the prototype delivery two weeks later, we felt the client disappointment that washed over the room. Our team was quite dejected at the lack of response from the client. In the end, that person said, “Look, thank you, this is really good, because in this case, I spent $2,000 instead of $50,000,the idea was not as it's not as contagious as I thought it was going to be”. We were thankful there were clear takeaways for this founder around how to make it more creative, more interactive, more gamified, but also an awareness that it was going to come from someone else, and they shouldn't proceed further until they'd solved that part of the problem. If we did this every day, and then we only relied on the one in five to go through, it would change the business model. How do we then put this in a place where we're happy for it to operate, so we can do better by the world but then still work on full service projects that people have certainty about? That is the aspect we're still working out.
Andries De Vos: What venture building models and MISSION+ like models do you find interesting out there and why?
Nick Martin: Where all the buzz is usually around startups, I realized that there's a lot of venture builders out there now, who are taking all of their skills and learning and applying it to corporates.
If we think about it, these corporates still maintain and dominate a big percentage of the global GDP, the Fortune 500 probably owns a majority percentage of it. I think the efforts in the future will come from companies that refine their approach with corporates.
There are some venture builders that we are watching and working with who seem to be getting in and around corporations and saying, “Look, it's not going to be one business that gives birth to the next.” And then there's going to have to be a process for us looking at the value chain and deciding what the segments are, realizing that there's going to be some capital spent even if we don’t find them, but maybe only one of them at best will get you to that next business that generates a new line.
I find that whole area interesting. We see a lot of people out there that are starting to walk that path and for me, that's a really interesting area. We want to spend more time getting to learn more about it.
(#8)HAK podcast: Methods to De-risk Corporate Venture Creation & Entrepreneurs-in-Residence: A conversation with Matas Danielevicius, Whatnot Co-Founder
Matas Danielevicius is the co-founder of Whatnot Startup Studio, a venture studio focused on building scalable and investable corporate ventures that originate from Thailand. WhatNot brings in experienced teams and founders to create and operate corporate ventures and provide support services like legal, HR, and Fundraising.
In this episode, we will discuss methodologies to de-risk the creation of a corporate venture, the role of entrepreneurs-in-residence, corporate sponsorship criteria and much more.
Website URL: https://whatnot.co/
Matas's LinkedIn: https://th.linkedin.com/in/matas-danielevicius-419ab6aa
Listen to the Podcast
Andries De Vos: Matas, welcome! If I think of the venture building process, I see it as a methodology and a capability to de-risk the creation of a business, which is the definition of a risky process. If you had to extract the key steps you undertake to de-risk a venture, what would they be?
Matas Danielevicius: That really depends on the market. Local startups are not capable of producing investible solutions, so a lot of local corporates do their own CDC funds. This ecosystem is being shaped right now. Local corporations are forming CDC funds, and looking for ways to invest their money, but nothing yet is coming out of the ecosystem. Corporates tend to go outside of Thailand and invest in Silicon Valley or China, but once they go to Silicon Valley, they are just some investors from Thailand, so their networks and strength are very limited.
Our proposition is this: why don't we use some of these funds to build a venture in a less risky way and have it managed by a professional team, which we believe we are? We have experience in building the process, we have our own methodology, and we have an in-house team that supports every single step.
We also propose to rely on professional entrepreneurs who have a proven record of building businesses before rather than on a random startup team, which usually, in here, is a group of friends. When working with the startup team that is formed by a group of friends, we tend to see that later on in the development, there are weaker links in the chain, which are not able to produce but still have a big chunk of equity in the company, and it just drags the startup down.
That is a very common scenario: startup teams are formed by groups of friends rather than professionals selecting support, and the teams are not balanced. We see that there can be three marketing professionals or three engineer guys doing a startup, where they have in-depth knowledge of certain areas but no knowledge of business development or brand value. We help declutter that whole mess.
Let's say, we go to the corporates and understand what challenges they have. We see if there is any solution in the market that could help them or if there is a gap, a space to build something outside of their structure, which would help solve their issue and be able to solve similar issues for other corporates in the region. We offer workshops and just general conversations, where we bring people from certain industries to share their opinions in order for us to see if there is something we can help with, and then we come back with the action plan.
This is quite a tricky part because there is no set model. We have to improvise. Corporates have different challenges, different ways they want to work with. Some of them want an all-in solution, i.e. we execute everything and they just sponsor the venture. Some corporates want to introduce their own entrepreneurs, which means we have to work with their own in-house teams and rely on our entrepreneurs or residents to coach them. This also involves a selection process: we have to select and balance the teams from the pool of corporate talent. In some cases, we are able to build the teams from scratch, but to be fair, we rely a lot on entrepreneurs in residence.
Once we sign the contract with the corporation and we know the challenges we are going to work on, the most important bit is to find the right person to lead the project.
Andries De Vos: Give us a flavor of how industrialized this is already. How many have you done approximately in terms of such programs with corporates? How big of a team is employed? What is the economics against this?
Matas Danielevicius: It depends on each corporate individually. We started a little bit over two years ago, and we have already had 5 large corporations that we did innovation and venture building with at different levels. Currently, we have two real estate companies, who have different challenges, and we are scaling the projects. We started with one real estate firm here with 3 venture building projects, each of them had its own budget, and the budgets were decided depending on the size of the issue and the market opportunity. One large corporation can scale up to 10 venture building projects. Each has its own budget and limitations, each has its own opportunities, but we usually provide predictions before we start.
We calculate the cost of the project, the management cost, the entrepreneurs' residence costs, and the facilities- because we all have our own offices and space to run these projects, and we need to pitch project by project. Ideally, what we would see is that would start one project, it could be a launch from around USD 150,000. What we promote is that eventually, the entrepreneur would get up to 60% of the equity of that venture. It is an ideal scheme we are looking into. We would love the corporate to own 20-25%, the entrepreneur to get up to 60%, and the support team, us, and other outside investors could get a share.
Andries De Vos: Do you have restrictions for the corporates? Do you accept any restrictions they impose on you on how this new product or business can be commercialized? For example, you cannot sell to a competitor or, in the governance structure, you ensure this never happens.
Matas Danielevicius: We do get that at this stage. Again, the ideal situation would be working with open ventures, but the ecosystem is just being shaped now, so we have to be diplomatic and negotiate for certain things. We see that once the corporate gets the taste of it, it becomes more and more flexible for the next batches of ventures they want to build.
In the beginning, if we look into local corporations in Thailand, they are very conservative. Usually, it would be a family business. It is a challenge, which we trained ourselves for years, to negotiate and to prove them things. It still takes time, but we see that - and COVID was actually one of the reasons - they are forced to innovate. As we would see before 2019-2020, a lot of innovation was more of a theater performance: organized events, debates, accelerators, big awards ceremonies, a lot of pitching competitions and media attention, but the scale of the startup is still nothing to be compared with Singapore, Malaysia, or Indonesia. Now, because of the pandemic, the core businesses are suffering, so they have to find ways to solve their issues, ways to improve, stay competitive and actually stay in the market in general.
These Dutch real estate companies that we are currently working with, two large corporations, and oil refinery corporations - their core businesses are being attacked heavily, so they have to find ways to change that.
Andries De Vos: On the USD 150,000 side, what is the deal after that? Is the plan for the corporate to keep financing it or to find external funding?
Matas Danielevicius: We would encourage them to find external funding as well, but some of them would rely on funding the ventures themselves, especially the more conservative ones, which have their own entrepreneurs - they tend to want to keep more power in their hands. However, we would argue that in order to make it more successful, we would negotiate and try to convince the corporate that the venture has to be funded from outside as well.
Andries De Vos: Do you have stage gates between the discovery, the MBP, the company formation? How structured is this? Is this bite-sized when you sell it or is it in one bulk?
Matas Danielevicius: We sell it as one bulk, but we go stage by stage. At each stage, we have drop-and-go options as well. If we sell a venture building project, we promise certain outcomes like product-market fit, and we usually divide it into 6 steps. We have market gap analysis, RND where the development starts, branding, marketing, and through to the market and business development stages. Each stage has its own structure and map, and each stage has the option of drop-and-go, where we evaluate with the corporate if it makes sense to continue. If you want to continue, our job is to make sure that the entrepreneur is able to push it further and to convince and prove with data like consumer feedback that this is a valid idea and it could potentially work (they need to find examples in the market in or outside of Thailand). It is a lot of research and competition analysis, and design thinking - empathize, define, ideate, prototype, test, and repeat. Each stage goes through the same process where we sort the problem we need to deal with, consumers (B2B, B2C, etc.).
Andries De Vos: It is already a challenge to get alignment in early-stage startups of the group of friends, let alone when you have vested interest and corporate politics in the board room. As you are selling this to the corporates, what are the signals you are looking for in the corporate? What are the criteria for the corporate sponsor? How do you determine if the corporate will actually sponsor USD 150,000 and support the venture?
Matas Danielevicius: To help us to decide whether to turn down, first of all, we just do not jump into a venture building project. We have workshops that we offer before that, so we tend to know the theme, we tend to know with whom we will be working, who the decision-maker is, how many management layers we need to go through to convince the corporates to make certain decisions. The higher we can pitch, the higher we can get feedback forward, the better for us to decide if the project would actually work.
In some of the cases that we had, we tend to say that we are going to innovate outside of the corporate structure, which is a much faster way because of the corporate management layers and things like that. But once we start doing it we get stuck into the corporate vehicle because each decision has to be made by the supervisor and the supervisor's supervisor, and then it has to reach the CEO at some point, who is a very busy person, so feedback and decision making slow down and we become just another business unit in the corporation, which is exactly what we do not want to do.
One of the core things is that we still need to negotiate the power to make major decisions and find a way to get feedback as fast as possible from the corporate side. It also depends if we work with inside teams or we just build it outside.
Andries De Vos: There's a huge debate going on right now in the consulting industry and, to a degree, in the venture building industry about whether you can be sector-agnostic in the space. Is having a methodology enough to add value as a framework, as a facilitator or do you need to start adding domain-specific expertise to the process? Where do you guys sit on that?
Matas Danielevicius: I would argue for both sides, but we tend to see that it is quite a universal process. We work with the food and beverage industry, oil and gas, real estate, because the challenges and things they want to solve cannot be directly related to their core business. They are willing to expand opportunities, and we just see that we better find the people who would help us with domain expertise at certain levels but we still do the whole process of building a tech company, our solution outside of the environment. Then, it’s up to us to recruit the right people to push it forward and to give us the knowledge.
This is also one of the reasons we are part of the Knowledge Exchange, which is an innovation center here in Bangkok. We collaborate with them as well, so we have access to university talent and research and the center's network, so it's easy to get government support for our projects. We can rely on the pool of talent coming out of technical universities.
We as venture builders try to be ready to sort out these issues, but I wouldn't say that we would not work with certain industries at this point. If we are capable of building the team and finding the partners to execute the plan before we jump into it, of course, we will work with any industry.
Andries De Vos: Do you ever feel that this business is becoming easier to run? In other words, are you pushing the business downhill and it just gets gravity and rolls, or do you feel that as time progresses, you need to just keep pushing uphill?
Matas Danielevicius: We have been around for two years, and the first year, of course, was a struggle and we needed to push uphill because we needed to build a case study specifically for what we provide. We had some networks, some connections, so we got our first contract and started to work with the first corporate. To convince, to prove, to get the budget - it is a very lengthy process. Suddenly, last year COVID happened and we had a moment when everything stopped, nobody knew what was going to happen. We kept on improving our own operations and content, working on the tools that we have. After that, we saw more and more interest from local corporates.
At this point, I could say that we are starting to see the light at the end of the tunnel, as now it is not only us reaching out, but the corporates are also getting in touch with us, trying to find venture building solutions. That is interesting, as three years ago the term was something no one used, at least in Thailand.
Now we hear about venture building in a lot of different ways. We see more and more demand, and what is good for us and what helps us give motivation to our entrepreneurs, residents and co-founders is that our current clients are asking for more. This is a really good proof of concept for us as well, because we started with few projects, now the corporates want to add several more, plus we are already thinking about the second batch and scaling the batches, not just duplicating them. It gives us more confidence, helps us hire better talent.
Andries De Vos: Typical agency makes around 50% project margin and maybe 25% of net margin as a company, depending on the situation, you could maybe stretch it to 30% if it is a good year. If you have a bad year, it could drop to 10%, so you could keep a cash reserve. That is the agency model, it is fairly well-documented, but it is not very scalable. In other words, there is a natural range, through which you can grow that.
Compare that with a product studio or an equity play where it is exponential if you are lucky, and if you are not lucky, it dies. What do you think of your numbers? Let's say, if you take 25% company margin, how much percentage do you feel you are going to take off the top to invest in your side projects? How much are you betting on the fact that your portfolio of corporate support teams will potentially create value? What do you think about your model?
Matas Danielevicius: Your assumptions are pretty correct, as the typical agency model is 50%, something that we would see now. We are trying to decide which direction to take because, in the agency model, we would build the brand value, the methodology and become more of a consulting, training agency that lives from the fees and helps to support our teams and the company's growth. Speaking of our own ventures, it really depends on founders, because we have a couple of ventures on the side and we fundraise for them outside of the structure, looking at them as separate ventures.
As an agency, we do consulting and get fees, we are a corporate venture builder, that is why we position ourselves in that way. We build startups as a service, so we are service providers, we help to find the talent, execute, hire teams, and we do it all for a fee. That is how the model works.
Andries De Vos: Do you give yourself a minimum size for agency and afterwards it doesn't matter anymore, it lives a life of its own and you won't push harder for growth, because you can maximize your time on other ventures? Or do you want your agency to continue growing and become a huge system so you have more freedom, but then building that system means more investment?
Matas Danielevicius: Of course, we see limitations of the growth, so we would probably look into the regional scale and find local partners in each market, and then consider each market individually. Some models might work in Thailand and not work in Singapore. It is building the brand value that is important to us, so we want to be recognized as a venture builder. Each individual market could have its own structure that would be built depending on who we would partner with. I'd say we would need to find strong local partners with their own networks in those markets. It is probably more of a creative agency scale, where you bring in the methodology, the expertise, the talent, and the pool of clients you have been working with in different markets, and then find local partners who can help with their networks to introduce the methodology or certain assets that we have.
Andries De Vos: You mention a lot about entrepreneurs in residence. What are the traits you are looking for in them, especially if you expect them to run a new startup? What are the characteristics that you would consider a red flag?
Matas Danielevicius: This might sound stupid, and I don't know how the corporates would react, but if we click, we click. That is the key.
The person has to be someone we feel confident about, but that, of course, consists of many different things. First, we would like to get applications from people who have a track record of building their own ventures. Whether the ventures were successful is secondary, we want to have someone who has already tried. That is what we call the entrepreneur in residence.
Usually, we get applications from people with a corporate background, someone who has been working in corporations. It is not a red flag, but we would investigate that applicant much more than someone who says they have worked on their own three startups and nothing came out of it. The latter is someone who did the research, raised the money to start the business - this is what we are looking for. We need the hustler, someone who would be doing work, we do not want only strategy. It has to be someone who buys lemons, cuts them, and makes lemonade when they decide to sell lemonade. It is also university projects, internships, something in which people are proactive. We also try to see how applicants see themselves, what aspirations and dreams they have, what they want to learn from the venture building processes. We just want real people, and the rest we can help with.
We want entrepreneurs to be entrepreneurs. If they need legal help, we provide that, if they need methodology and tools, we provide that, but we need someone who says "I know someone, I can call them!" or "I'm going to do the research!" when they need to get something.
(#7)HAK podcast: Best Methods For Attracting Talent & Future of Venture Building: A conversation with Björn Lindfors, Partner at Antler
Björn Lindfors is a partner in Antler Singapore. Björn works with a global team dedicated to developing the next generation of world-changing companies and creating a global pipeline for top talents to pursue a career in entrepreneurship and innovation.
Björn is a seasoned chief technology officer with experience across startups, mid-market multinationals, and global technology firms. Focused heavily on product and growth, he has managed teams in Malaysia, Singapore, Ukraine, and Turkey.
In this episode, we will discuss the best methods for attracting talent, the future of venture building, and the essential skills of founders.
Website URL: https://www.antler.co/
Björn's Linkedin: https://sg.linkedin.com/in/bjornml
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Andries De Vos: Great to have you on the podcast, Bjorn. So let’s kick off this conversation. What is it in the founding vision of Antler that was so original and innovative?
Björn Lindfors: The fundamental hypothesis behind Antler was that given the right talent and structure, people could actually go out and build amazing businesses. I think since we have started in Singapore back in 2018, we have proven this to be true. Through our programs, we have processed hundreds of people. We have 14 locations all over the world, and now we are building an office in India, trying to structure our first program.
Andries De Vos: Could you paint a picture for me of where you see Venture Building in the next 10 years or so? And perhaps more specifically, how do you see the Antler business evolving in the next 10 years? And for the listeners out there, for perspective, Antler has really only been around for 3 years.
Björn Lindfors: Let me tell you what I love about the world of venture capital at the moment: like many other things on the planet, it is becoming increasingly more competitive. It's no longer a group of ex-bankers sitting in an office somewhere and looking at a spreadsheet, but you actually have to find additional ways to add a significant amount of value to see relevant inflow. I think that is where we are heading.
Whether you are an early-stage, a seed-stage and even a late-stage investor, there is a tremendous amount of pressure to add additional value to the portfolio above and beyond the capital means. I think that is where the VC world is heading in general.
Antler's mission is that anyone who ever considers starting a tech startup will think about us first and use us as a tool to get themselves off the ground and make that initial success. What follows naturally is probably a long series of opportunities that will also be structured in many more thematic accelerators. That provides additional value, probably around particular themes, as we have already seen. You have your fintech accelerators, health tech accelerators, etc. I believe we will see a continuation of this, but perhaps even more specialized than we are seeing now.
It could, for example, be in collaboration with industry experts and companies with investors who have been living and breathing it their entire lives and are now ready to see someone else step in and disrupt.
Andries De Vos: Let's talk about talent. What is the hardest part about attracting the best talent for the Antler program?
Björn Lindfors: If you look from the skills perspective, any organization, large or small, will struggle to attract qualified tech talent. We spend a tremendous amount of effort sourcing and qualifying technical talent to fit into the program. That, I think, is one of the struggles. What we have observed over time, interestingly - and I am not sure if this is what the industry is like in general or if it is specific to Antler - is that more and more senior people applying, more and more people who built companies in the past (successfully or not) are joining our program. The level of seniority is increasing.
The time frame is a struggle. Right now we have three months per cohort, and each cohort wants to have 60 to 80 people, so finding 80 highly qualified and entrepreneurial people who can build businesses together is always a challenge. Silent applause for our recruitment team for making this happen every 3 months! It's an unbelievable feat, honestly.
Andries De Vos: Ok, here is a bit of a funny one. Imagine a massive billboard on the highway. If you could have a billboard for anyone who is trying to build the next Antler or the next venture builder, what would that billboard say?
Björn Lindfors: It's a tricky one. It's a one-liner, and I would say: "Capital isn't everything." I don't know what I would put as a subtitle. It's a point that I keep coming back to. We provide mentoring and support, and of course, capital at the most essential stage when you need it, connections to advisory venture capital networks. That, I believe, is what makes the difference.
Let me summarize this entrepreneurial board for someone who wants to copy Antler. I would say: "Talent is everywhere, it's up to you to make sure that the talent of this planet is put to good use."
Andries De Vos: You guys, in many ways, are unbundling the value chain of creating a successful early-stage startup, with “success” at the early stage being defined as product market fit and follow-on capital. Not yet liquidity. You see many entrepreneurs pass through your programs. Do you have a point of view on whether entrepreneurial qualities are born or nurtured.
Björn Lindfors: Personally, I think it's a combination. Take me, for example. I'm an engineer by profession. A lot of people grow up and they have absolutely no interest in being an engineer. You could say, of course, this is due to my upbringing - I have been nurtured to be that way, but I don't think that is entirely true. I think my personal interests have simply put me on this path and guided me to pursue the career that I am currently in.
I think it is no different for someone who is trying to start a business as well. There is a degree of "I have been wanting to do this for a long time," or "This comes very naturally to me, so I want to do it." This is from the will and drive perspective. But if you look at it from the skills perspective, those are things that you can definitely nurture and build.
Part of this are things that we enable: you have masterclasses on fundraising, marketing, other useful and functional topics that people need to have a fundamental grasp on in order to be able to build a business. I think that is where what people nurture is important. Someone who is really driven will, of course, identify the points where they think they need to improve and read up those points a little bit. However, there is also always the point of "I don't know what I should be good at," so that is what we try to help with, by providing a structure for you to at least be aware of those points.
Andries De Vos: What do you look for in founders and how do you measure or quantify the traits you are looking for in them?
Björn Lindfors: I don't think anyone truly understands what it means to be a successful entrepreneur; they come in so many different shapes and sizes. I would lie if I said we had a fixed recipe that leads to success and makes you a good entrepreneur.
For us, it has a lot to do with measuring the performance of people in the recruitment process and then continuation in the program. Then, whether we invest or not, if we discover that the recruitment decision was poor, we go back and try to learn from it. We have a structured learning process around what we consider to be a good founder. The one quantifiable metric with the most significance, which should come as no surprise to anyone, is whether the given person has built a company before. That is the one that has the most impact.
Then, we have to look for functional skills that we think are going to matter in a startup. Are you a growth hacker? Are you a computer engineer? Are you someone who has spent 15 years of your life in the supply chain? Basically, can you unearth a problem that the world will find interest in seeing solved? These are all things that we try to stress test during the recruitment process.
Andries De Vos: It sounds like those are very soft traits. Are you also looking at psychometric assessments to give you an additional depth into someone’s personality?
Björn Lindfors: I would not say that. We measure, of course, such things as communication, etc., and I would like to add that each of us has bias - conscious or unconscious - which comes into effect a little bit in the personality assessment. They call it the beer test. Do I want to sit down and have a beer together with this person? For us as well, we prefer to attract people we can work well with, and to work well with someone, you have to have a positive working relationship. From that perspective, personality does matter. If someone treats me horrendously during the interview process, naturally, my eagerness to bring that person in will be diminished.
Andries De Vos: It sounds like those are very soft characteristics (likability) and soft skills. Are there psychometric assessments that you apply as well to give you an additional depth into someone's personality?
We conduct psychometric assessments, but not as part of the recruitment process. We do not base our recruitment decision on anything like that. We use it from time to time in the early stages of the program, when founder matching is very important. People coming to the program are looking for a cool founder, of course, to build a business together, and that is when these things become an important tool for the founders to shortlist those they think could have a matching or complementary personality.
Andries De Vos: .I’d like to talk about founder matching. This is the core part of the Antler value proposition. What’s your approach to match founders and to minimize mistakes or mismatches? And how do you deal with founder conflicts?
Björn Lindfors: Let me put this into context and replay the first day of the Antler program from the founder's perspective. Imagine you are sitting in a room together with 75 other people from various backgrounds. Usually, around 40% of these people would be engineers, and the remaining 60% would be either general business or domain experts, maybe someone who has spent 15 years in the supply chain.
The question is what happens next? How do we facilitate these people meeting and forming relationships that ultimately lead to them building a business together? The answer is that there is a forcing function: we say at the investment committee - it is two and a half months later - that you need to find a co-founder. If you don't have a co-founder, we are not going to invest. So, there is a very strong forcing function on the founder's side to try to find a good match in the cohort, someone they could see themselves working with. We provide data, and as I said, there might be psychometric assessments. The founders will have stated their general interest areas, they have each other's LinkedIn profiles, etc. All these are things they can use to shortlist, for instance, 10 to 15 people in the cohort that they could potentially see themselves working with.
Then, we provide some structured exercises, particularly in the first two weeks - for instance, boot camps where you have to work 24 hours together with another founder to stress test what your working relationship could be like. During this time, if they see yellow flags or red flags, if their gut tells them it might not be the person for them, we encourage people to very practically break up. In fact, we celebrate split-ups, we have a big round of applause usually. The idea is that we want people to be able to try a few different team configurations and figure out something that works for them.
We don't, for instance, require that an engineer has to pair up with a business founder. It really is about what is required for the business they are setting up. If you are building a data seeding business, we would like to see a very different team from the one that is building a deep-tech blockchain business.
Andries De Vos: If you would start Antler today, what would you do differently?
Björn Lindfors: There are big things and some little things. Our headquarters is in Singapore now, and there are many things we have learned over the last few years. To me, a relatively significant change we have made to the program is the introduction of something we call "the pre-IC". Historically, the founders are optimizing for the investment committee. They know it's one point of accountability that is not going to change, everyone fears that day and looks forward to it with excitement (a combination of both).
What is a little bit unfortunate, when you have a 2.5-month program that ends in a singular investment committee presentation, is that some people might not be ready. Some people might have been working on an idea, and despite us telling them to pivot and change the idea, they insist on working on it. That is very unfortunate because in these configurations you have talent that we simply cannot invest in. What we have done then is introduce a psychological point of accountability slightly earlier in the program. 3-4 weeks before the actual IC we have a pre-IC.
There is still the threat of rolling heads in that usually at that point, we will eliminate the bottom-performing 10-30% of the cohort. This means we can refocus our efforts on the rest, and we also have a very structured feedback system, so we can tell the participants that as an investment committee, we think you are not working on something we can fund. However, we tell them, with the following alterations you will put yourself on a path where you are much more likely to receive our investment.
Basically, we give people a chance to pivot and rethink, and fundamentally change their business in the cases we have someone brilliant but a little too stubborn to make changes early on.
Andries De Vos: What is that motivates founders to pass the IC? Because in a way, the amount of money Antler invests is quite nominal compared to what you can get out there. So why would a founder bother to pass the IC? Is it that they really want to have the brand of Antler on their resume, or that they are competitive and feel the urge to “pass the IC test”? What is it?
Björn Lindfors: I would love to say it has something to do with the brand, but I don't actually think it does. The reason I am saying that is because the very first cohort we ran back in 2018 fundamentally had similar dynamics, tension and stress that you can find in the founders today leading up to IC. I think it's a relative thing. Imagine it's the first day of school and you are trying to pass exams or whatever challenges are put in front of you - it's a stressful time because that is your world then, your existence in that very moment. It is the same for people going into this program. They want to build a successful business, and the first step toward that is to pass the investment committee. It’s very much about human psychology. When you put 75 to 100 people in the same room together and ask them to build a business, there is naturally a lot of competition and peer pressure that emerges as well.
Andries De Vos: And here comes my last question. What models out there, whether on venture capital or on venture building do you find interesting and why?
Björn Lindfors: In theory, corporate venture capital (CVC) should have an excellent capability of venture building. Anyone that's been in the industry knows that unfortunately, it is often not the case. It could have to do with flawed incentives or a little bit of shortsightedness in looking for an early acquisition or not selling to their competitors, etc. We know that they have many issues, but theoretically, CVCs could be super exciting. You do have people that have a very deep understanding of a problem or who have been operating in it for a very long time. If they could enable people to disrupt their own space, I think that could be very impactful.
(#6)HAK podcast: Building impact startups for a sustainable future: A conversation with Jumanji Studio co-founder Valerian Fauvel
Valerian Fauvel is the co-founder of Jumanji Studio, a Singapore-based startup studio building solutions to accelerate the world’s transition towards a sustainable future.
In this episode, we will talk about the company’s philosophy, the challenges of the sustainability industry, the best business models around sustainability and how to grow a startup studio.
Website URL: https://www.jumanji.studio/
Valerian’s Linkedin: https://sg.linkedin.com/in/valerianfauvel
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Andries De Vos: When you started Jumanji Studio, what is it you understood that others didn't? What is the assumption behind Jumanji Studio that makes it work?
Valerian Fauvel: We understood that there was a real opportunity for a group of entrepreneurs to scale our skills and ability to build things across not one but across several startups. If I take my own example, I was at a VC fund before starting Jumanji, and my background is more in finance, fundraising, strategy for markets. If I was going to do that in one single startup, I would realistically spend 10-20% of my time on it. Plus, I would have to learn a lot of other things. But if we got into a set-up where we could spend 70-80% of our time on what we're really good at, we'd still have the learning but we'd be a lot more efficient with our time at building more startups. When your objective - like here in Jumanji - is to have as much impact as possible, it makes sense to start looking at how we can scale this together.
Secondly, there was a bit of a defense mechanism in setting up ourselves as a studio in the impact space, because the ecosystem is weak, there aren’t many investors, incubators, accelerators or entrepreneurs. By building the studio, we're replacing an ecosystem that was missing. That's why we're able to bring capital so that we don't need the basic "love money" that some entrepreneurs need. We're able to look at different themes in sustainability, circular economy, climate change, etc. We were able to surround ourselves with a community - a group of 60 industry experts, investors and entrepreneurs who like what we do and contribute in different ways. We were able to build stronger gravity around our purpose that we couldn't have gotten if we were pursuing a single startup.
Andries De Vos: Let's talk about economics. From beginning to end, how much money do investors successfully initiate and validate for a startup idea until the point where you bring the CEO onboard?
Valerian Fauvel: We've put the cap at $200,000. We have money in our reach to double that amount, but we are not going to do it until there is a very thorough assessment of why we're doing it, and we ask for our investors' approval. Ideally, we raise funds for the startup and reach financial independence for it, at which point the studio doesn't need further investment in the company. We keep these unallocated resources more tactically as a shareholder. If there is a crisis, we ask ourselves if there is a reason why we would want to defend our ownership. This pool of funding is there really for tactical allocation. For me, it's very important to make sure that we are not going to put all our resources in one or two startups.
For now, the most we've invested in one startup is $90,000. We've been super careful with our funds for a few reasons. One is that we didn't have that much, we raised around $500,000 the first time around. We know we're in a space with not as much funding; we aren't in deep tech, we don't have so much access to that type of investors and grant funding. I would say there are few steps in the validation. One is whether we like the idea enough and have the first clients for this potential company that we would like to incorporate? Incorporating in Singapore can cost a few hundred dollars, but it’s a huge milestone - we inject money not from the studio directly, we just invest money from the studio in the startup and then run the startup.
I think we invest up to maybe $20,000 when we build a company we like, we get the first clients, the product/MVP is okay, and we're not shy to pitch this company even if it's not completely ready. In what we do, $20,000 is feasible. We talk to investors, and then we decide whether to invest more in the startup and we go to $100K or $200K. It might not be a heavy investment, but it's a lot of money for us, and it's a commitment of the studio to one company.
Andries De Vos: You and I had a brief conversation about the possibility of creating subsidiary labs. Tell us about that model.
Valerian Fauvel: It is for scaling our team operationally, to be able to do several things. One is to have a bigger impact on our startups, more directly from the studio.
We want to scale our team so that we can operate across more startups. Labs themselves would have a certain degree of independence, so they would have the potential to become their own startup. The same way you build a studio in a circular economy, you can build a growth team or a growth company, a product with good credentials and track record in some circular economy or climate change, etc.
It's quite exciting, and this is our plan to scale our team once we raise the funding this way. We really want to test it. We're convinced about it and we can find the right people as well, that have the right mix of industry expertise and the willingness to start their own thing but also come forward with a less scalable type of startup - a more consulting type of startup.
Andries De Vos: As the startup becomes bigger, is it easier or harder to run for you? Do you feel like you're starting to push the business downhill and you’re getting momentum, or is it the opposite - you feel like you need to push more uphill?
Valerian Fauvel: For me, it's more of a value thing. Now we're uphill because we're 6-8 months after our first fundraising round so we have a bit less money, we've built more startups. Resources are needs are starting to be a little tense. It's uphill, but really stressful. We hope to be a little alleviated when we raise our second round. Downhill was after the first round when we were established and had visibility for 12 to 24 months. We've built 3 new startups. We know what we want to do and we're super excited about it. Now we think it's time to get the resources we need to continue the second chapter of the book.
Andries De Vos: What do you look for in your CEOs and founders? How do you measure, quantify the traits you are looking for? Do you have any rules?
Valerian Fauvel: For me, energy was what came first. I need to feel that the person has the energy to carry a business and lead a team for a fairly long time. In our case, an important trait is a very strong alignment in values. All our entrepreneurs have demonstrated huge engagement in building something that has a different purpose which is building a business and making money. We also look for a strong willingness to work, understanding that it's not going to be easy, having a strong drive.
We test this in the beginning. We never start a relationship with a CEO without telling to change something and then come back to us. We see if they are able to start the machine on their own and get back to us and challenge us.
Obviously, the ability to grow is important, but I would say we are ready to take some risk there. We accept that we're not hiring Steve Jobs all the time. We compensate this with the larger equity share for us at the beginning, so that we can have the munitions to bring other people down the road.
We don't ask our co-founders to invest in the business. In our case, they tend to be first-time entrepreneurs. Their experience needs to be somewhat relevant to their business, ideally complementary to the skills we bring in the studio, as a good match for the team. How do we assess it? At this point, it's spending as much time as possible throwing them into the pool and seeing whether they swim. We put a huge emphasis on someone challenging and pushing us. It's the best sign that we got CEO material for that business.
Andries De Vos: What models of startup studios do you find interesting out there and why?
Valerian Fauvel: I've always been fascinated by the idea of Rocket Internet - one model we can replicate million times, each time better. I think there is beauty in pure execution. We're not taking that route, we're more literal in what we do, and maybe later down the road, when we all have our experience and we've learned enough, we can work this way. When your goal is to have a tangible impact, the idea that you can scale a billion-fold is exciting.
In underdeveloped ecosystems, the idea of startup studios is an excellent way to innovate. It's an ideal model for creating startups that are resilient and strong, avoiding common pitfalls and failures. I’d really like to see more of them.
Andries De Vos: Paint me a picture: what will business building and venture building look like in, say, 15 years from now?
Valerian Fauvel: Venture building for me is startup studios doing their own thing, and then there is a service aspect to it, which is working with corporates. We initially tried the corporate model and decided not to do it. When we started, we looked at the existing models and at how we could build our own. Basically, we decided we would do less startups, but better ones.
The way we see now our first 4-5 years is to build a portfolio of 5-7 startups out of 20-25, and we need to find a way to reject quickly the wrong ideas. Among these 5-7 startups, there are going to be those that are more advanced and those that come in later.
The first year we had two startups. Now one of them is financially independent, it has its own team and investors and it doesn't require capital from the studio. Another one is going to get there soon. To build these two, we rejected about five to seven other ideas. For the second year, we built three more startups that are younger. We have CEOs and early clients for two of them, and things go well, so we do not need to invest more in them. We have room to add a few more startups.
From here, the ideal vision for us is to have 4-5 successes out of this and get 1-2 to exit quickly so we recycle this capital. For fun, I tell our investors that our plan is to invest in one company, repay you, then exit and never speak to investors again. This would be ideal, because we can have both the ability to build new businesses on a regular basis and the thrill of invention and creation but also time to go deep into a business.
There are two other possible scenarios: one of these companies can become a hugely successful company and we become a holding company with the shares of that very valuable company- we don't want this, but it could happen. The other scenario is doing a lot more startups.
Andries De Vos: If you could have a massive billboard with some advice for anyone trying to build the next Jumanji Studio, what would it say?
Valerian Fauvel: The first big decision, if you're in the impact space, is whether you will do it with investor money or grant money. The kind of impact themes you can address depending on the type of capital you're going to raise is quite different. I was in the social impact space before, in poverty alleviation, and I could not do a studio building early-stage social enterprises with investor money. The only way to do it is through grants, I hope it won't be the case one day, but today it is. So, the first big question is what kind of impact you want to have.
There is some complexity in a studio that you don't have in a startup. It’s important to work on your governance tools, decision-making and set the principle for what happens if someone leaves because that completely changes the team dynamic. It's important to treat your governance very seriously, see the studio more as a fund than a startup.
For each founding team I execute, I do more and better than I have done in the past and I build value from this. The learning aspect is in how far I would go out of my comfort zone to discover and build a new type of value that I was unaware existed.
It's interesting to decide what camp you are in, because if you only do discovery, it is very dangerous, and if you only execute, you might get bored. For me, it's important to choose your investors super wisely.
Of course, money gets people excited and you feel like a genius when people give you money, but the fact is that the work is on your shoulders only, no one - especially private equities - will bother with it, so it's okay to say no to money. Be prepared to do it or at least seek investors who you really like and work with them.
(#5)HAK podcast: Lessons learned from running JFDI Accelerators and corporate startups: A conversation with Hugh Mason, co-founder & CEO of JFDI (Part 2)
We continue our insightful conversation with Hugh Mason, the co-founder and CEO of JFDI, a Singapore-based accelerator that has built over 70 startups since 2012.
In this episode we will cover the problems of the VC market, current trends, methodologies of running an accelerator and much more. Stay tuned.
Website URL: http://www.jfdi.asia/
Hugh's LinkedIn: https://sg.linkedin.com/in/hughmason
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Andries De Vos: If you sketched out the business plan for a venture studio, what would it look like? You have already mentioned that it would be more narrow-focused and it would give access to the first customers. What other things would be in your recipe book?
Hugh Mason: I'll give you an example. Here in Singapore, several years ago, I met a wonderful guy, who only invests in games development and all he does is casual games, these dinky little puzzly things, and the prime market for those in the West is housewives at home, who are bored. The kids haven't come home from school, they've done some washing or so, and they would play a game as a treat. They will do it through their set up box on their TV or through their mobile phone, and they end up paying to play that game.
That guy had totally understood that vertical. He knew the psychology of his customers, he knew when they played and how much they paid, he had distribution channels to get to those people. So when people came to him with potential casual game ideas, he was able to say: "I will do this if you make these changes, here's the terms of the deal, take it or leave it." And when people came in, he would act like a traditional publisher, really. I think in some ways a venture studio could be something like that, where you take ideas that have come from outside and you're a specialist with access to distribution and finance.
Another way is the way that many feature film studios work: they have independent film producers who develop a slate of scripts, raise a couple million dollars, spend it on development of 7-8 film scripts, connect these scripts with star talent through their contacts with agencies — directors and leading actors — and then go to the studio. They present this package and say:“ I've got a great script, with a great actor that's prepared to do it and a great director that's prepared to do it, will you take this on? We'll share the backend of the value that's created and in return, you put up the capital and you organize the distribution.”
Another model to do would be what film studios also do, which is to say because we know the market, because we have the metrics, the technical skills and resources in house to make things, then why don't we come up with projects internally? And then we will hire a director to direct the film, in this case it is a Chief Executive who will run the business. The interesting thing about that model is that to drive the business is the critical thing, you need to find someone who is motivated to drive the business but is not so entrepreneurial that they will get bored and go off to run another thing. So, you need to find people who are entrepreneurial and disciplined and prepared to work when they don't know the majority of the business in the early stage, potentially someone who could get it going from nothing to something and, of course, that's the Rocket Internet model.
Andries De Vos: What is it you think that is wrong with the VC market today that venture builders have understood?
Hugh Mason: Venture capital is widely recognized to have some serious challenges. There was a fascinating report by Kauffman Foundation a few years ago, called "We have met the enemy and it is us". It revealed, if you look at the statistics, the dirty secret of venture capital is that the vast majority of funds — I'm talking like 80% here — actually make a loss. If you put your money into a venture business, you get less back than you put into. There's a chunk of them, maybe 10-15% that will give you your money back with a little bit of extra, but not much more, and then there's a tiny number of VC firms which make outsize returns. Because they have that brand name and everyone wants to be associated with that brand name, of course they attract the best companies moving forward. It's a curious thing, if you actually look at psychology of all of this. There's been some great analysis done on portfolio construction in VC firms, if you do the equivalent of a tracker fund in public businesses, if you just randomly invest in a thousand startups, you can show that the results will be remarkably similar to what most VCs achieve.
This is the human need to believe that there is star talent out there that can pick winners. And then there's the whole story of adding value, nurturing, which some VCs do and the majority don't. All of this is stuff that has been well-documented and well-discussed elsewhere. What can venture studios bring to the mix?
I won't name the fund, but I will say it is an extremely large Singaporean fund that everybody's heard of. I was having discussions with a very large fund that makes tens of millions of dollars size investments and above, and they feel they are cut out of the stages of startup growth where value is created. They feel yes, they can write very large checks, but by the time they come to the party, they're not making that great of a return on their investments.
Just recently, when one of our very first investees was bought by Intuit, what I think is interesting is that in the early stages of development, when people put money into JFDI, the multiple we got on our initial investment was like 100x on that investment — a hundred times of what we put in. The folks from our investor pool, who then invested a couple rounds later, made a good return, but it was absolutely nothing like 100x, even though it was a multiple amount of what they put in. When you draw that kind of curve, a hockey stick curve evaluation growth in a startup, it is really true that the returns are fantastic if you can get in at the beginning and avoid getting screwed by later investors in terms of dilution, if you can get in early and with a reasonable deal with the founders who've got some integrity.
That means that for a later stage fund, like the one I was just thinking about, the problem they've got is by the time they come to the party, the band's already onto his last song. That fund told me confidentially they were setting up a venture studio internally. And I wonder whether this is going to be the case, whether we'll see corporates do something similar. The pros and cons of that is another discussion.
The simple answer to your question is that venture studios allow people who have access to money to get into deals with discipline and structure earlier than they would've otherwise and therefore enjoy more evaluation growth. The real thing they've got to hide if they're going to do that is their own egos.
Being a VC does not mean you know everything about starting and growing businesses. It means you know a lot about raising money from LPs, term sheets and all that stuff. It's great, we need that skill set, but it's got nothing to do with building value and a company, unless you've been a founder yourself.
Perhaps the ideal structure would be something like a venture studio with people in it, who know how to create and grow value, closely coupled to a fund which has an arms-length relations with the folk who are doing the company building, because like everybody, if you're the one doing the company building, you're going to believe all your projects are brilliant. You need to have a robust discussion with investors. So, even if it's your own fund, my hunch is that probably even people making final investment decisions need to be separated from the actual building process.
Andries De Vos: I see more and more corporates, innovation teams reaching out to us as well to explore the possibility of creating a venture studio. These trends are indeed emerging and it's exciting, but, at the same time, I would argue that the risk culture of those teams as well as their background may not be compatible with being entrepreneurs. If you take that line of thinking to the next level and imagine that you see VC as a product with a roadmap -V:1, V:2, etc, what are the versions that we have now and that will come in the future? What are the trends that you see?
Hugh Mason: One of the things I hear a lot here in Asia from partners and family offices that want to invest in VCs is that it is a tough call for people to lock up their money for 10 years in a fund run by someone they haven't worked with before, who then invests it in businesses that have got nothing to do with the investor’ group of family businesses, where their children don't get to learn from experience. If you're brand-new in VC and you're setting up a Southeast Asian office, then maybe you'll get some LPs to invest. But it's a very tough call to keep asking people to invest in it. There is a matching function that VCs perform.
In the old days, it used to be performed by those angel groups. 10-15 years ago the only way for startups to meet business angels was to go to a monthly cabaret, where a bunch of guys would be sitting and having dinner and drinks, and the startups would kind of go on stage and lap dance for them and then, occasionally, they'd write a check.
I think VCs similarly act as a magnet, drawing together money and talent. The question is whether the fund is the only way to do that. On the angels' end of things, I think it's interesting that we've seen things like syndicates forming an angels' list, where you have an experienced investor that people believe in and trust, who says I found a great investment here, who wants to come in with me? And because they've got a bunch of followers on Angellist, those people will all come around and effectively set up a VC fund. But it's a VC fund for just one investment and the lead investor that runs that will have to carry everyone's money and all usual things that a VC would do. Everyone can see where the money is going, make a decision right now - there it is, go!
You think whether you actually need all this structure of a fund, is it actually necessary to act as a magnet? If it really is about talent, if that's what investors want to follow, then you can do that as an individual.
The other thing I think is really interesting is the way we're starting to see some private marketplaces emerging now. For instance, here in Singapore we have a business from Estonia, called Funderbeam, which is a private exchange that accredited investors can join. And they can invest directly into early stage businesses. The challenge with it at the moment is that there's not so much market volume, not so much trading, so the investment in all that is liquid, that means that the transparency of pricing that you get from a public market isn't there yet. But as an idea, I find it really interesting.
If I was launching JFDI all over again, I think now that we've got a brand name and everybody knows what an accelerator is, there is an argument that maybe we should just put up an exchange trading fund that's sort of linked to JFDI on something like Funderbeam, raise the money that way and then deploy it to support early-stage startups. Maybe that's what we should do. Then at least our LPs investing in the accelerator could have a way of getting in and out.
We'd have to put much more energy into the storytelling around the performance of the startups and there would have to be someone doing market making, but maybe that's all possible. Often, in finance particularly, as it's one of the conservative industries, there are different flavors of product people come up with, but it's rare that we get a brand-new paradigm.
VCs are what they are, they date from the 1950s. Would you create VC funds in the same way today if you were inventing them from scratch? Probably not, in the same way you wouldn’t invent retail and shopping malls in the same way now that we can do e-commerce. I'm watching this, and I am a spectator not a VC, I'm an individual investor who used to run an accelerator. I am fascinated to see in which direction this goes.
Andries De Vos: With all the know-how that you've acquired over the years, do you think there is an opportunity to almost codify those know-hows and the methodologies of running an accelerator? Or you consider this a very limited added value?
Hugh Mason: When JFDI Asia stopped running its own active acceleration process and we entered this harvest mood to focus on supporting our portfolio and moving it toward liquidity, that's what we've been doing since 2015, one of the things we looked at was if we could offer accelerator as a service. Funnily enough, a company actually pitched this to me the other day. I was looking at setting up an impact accelerator, working with a large corporate venture. I found that there is a business in Europe, a fantastic software platform that's got everything you want to run an accelerator they've coded into a system. There's two or three out there now, I think. The mechanics of running an accelerator are relatively well-understood.
The other thing that's happened since we started JFDI is that some fantastic academics have done a great job to start documenting accelerators, identifying success factors. There's a great book by Mike Wright & Israel Drori called “Accelerators”, and it presents an analysis of what it takes to make an accelerator work. There's a wonderful researcher in the U.S. called Susan Cohen who's done a great job on what goes in accelerators and why they succeed, and how we can measure their success.
The know-how is open source now, the spirit of the startup accelerator was always about making this stuff open source. I think if I were going to do it again, I would focus less on the mechanics of running the accelerator and more on achieving distribution for startups and achieving more liquidity for investors.
Andries De Vos: What are some of the most interesting models you've seen, specifically in the accelerator and venture building space right now?
Hugh Mason: It's fascinating to see different rifts on the same theme. You can see something like Entrepreneur First, it's been extremely successful in London, in particular. Matt and Alice had set it up and created an amazing climate where very smart people from top universities and technical people come together. It's basically a 3-month team forming operation, followed by an accelerator. I can't see anything magical about it other than the fantastic community that has grown around it.
I think that whole area of how you form teams is an interesting one. The second area I find very interesting, I joined On Deck, which is a virtual accelerator, and while I was in quarantine as I had COVID-19 and I was stuck in a hospital, I wondered what it would be like to be in an accelerator. I got lots of friends in Europe and I got businesses there and in Asia, but I never got a business in Silicon Valley myself. Because of COVID-19, I could join the accelerator that had gone virtual and doing it online would cost far less than getting a flight to America. It turned out to be absolutely fantastic. What On Deck did brilliantly was to curate people. Going back to the point I made earlier about the quality of people coming into the accelerator, the thing that On Deck did fantastically was to get amazing people together. The conversations I've had were great. To be honest, I'm very happy to have paid that and more just for the people I've met.
Now that we have a sort of framework around how you build startups and now that we've got some common mentor models and shared language, it seems to me that the physicality of an accelerator is still important for team formation, but it's less important when you're trying to help companies and support their growth.
I don't think you need to be face to face with a mentor. I'm mentoring a wonderful eye surgeon for the moment, for example, who's left eye surgery and is setting up a very exciting business and I really look forward to our conversations as a mentor, because it's so stimulating to talk with someone intelligent and passionate. It's great that we don't have to be together. We can share business models, I can share articles and stuff I've collected that is useful for our conversation, and she shares stuff with me about eye surgery which I find fascinating because my mum had cataracts in her eyes.
A huge function of the accelerator or venture builder is to create a community. I wrote my master's thesis on what an accelerator is, back in 2011-2012. It wasn't clear at that time what an accelerator is. The thesis is called “Guilds for Geeks”, and the conclusion I came up with is that an accelerator is like a medieval guild where you bring together masters and apprentices, and the craft of entrepreneurship is handed down from generation to generation, through on-the-job training. Until recently, that had to be done face-to-face, but I don't think it has to be done that way in the future. You can have a community of mind without having a community of place. That's fantastic because it means that really talented people, wherever they are, can reach out and connect with other people.
I'm working at the moment with a Swiss-based accelerator called Seedstars and also with GSMA (Global System for Mobile Communications). They run some fantastic programs across the very developing parts of Southeast Asia.
Recently, I've been mentoring teams in Papua New Guinea and Samoa. The most interesting discussions there have been with great people, as smart as anyone on this call, they just haven't had the chance to travel and to connect. There were two conversations that really inspired me. One was with a wonderful woman in Papua New Guinea, who had an idea for slaughter as a service. In her country, buying a live chicken at the market is the way that you buy your meat. You carry the chicken home, you chop its head off and then you cook it for your family — it's fantastic fresh meat. She came up with an idea of a service, when you can use your mobile phone to order chicken, and when it's delivered you can slaughter it in your backyard.
What I loved about that is that it's a business model we actually know how to do, but it was applied in a culturally relevant context. Later on in that same session of mentoring startups, a guy actually came up to me with a ring about the size of your head — a piece of string with shells threaded on it. He brought me the traditional shell money, and you can still buy things around the Pacific islands with shells like this. This dude was pitching me a blockchain business and it wasn't one of those bullshit blockchain businesses, where it's all crypto and faith in the future. It was a really solid idea. And it was amazing: here's this guy, whose parents were using shell money, and how he's pitching me a technology business. He was able, through the internet, to get access to all the same whitepapers and ideas. I thought that was so inspiring.
For me, the most exciting thing about the future of venture studios and accelerators is that wherever talent is, people will be able to connect, form teams, get together and get mentored.
I'm passionate about this because, especially in the mess that we're in because of COVID-19, entrepreneurship is a tool kit for creating possibilities in mess, in ambiguity.
Entrepreneurs come forward there is a total mess, when there are cracks in the society, and they fill the cracks and they fix things. That's exactly what we need right now, that's the “just fucking do it” spirit, which made us unite and set up an accelerator.
The reason I'm still passionate about entrepreneurship and teaching it, mentoring in it and doing it for the rest of my life is that I believe that entrepreneurship fundamentally creates the future.
The exciting thing about accelerators and venture studios for the future is that now we don't have to be in the same space and we don't require too much money to do it either. You can run an accelerator in Papua New Guinea and make a success!
(#5)HAK podcast: Lessons learned from running JFDI Accelerators and corporate startups: A conversation with Hugh Mason, co-founder & CEO of JFDI (Part 1)
Hugh Mason is the co-founder and CEO of JFDI, a Singapore-based accelerator that has built over 70 startups since 2012. Hugh has a colorful background as serial entrepreneur, in the broadcast industry, software and technology, as well as investor and university lecturer.
About this episode:
In this episode we will cover Hugh’s experience of running JFDI, one of the pioneers of the accelerator model in Asia, and what he would do differently today if he were to start over again.
Website URL: http://www.jfdi.asia/
Hugh's LinkedIn: https://sg.linkedin.com/in/hughmason
Listen to the Podcast
Andries De Vos: Getting started, what is the history behind JFDI and what was your founding vision?
Hugh Mason: The background to JFDI is actually a co-working space. When Meng and I got together, we realized: here in Singapore there was a fantastic intellectual capital, lots of smart people and as fantastic financial capital as well, lots of money (still is), but there was no social capital for entrepreneurship, no place where people could come together, hang out, exchange visions and so on. Both of us realized that it was a hugely important thing for a startup ecosystem.
So, the real vision for JFDI was about ecosystem building ten years ago. It seems extraordinary now, when Singapore and Southeast Asia have got so much more dynamic, but back then there was very little in the way of ecosystem.
Andries De Vos: Why did you set up the JFDI business model as an accelerator?
Hugh Mason: It was a really interesting, accidental thing. Again, very odd to think of it now, but ten years ago, we were some of the first guests of an early tech conference - it was about a hundred people in a borrowed room of a university. One of the speakers was a guy called David Cohen, who'd come from Techstars, this accelerator we had heard of in Colorado. He was really interesting, because he didn't come from the Silicon Valley. We thought to ourselves: “Well, here's a very small town with basically 120,000-odd people. It's got some wealthy retirees, it's got some nice mountains and a small liberal arts college, and somehow this guy managed to create a community which kind of spawned startups — a school for startups, like a piece of community theater that comes together several times a year.” And we thought it was amazing! If that could work in Boulder, Colorado, then surely it could work in Singapore too.
So, while our intention was community building initially and that's why we set up a coworking space, as for the accelerator, we didn't imagine we could set one up. Actually, it was David Cohen himself, who called me one day and said he had been asked to set it in Singapore and he didn't want to do it, so maybe we wanted to do it. We looked at each other and thought, well, that's a good idea. Don't know anyone who'd done it in Asia yet. So, I think, we incorporated it a few days later.
Andries De Vos: When you started JFDI, did you ever expect it would take 6 years of your life and you’d end up with 60+ startups?
Hugh Mason: Yes, we did. One of the things that was immensely helpful to get it going was the community that was building around Techstars. It got going, I think, in 2006-2007, shortly after Y Combinator, and very quickly lots of people around the world besieged Techstars, asking for information, saying: “This is great, can we do one in our city?” Techstars was setting up an international network and I remember us being member number four in that network, I think. The message we got strongly from the founders of Techstars — and that's something the other founder Brad Feld talked a lot about — is that if you're going to build an ecosystem, it's a 20-year project.
When we started, there were people like Professor Wong Poh Kam here in Singapore, who set up the business angel network five years before us, and there were many, many other people involved in seeding, so I think we came into the journey three or four years into it and it was the right time to do an accelerator. Basically, we were the right guys in the right place at the right time. It was one of those "accidental" things.
Andries De Vos: I once read that no one gets a Suzuki tattoo, only a Harley Davidson tattoo. Your brand matters. I always felt that JFDI had a strong brand. I started my startup journey in 2011 in Singapore so I probably became more aware of the startup ecosystem in 2012, which is more or less the time when JFDI started doing lots of activities. You built a strong brand. How did you create it?
Hugh Mason: Meng and I sat down and asked ourselves, what is the spirit of entrepreneurship? And we came to the conclusion that it was this phrase which many people in the west know, JFDI — “Just Fucking Do It” — because that's what entrepreneurs do. And we asked ourselves, we wondered if they would let us incorporate a business here in Singapore called JFDI Asia, because everyone in the West was going to laugh when they saw the name. We were in discussions with investors at that point, including a government-linked fund, and we told ourselves that the whole point of JFDI Asia was to help startups raise funds in a hundred days so if we couldn’t get interest from investors in a hundred days, we were totally bogus and it was not going to work.
On day 94, this government-linked fund started expressing a strong interest and we thought: “Wow, what are we going to tell them when they ask what JFDI stands for?” And we were driving through Geylang island here in Singapore which is, if you don't know, one of the red light districts on the island with fantastic food. It is also famous for a shop called Eminent Frog Porridge Shop, it sells Teochew Frog Porridge. I don't know why it just popped into my head, but I suggested just telling them it's a Joyful Frog Digital Innovation Company or something like that. We both fell about laughing hard. It sounds like a bad translation of a Chinese company name. You go, let’s say, to Hong Kong, and there are amazing companies like “The Golden Bridge Fortune, Happy Lucky Company Building”, so we thought it would sound like one of those. Then we got some friends, who were Chinese scholars, to actually translate "Joyful Frog Digital Incubator" into Chinese characters so it looked official. And everyone kind of marveled at the quality of the translation, so it was kind of a joke, basically.
The next part of the story is we were looking for logos and we found this stock art, and we bought around four hundred poses of this little frog for a hundred dollars, I think. Everybody loved it, and the great thing we found was that all around Asia other people had used the same stock art — you know, when you buy one of these libraries online. People would send us photos of a cafe in Cambodia and say this cafe in Cambodia has your logo, this is amazing, and we would say that it is really cool and ask if they would tweet it out for us. Then ,we found online some beanie babies, these cuddly little toy frogs that looked just like the logo. We bought loads of them and we gave them to senior executives from IT companies, investors, and people like that. We said: “When you're traveling around the world, please, will you take a picture of the frog in front of the Eiffel Tower, Golden Bridge, things like that?” And we would do this whole story about the frog.
Very quickly, it turned out to be a huge asset for us, because as you know, one of the biggest issues in Southeast Asia is that there are many different languages, but everyone likes frogs. Frogs are okay because nobody has bad stories or bad rap about frogs. Still to this day, if I go and speak at a conference in Vietnam or some other place and someone comes up to me, they always say: "Ah! Frog man, frog man!"
Andries De Vos: When you were running JFDI, what metrics were you keeping track of on a regular basis? What metric or metrics mattered most to you?
Hugh Mason: We realized very early on that an accelerator lives or dies on the quality of people that come into it and the quality of mentors that they have to support them growing. The key thing for us — and it's actually more important than the money and anything else that you put into startups — is that people often join the accelerator thinking how much money they're going to get out of it, but it's not about that at all. Once you've been through an accelerator, you realize it's dead easy to raise 25,000 or 50,000 or even 100,000 dollars if you know what you're doing. The key is to know what you're doing. That means you need to be surrounded by great people as your team members and you also need great mentors around you.
The key thing for us was to see if we could get mentors to come to us, create an ecosystem where mentors will come and share their wisdom for free. It was very clear to us that there was no way we could afford to pay people who were successful entrepreneurs at the market rate. We had to give them something else in return.
So, the very first thing we tested, our minimum viable prototype if you like, which we did after incorporating, was if we could create a mentoring program that will create a lot of interest from Silicon Valley in Southeast Asia. Can we get people to come from Silicon Valley, hang out in Southeast Asia and spend time with great entrepreneurs? We found that if we curated that experience and made it good for the mentors, they would come for free. We often asked to pay for the air fare, but these were usually executives and they didn't need it paid and they got their families coming with them anyway, so that was the first thing we tested — whether the mentors would come for free.
Second, the biggest metric after that was the number of people applying and the selection process. We had a rather interesting discussion on how you select people, teams for an accelerator, and I could spend all afternoon talking about that. One of the keys to it is that you need a reasonable volume of people that you're speaking with, and I think for most accelerators you probably need 15 or 20 times the number of startups that you are trying to recruit. If you haven't got that many applying, you're not going to get quality in the end. So, we ended up being more selective than Harvard or Yale, or Stanford: I think we ended up taking about 4-5% of the teams that applied, and that evolved over time. The fundamental metric for any accelerator that is recruiting startup teams from the wild is the quality of the teams that you're finding able to select.
Andries De Vos: These are fairly top-line metrics and lagging indicators. What were the signals you were looking for on a daily basis to say “right, we're on track here”?
Hugh Mason: There were several phases to it. When we were doing our very first batch of the startups here in Singapore, we didn't know whether the accelerator format was going to work in Asia. For example, a lot of Silicon Valley culture is very "rah-rah-rah", extraverts “crushing it" type of stuff, and that is not very Asian, to be perfectly honest. We weren't sure at all whether it was going to work, so our first leading indicator was if anyone cared about it, if people were engaged.
The very first thing we did was with the help of Singtel Innov8, who sponsored us to run a series of startup weekends around the region — at that time no one had run a startup weekend in Manila or Bangkok. With support from Singteland some local partners, we ran this first startup weekend in about six major cities around Southeast Asia. We were just astonished that people were so interested. In every venue, we only could take about 250 people and by the time we got 300-400 people trying to get to our startup weekends, we thought wow, the timing was right, the hunger was there for that. That was a huge leading indicator for us.
The next thing was that once we started evaluating teams that were applying, we realized we couldn't pick winners. Meng and I were involved in angel investing before and as anyone who's done that we know it's very, very hard to pick winners. You always believe that the companies you put cash into are going to succeed. In practice, the hit rates for pre-seed investment is one in ten, if you're lucky. It certainly has been like that for us. When you get it right, the returns are great, but when you get it wrong nine out of ten times, you have to think about what you are doing.
The selection process we used was a negative one. We put together a series of patterns for failure modes, things that we knew that startups get wrong, and we selected against negativity. We selected the least flawed teams and we looked for teams that were closely matched to us in the sense they had reasons to do their project in Southeast Asia, and we looked for reasons why that team is the best in the world to do this project. What is it about this team that gives them an insight?
In some situations when that didn't turn out right, it was quite funny. I remember these two guys, who were almost wearing suits, like they just walked out from the business school, and they pitched us this very MBA-style online shop of women's shoes. Meng sat there listening to them and nodding very wisely, and when the guys finished after about 10 minutes, he looked them right in the eye and asked: "When was the last time you actually bought women's shoes"? These guys had thought themselves into selling women's shoes online but they had no clue. By the way they were dressed you could tell they were like me, they would depend on a wife or a girlfriend to choose clothes for, let alone shoes. They clearly had no domain insight. Time and again, we found classic flaws like that.
One of the advantages of having hundreds of teams applying was that we got to see regular patterns, document those and then select against the negative patterns. That's how we did it.
Andries De Vos: Have you ever felt like you were pushing your business downhill as opposed to pushing your business uphill when every day's a struggle? Did you feel like you ever got to that stage where the business was just running by itself?
Hugh Mason: I think we never quite got that stage on all fronts. There were moments like in 2012, when we were completely overwhelmed by the interest. It was great, but it was extremely difficult to raise money for the accelerator, for startups. At that time, about 10 years ago, most of the wealthy families and high net-worth individuals in Southeast Asia were very familiar with bricks and mortar businesses, fast food and shopping malls, but the idea of investing in this software thing — what the hell is that?
If I invest in a shopping mall, I can get rent from the tenants every month. If I invest oil palm, I can milk the trees several times a year. But if I invest in a startup, I have to wait several years and then it might be worth a billion dollars or it might be worth nothing. Why would I do that? So, the whole idea of startups as an asset class was strange.
We actually had a very similar path in retrospect to a couple of other first-generation Asian accelerators — Pollenizer in Australia had a similar number of startups to us and then like us, found that willing investors, people who were willing to take a risk that early on, already gave what they were worth. Likewise, there were a couple of Indian accelerators that set up and did about 70-80 startups and then found it hard to sustain.
There were a few in the region: SparkLabs in Korea, again part of Techstars network that became a global accelerator network. They were able to keep raising money and are to this day successful in keeping the same model. But for us here in Singapore, we got to the situation like Pollenizer, when mainstream investors were saying to us: “Well, these guys gave you money 3 years ago, so where is the billion dollars?” It was like I gave you apple seeds last week, so where are my apples, buddy? I can understand that, because when you come from the background of investing in traditional ventures that start yielding very quickly, it's a very unfamiliar idea that you have to wait for revenue. So, we were right people in terms of the model in some ways. In some others, if we had deeper pockets, if we could go on a little longer, but I think we'd be able to double down on successful businesses and capture more value for what we created and that's just a function of timing in a marketplace, really.
Andries De Vos: At what time did the idea of doing a corporate startup come to you? At some point, you started pivoting toward that and doing programs for corporates.
Hugh Mason: By the time we got to the end of 2015, we had done about 7 batches of the accelerator, we deployed around 3 million dollars into 70 startups and we were quite exhausted. Also, there were loads and loads of copies of us appearing, which is a compliment. However, to be perfectly honest, we could see that many of them were set up by people who had zero startup experience — well-intentioned civil servants, academics at polytechnics. We just thought to ourselves that it was going to be so confusing for any startup founder. The valuations that startups are going to expect will go sky-high, and the whole accelerator scene in Singapore is going to get a bad rep because there will be loads of bad quality programs out there.
We thought we should quit while we were ahead, we had deployed the capital we raised. We had invested in around 70 companies. I think we would have liked ideally to have maybe 100-150, but we thought 70 was a reasonable enough sample size and we should have a couple of hits in there. That actually turned out to be the case.
Meanwhile, to answer your question, a completely unexpected thing that happened was that the corporates were banging on the door. For those of you listening who don't know Singapore, it's home to about 7,000 multinational corporations, and many of them face challenges in innovation, like corporations do everywhere. They came to us and said what we did was extraordinary, we were creating new businesses with revenue and doing it under quarter of a million dollars, why it took them 20 signatures at main board level and several million dollars to get a new business venture off the ground. They asked: “How can we work together?”
At the end of 2015, when we decided to stop the active acceleration process, Meng took part of the process that we developed internally and built a business called Legalese around a contract management system for startup documentation. I took interest in corporate innovation and for about 3-4 years tried to do corporate innovation here in Singapore.
Andries De Vos: You touched on the idea that it can be difficult for a corporate to build a venture or an accelerator. In particular you shared that ego is an aspect that can be challenging for corporate executives running a new venture function. Can you share some of the challenges you’ve faced with partnering with corporate venture builder?
Hugh Mason: In 2016, when I dived into the corporate space, we had 30-50 multinationals here in Singapore banging on the doors of JFDI and asking us to work with them. We had everybody from BOSCH to Whirlpool washing machines, insurance companies, all sorts of things. Very quickly, I came up with the same cultural clashes everybody meets when they try to bring startup thinking into a corporate environment. The major personal realization for me was why I hadn't become a management consultant 20-30 years earlier - it was a lifestyle choice.
The months went by and I was getting paid well for the work I did for corporations, but it wasn't enjoyable. It was like working through concrete. I started to reach out to people who were doing similar work worldwide. We realized together that everyone was meeting the same challenges. The best model I have come across to understand why those challenges occurred is called the three horizons of growth. There are many different representations of it, and the one I find most useful is that you imagine a graph. The bottom axis, from left to right, shows technology from yesterday's technology through today's technology through to future technology. It's kind of a time axis. On the vertical axis, you can imagine going from the bottom, there is stuff that we do today and markets we know up to the top being markets we've never even thought about exploring and business models we have never investigated. The vertical axis is about business model innovation, the horizontal axis is about technology.
Most people in most corporations are working with yesterday's technology and business models for customers they already know — that's how the company makes steady money. However, if you want to investigate the future, you need to push outside that bubble, you need to move into the adjacent areas of technology that's just coming on to market and you need to move into new business models and markets that you haven't explored.
You need to be mindful of horizon three, which is the weird stuff — disruptive future stuff.
Now, everything inside a corporation is designed to avoid making mistakes. One of the great experiences I had was working with BOSCH. We worked together for about 4 years and we used to have really honest discussions about the cultural differences between us. BOSCH and other corporates don't need a company like JFDI or any venture studios to do innovation in horizon 1. If you're doing stuff with your existing markets and business model and you're just applying for technology, it is innovation but it is the kind of stuff that cheap financial offices like doing — it's about reducing costs.
If you're doing innovation in horizon 2, it's the stuff that the Chief Executive likes to talk about: building on our strengths, adopting the latest technology that's already being used by somebody else, etc. What you don't want to be doing as a corporation is that weird stuff that people in R&D lab talk about. People like to wear t-shirts that say "I am a disruptive innovator", but you don't actually want to do that inside a corporation, because you're going to lose your job. It's a bit like rock stars and porn stars. We have porn stars to show us all the things we fantasize doing but don't actually dare to have a go at. The same way with rock stars, Jimi Hendrix had to die choking on his own vomit, but it was part of his destiny — I’m sorry, but if he had become old and boring, he wouldn't be Jimi Hendrix. The whole point of a rock star is that they do outrageous stuff. The whole point about disruptive innovator is that they are disruptive and they do new stuff with business model and technology that seems scary.
That's why someone like Elon Musk is sexy to the general public, that's why everybody sat in a cubicle wishes they were Elon Musk some days, and other days they look at their salary coming through the door every month and they think: “Do I really care that much”?
I've been very flippant with the way I describe that, but there is a huge cultural clash between that and what a corporation is set up to do. Steve Blank describes this very well: there are two phases of doing a business: the discovery phase when you're doing that horizon 3 stuff and trying to figure out the product's market fit, and once you've got that market fit, that's time to bring the MBAs in, bring the suits in and scale it up. For me, that's when the business becomes boring, but that's what businesses are very good and, and I'm glad that those businesses exist. I would rather have Boeing build the aircraft I'm flying than Elon Musk. Would you get in an aircraft that Musk designed? Probably not. You would if you were a person that decided to go into space, but the majority of people do not want to do that, to take that risk.
We have different kinds of people, structures, cultures. They're all good, it's not like one is better than the other. I do think it raises an interesting question, which is if you are a corporation and you need to avoid getting disruptive and you need to keep innovating for the future, how do you do innovation? What I think is that you need to create an innovation framework. It's no good sending all your staff on design thinking course and give them t-shirts saying "rah-rah-rah we're doing a hackathon", if they will come back to work on Monday and the boss goes: "Ooh, we've never done this before, sounds very risky, we can't do that." If there's no way to follow through on the idea, it's just going to die.
That is the problem. Corporations are fundamentally staffed with people — for very good reasons — who are trying to avoid making mistakes. I'm not saying startups set out to achieve mistakes, but if you're fearful of taking a risk, you won't ever get to the future. You'll just sit back and do what is comfortable. I'm very glad that there are companies there that focus on doing what we know and understand, and they do it very well. I don't want my bank taking massive risks with my money. I do want the fund manager, where I've put some of my money, I do want them to take risks, but I don't want the bank doing it.
Andries De Vos: Of course, there is a historical context, but with hindsight, were there things that could have made your life easier? Looking back now, what would you have done differently?
Hugh Mason: I've often asked myself if I was going to do this again, would I do it the same way, and the answer would be that the ecosystem is different now, very different. The mission of JFDI in 2010, when we were setting up, was first to create an ecosystem and second to get startups to investment readiness — to the point where they are investable. We had no specter focus, it was just B2C, B2B.
If I were doing that all over again, I probably would have a narrow focus on one sector where I have access to distribution, so I can promise the startups not just money but also their first customers.
I would build something much more like a venture studio, where we capture more of the value that was created because one of the things that was painful for anyone running an accelerator is that it's a bit like running a primary school: you recruit everybody that comes in with the best of hope, and startup founders are wonderful people. And sometimes you see them rushing towards an iceberg and you say guys, go left or go right, just don't go straight ahead, and they go right ahead.
Was there something that could have got us to a longer-term model? I think if we found a few more investors earlier, we could probably have kept going. Would we have gotten destroyed anyway by the fact that there were so many poor quality copies of what we created? Probably. I think what we did was the right thing at the right time. We created good returns for our investors and we were probably right to call an end to it when we did. If I was doing it over again, now it's a different environment and we know a lot more now about the process of running a venture studio and accelerator, so I think I would do it differently then.
End of Part 1
(#4)HAK podcast: Corporate venture building and its impact: A conversation with Rainmaking Director Shaun Hon
Shaun Hon is the Director at Rainmaking corporate innovations venture studio. Rainmaking is a startup incubator that launches startups in partnership with large companies, builds them into a solid business and eventually exits them. It has 13 offices across 3 continents. Shaun has a diverse background both as a VC and as an engineer. Previously, he even designed electric vehicles.
About this episode:
In our discussion, we will cover how Rainmaking incubates new startups to corporate consortiums.
Website URL https://rainmaking.io/
Shaun's LinkedIn https://sg.linkedin.com/in/shaunhon
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Andries De Vos: To help us set a stage for this discussion, could you describe different types of corporate innovation programs at Rainmaking?
Andries, thanks for having me on. Let me first state my role and the focus of our team before going into corporate innovation programs. I lead investments and new venture building activities for our corporate partners in Rainmaking. Our specific focus is within transport, where we apply AI technologies to both decarbonize and build resiliency in the global supply chain.
Going back to your question, the innovation program that we run is called the Trade and Transport Impact Platform. We do 3 things here: 1) addressing problems with technologies, as it is one of the most effective ways to tackle a lot of problems, 2) collaborating with entrepreneurs to leverage corporate assets; 3) syndicating the co-creation of new solutions for our corporate partners.
You could think of that platform as a pyramid with three layers. The top layer is made of themes and effects that transport pieces of the whole, like decarbonization; the middle layer are areas where we see potential for collaboration of skill; the bottom, the broadest layer is specific opportunities to solve customer pinpoints by either technologies or new business models.
The problem we work with the corporates is to either tackle a specific challenge in mind or start from a micro perspective. In this case, we work closely with partners like Mitsubishi and others at an ecosystem level to syndicate these solutions.
Andries De Vos: One of the biggest challenges in venture building is identifying, recruiting and retaining the right founder. How do you solve that problem and what kind of founders are you looking for?
You are right: identifying, recruiting and retaining the right founder or talent is one of the biggest challenges not just in venture building space but everywhere else. We're really fortunate that we focus on a niche space - transport - and build a small critical mass through the corporate partners that we work with. The result has helped greatly with attracting and recruiting talent in this industry, either through interest in what we do or through a referral from within the ecosystem. In this case, focusing on a niche space helps us to solve the problem.
As for retaining founders, what we design for is for founders to have sufficient skin in the game to make this worthwhile for them. We look at what a typical non-venture startup would have at later stages like Series B and we work backwards to what the founders need to start off from the beginning and to help ensure they are incentivized for the long run.
On the kind of founders we are looking for, we have three points for this. The first point is high level of ambition and high sense of urgency.
We believe the combination of both ambition and urgency the founder to lead and drive the industry, something that a founder has to be able to do. Secondly, we are looking for founders that have high cognitive ability, because we believe that it helps solve problems faster. Building a venture is a lot about speed and about how many times you can try a solution before running out of cash.
Founders are likely doing a lot of new things every day that they've not done before, and if it's not done before, a strong problem-solving attitude and focus on the right problems help to move the work forward. The third thing we are looking for in a founder is that they are authentic.
The founders' reasons to start a startup are often mixed: you can get anything from wanting to make money, wanting the status and prestige to generally interested in a problem.
It's easy for potential founders to want to start a startup because they want to make money or the want the status and the prestige. That is completely okay, but if the founders are doing it just for the money or just for the status, they aren't likely to succeed on a big scale or for a long term, because they realize there are easier paths for the first two motives. So, these are the three points that we look for in a founder: high level of ambition and urgency, high cognitive ability, and authenticity.
Andries De Vos: What do you think are the benefits of a venture builder, compared to an accelerator or an incubator?
Maybe it's easier to first define what accelerators, incubators and venture builders are before I dive deeper into it.
When I think of accelerators and incubators, I think about a fixed-term (say, 6 months) program of maybe 15 startups that include mentorship and educational workshops that usually concludes in a public pitch or demo day.
When I think of venture builders, I think about a factory that aims to build companies in succession over an extended period of time, where they also hold a substantial amount of equity (anywhere from 20% to 90%). The core activities that venture builders help with extend anywhere from forming business ideas, building teams, finding capital, sharing services to sharing best practices in building a new venture.
On to what the benefits are, I will outline three benefits that I see of a venture builder like us. Number one is that venture builders are in the long haul with startups. Venture builders have to be very selective with where they deploy their time and resources. Time is spent making sure that the product, the team, the market can work before committing, because working with one venture means de-selecting another. In this case, we have the opposite problem of a typical venture capitalist: it's difficult to have a huge portfolio, because we have a very specialized expertise and portfolio to help a company scale. We can realistically only help a handful of companies at each time, and therefore have to be very selective to where these resources are being applied to.
The second benefit is that venture builders work on ideas that are probably more likely to take off. This is because ventured builders have built with best practices and systems to validate ideas as quickly as possible and kill those ideas that we see no potential in as early as possible. It goes back to being sure that this is the venture we want to build before committing resources. Because of that, we're also more rigorous about having the right goals and hard stops in place when we're building a venture. This creates more discipline, more unity and more focus amongst the team, when working together. The third benefit is that venture builders have best practices and methodologies in place to optimize for outcomes or results. This is because a lot of things that startups do as a one-off, venture builders do frequently. When things are done frequently, there's a process for it, and where there's a process, you can tweak and change it to improve it.
These best practices can be, for example, the hiring of a new executive for the venture. We have the process of how to test the candidates, interview scripts on what criteria we should focus on, and more. Founders can use these processes as a template. What they don't need to do is start from scratch and build one. This helps save time and keep their attention on other parts of the business that they are working on.
In summary, the three benefits of a venture builder comparatively to an accelerator or an incubator is that venture builders are in the long haul with the startups; the ideas that are being worked on are more likely to take off; and they have the best practices and methodologies in place to optimize for outcomes.
Andries De Vos: A question that always causes debates: Do you think entrepreneurs are made or born?
It is a tricky question to tackle. In my view it's a scale, I think entrepreneurs are partly born, and the attributes of entrepreneurs are heavily influenced by the environment. If we take what we're looking for in a founder as the definition of an entrepreneur (high level of ambition and urgency, high cognitive ability, authenticity), there are some qualities that are influenced by the environment and there are some components people are born with.
Let's start with what entrepreneurs are born with. To me, cognitive ability is the only thing that we don't have a choice on. If an entrepreneur is not born with it, they will have to supplement their offerings with attributes like hard work, grit and commercial intelligence and have a supportive group of people in their entrepreneurial journey.
As for the qualities influenced by the environment, I think it's number one, the ambition and urgency. For example, people from a third-world country or an immigrant to a new country are likely to be driven by survivor instincts. The second one, authenticity, I think it's also shaped by the environment. I believe the more one is exposed to authentic individuals, the more likely they are to be that way too. Half of this is true, certainly, in my case, where I went on this way through osmosis from great founders that I met in our ecosystem.
Having said that, I think whether or not an entrepreneur is made or born is a fairly subjective opinion in this case. What an entrepreneur has to remember is they don't need the whole package, they don't need to tick all the boxes. It's about being aware of your own weaknesses and strengths and deliberately building a team of people with complementary skills and attributes to ensure that the blind spots are covered as much as possible.
Andries De Vos: If you would set up a Venture Builder today, how would you structure it?
I'm on a journey to find more consistent ways to add value to the ventures. In other words, how can I make innovation more predictable? I think we're on the third model today. I'll start with the first two models and then move on to what we do at Rainmaking.
To me, the first model is venture capital. You have capital and you can deploy it very quickly. Once a venture capital is invested, the question always is: are these companies growing because the VCs are still consistently adding value to help them grow or are these startups anyway? It's difficult to know what predictable values are being input into the startups once the VC is invested. So, here comes the second model - venture building, where venture builders bring in capabilities to build a venture.
After an investment, for example, there is still value to be driven on the product development front, and this is through the expertise, the best practices, the resources put in to take the startup off the ground. This is a slightly better predictable type of innovation to me.
As startups are being built in this process, the next step where most startups get stuck for a while is the scale after product market fit is found. A lot of time is spent on trying to find a fit, and now that's the fit is found, it's difficult for startups to really scale. Venture builder helps startups built prototypes, operations run really quickly, but if it takes a long time to validate a product and the product is not the right fit, the company has to go back to the drawing board, and in this case, you can lose many months of cash right away. Simply put, the longer it takes between building and verifying what you've built is not right, the more time you've wasted. These are outcomes that kill a business.
I'm interested in short-circuiting that process as much as possible. This is where I think the Rainmaking model comes in - using corporate partners as an unfair advantage.
Corporates have a lot of assets that allow startups to quickly test and find the product market fit. This doesn't mean that startups can't build right from the get-go, but rather how we can shorten that time spent iterating - that's working directly with the users of the product to build corroboratively.
For example, if I wanted to run an IoT hardware player on a ship through partnering with a corporate that manages half the world's fleet, I can test quickly if there's a solution fit through the corporate's distribution and network access. If there's a fit, the solution can be distributed quickly, and if there isn't, the startup can also quickly go back to the drawing board to start again. What this does is it buys time.
This is largely about finding a more consistent way to drive value into startup using the third type of model, which is a combination of venture capital, venture building and corporate assets. That is my best hypothesis right now and that is how we are building it today at Rainmaking.
(#3)HAK podcast: The Unbundling and Rebundling of VCs: A conversation with Chia Jeng Yang, Principal at Saison Capital
Chia Jeng Yang is a Principal at Saison Capital. The latter is the arm of Credit Saison, one of Japan's largest consumer credit companies, investing in seed to series A companies across Southeast Asia and India.
About this episode:
The episode will cover the unbundling and rebundling of VCs and how the commoditization of capital is giving rise to venture builders.
Website URL https://saisoncapital.com/
Chia's LinkedIn https://sg.linkedin.com/in/chia-jeng-yang
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Andries De Vos: Chia, from what I've seen in the industry today, I have the impression the VC platform on one hand is being unbundled and on the other hand is being rebundled. You're more on the VC side, how do you see the market evolve both for VCs and for venture builders?
Chia Jeng Yang: The unbundling piece is a feature of competition increasing. We've already seen this a lot in the US: you see people coming in and providing lots of very specific types of support. And then, the ability to drive brand awareness and go to market for portfolio companies is really unparalleled, and there is something unique about funds going upstream, and micro funds and angel operators coming into the scene - we're going to see a lot more of that as competition heats up at a very early stage.
That's the unbundling part.
The rebundling part - I think that's fairly interesting.
We're starting to see larger funds, especially the tier 1 funds, really going to start to dominate. As they get bigger and bigger, and ironically, the pressure to build very deep networks within some of these funds increases on both sides.
Specific to rebundling, large funds are finding themselves increasingly out of the loop, with micro-VCs and super-angels getting early allocation. A mixture of strategic LP investments as well as incubation and venture building models have quickly emerged as a rebundling strategy.
Andries De Vos: What are your thoughts on the best way to start a venture builder?
Chia Jeng Yang: VC used to be a finance job. It still is for a lot of people, but when capital became cheaper and cheaper and the cost of building things became cheaper and cheaper, it started narrowing down to the value that you can provide. The word “value” means a lot of different things. I think operating help is one kind of value. It became more and more bearish about operating health and became more bearish than other types – technical obviously is a good one, etc.
Venture building can be seen as being in line with the macro trend of capital becoming a commodity, so I can see why there would be opportunities there.
I'll be very careful about what type of value you provide is. A lot of people are very optimistic about the type of value they can provide on the part-time basis. In some ways, I'm also unfairly hyping myself up if I mention all these discussions I'm having with founders of venture building, right? Because I'm just being a sounding board. And that's it. I spend X amount of hours a week with these folks. That's nothing, that's just being friendly. That could be one way of doing it, but I'm also aware that this is the value I think I can provide. I'm not going to help them build a ship product. I'm not going to help them open a warehouse, I can't do that right now.
Be super careful with what value means, especially in the context of a market that you're operating in. I think that's what some of the big venture builders have failed to see as overtime.
Once you, as a VC or venture builder, are very clear on your value proposition at the early stage, be it a unique ability to hire engineers, or navigate regulatory constraints – increasingly now very niche fields, you have a strong value proposition as a venture builder.
Andries De Vos: This takes us to the next question, how do you scale a venture builder in your mind?
Chia Jeng Yang: I am actually very bullish on the macro trend for corporate VCs, because 1) it looks like a lot of VCs are starting to hire smarter fund managers, and 2) they are learning how to interact with startups. But they also have all this strategic value add that they've learned to interact with startups better and better over time.
There are areas that I can think of where there might be an opportunity. Because of what we do in FinTech, I've come across a number of funds, which have been very good at helping FinTechs grow, and that's something that you need to scale for sure. These people are super well-connected. It's really specific value adds I can think of in specific fields, where the founder can be a good founder but still can have difficulty navigating those waters, and someone can bring in that support.
As such, you scale a venture builder by scaling your value proposition - being able to plug into an increasing number of consumer and enterprise distribution channels, as an example, is one of them. We’ve already seen the relevance of such corporate development teams already even in traditional VC funds.
Andries De Vos: You and I spoke a lot about how as a venture builder or a VC, it's important to build your own ecosystem. But operation can be challenging to have a distributed network of experts and contributors. There are all sorts of issues around trust and confidentiality. How do you think you can go about making people more incentivized, committed and potentially even exclusive to your VC ecosystem?
Chia Jeng Yang: The fundamental difference between both of them is that I want to create something where if you interact with it, you can get X amount of value. That's what a distributed platform is and that's what I'm trying to create, but when you talk about ecosystems and community, it's more of that - we want you to feel like you have skin in the game when you're part of this. The more you give, the more you're able to receive as part of that. Trust, dedication, loyalty is part of that offering, so it's much less transactional. And that's very, very difficult. It's definitely harder to replicate and recreate the experience that you're trying to build there.
As you know, I am a big proponent that the lines between VC and Venture Building have become increasingly blurred – the rise of platform/community functions within VCs is a part of that. That loyalty and community is mostly a brand play – being a trusted authority that people don’t want to get on the wrong side of. I have a lot of theories about how VC platforms evolve, but without giving too much away, I think the future of this is really around democratizing access to the upside of startup investing – both in a financial and non-financial way.
(#2)HAK podcast: Balancing Client Consulting with Venture Building: A conversation with MING Labs Co-Founder Sebastian Mueller
Sebastian Mueller is the co-founder of MING Labs, a digital business builder with offices across three continents. They help companies with their digital transformation and occasionally build their own startups.
About this episode:
What are the benefits of venture builder teams? What does the growth and scale of such teams look like? How to balance client consulting with venture building? Stay tuned to find the answers to these and many other questions in this episode.
Website URL https://minglabs.com/
Sebastian's LinkedIn https://sg.linkedin.com/in/smueller1512
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Andries De Vos: What do you think are the advantages of a venture builder compared to an accelerator or an incubator?
Sebastian Mueller: If you have an accelerator program, you're essentially trying to provide certain structures and railings for entrepreneurs to go through in terms of programming, in terms of mentors, at what point they would exit the program, usually in terms of a pitch to investors and release. And you either take equity or you don't - there are different approaches.
It's all very hands-off, it's just guiding that kind of thing rather than actually doing the job. So, for us, that is something where I don't think we are just adding a ton of value, because we can provide the things that we typically do with the form of the program, courses and such, but the real value that we provide is work, our experience with the work. I believe that an entrepreneur who has no capabilities in terms of either business design, UX design or actual software engineering, if they are given money to allocate and might not have a ton of experience in the field, they will most likely not get the best part of that investment by not being able to scale it right or perhaps also not working with the right people, who can really meet their needs.
I think for us, the view is what is the most capital efficient. I think we're bringing a very high level of capital efficiency that every investor really needs to appreciate, because we have built over 300 digital products, a ton of ventures on top of that, so we really know what we're doing. And we're bringing in that capital efficiency. This comes through doing the actual work and not the mentorship. Whereas then, of course, there are certain pieces of guidance that an accelerator would give you and we too provide in the process, we have a bit of a network, of course, to introduce our ventures as well, but the action value is when we touch the work and when we really produce a solid digital product, a solid digital business. Without that, I think we'd be too far away from the outcome.
The maximum is then also all around, I suppose, what your funding model is.
We don't want to raise money, we want to be self-funded, which means we are in charge, we're in control of our own destiny.
This, very naturally, is the upper limit of how big we can get at a company and at any point in time. And therefore, also within the balance that we have between the extra client work and the venture building work, how much we're actually able to take on that at any point in time- for me, that's more of the ceiling. I'm not sure that would be a very natural ceiling. But when I look at the minimum, I think depending on what capabilities you're looking at providing, there is always a certain minimum team size that you need in order to be efficient. And again, depending on the funding model, right? If you set out to be a pure venture builder, you don't want to do any client work, you might come from the practice but now you've made your money and you just want to set up a nice little studio, do a couple of ventures a year, but you don't really need to make the money right at that point of time. I think that minimum setup is to be able to manage two or three founder relationships at a time.
Andries De Vos: What do you think is the right scale for a venture builder, the size of the team, the size of the operation?
Sebastian Mueller: If you're really looking to build proper enterprise-grade software very quickly, you're talking about 15-20 people or you take the route of actually finding a partner that you become the manager of, in which case you want to scale up the management capacity that you have, form strong partnerships, but then not have the engineers, which then reduces partially your efficiency. It is still possible to balance the fixed cost and the variable cost.
I think there's a ton of considerations there. And I'm not sure that there's a really great recommendation in terms of how big it should be. I think depending on how you determine those different variables for yourself, different setups can work.
Andries De Vos: Imagine if you'd focus only on professional services and not on venture building. How different would your growth have looked like? How much more margin do you think you would have made?
Sebastian Mueller: As an agency, when you’re saying we're going to take on the ventures, you're not going to want to expand your baseline capacity to take on venture work. You're going to want to look at this as a situation where you have a couple of good clients here, but there is an interesting opportunity and I would have the capacity already in house, so let me pick that up. Let me convert some of the margins into equity.
We always tried to cover our costs, at least it doesn't end up very negatively, operationally for our Profit and Loss, but we do leave profit on the table. Sure, within three years, nobody exits and nobody pays dividends, nobody returns anything. Definitely, in this three-year window, you're leaving money on the table, which is also potentially the detriment of your gross. If you said, hey, all I want to do is make this agency big and then sell it, this is not something you're going to want to do because the biggest best way to do that is just do the corporate work, get the high margins, hire more people, blow it up and then flip it to Accenture or McKinsey. This is not the strategy there.
This strategy is only for people, who either have no exit plans or have some potential exit plans very far in the future, like 10 years out or so. And then, what you're essentially doing is de-risking the core business model, because even the agency model is not without risk, you have a lot of people on the payroll, and basically the more you grow, the faster you're going to have to sell. So, you're in a hamster wheel.
Andries De Vos: At the heart of your business model, you’re a professional service firm that offers venture building service of cost, how do you make your venture builder model and activity less risky and more stable for your overall business?
Sebastian Mueller: Professional services business is not a rocket ship, like a technology company that scales like crazy, it's a bit more linear in the way it scales.
You have alternative business models to mix to make that a bit more stable and a bit more attractive. As a venture, you potentially have a nice outcome, five to seven to ten years down the road, or it could become an interesting business that might just return dividends. We don't have any pressure to exit, different from VCs.
Other model that I've seen is - people becoming partially product studios, where they don't only sell projects to clients, but they might productize an idea. They have, for example, a SaaS kind of revenue that just comes in every month or every year. There are different ways to multiply your income streams, which in a way is good for the scalability of the kind of business that we're in, because otherwise, if you're only going to scale based on people, it is very linear and you are stuck on a certain trajectory, you can never escape from that. At the same time, it is derisking your basic business model, not putting all your eggs in one basket. You don't want to be stuck with contracts with way too many people on your payroll and nothing else to do.
Andries De Vos: Absolutely. So if you would have a back-of-the-napkin calculation or unit economics on a pure-play 100% agency versus a hybrid play agency venture building and you would have to tell that a VC or a founder that wants to set up an agency venture builder, what would be the economics that you would write down on a napkin?
Sebastian Mueller: Looking for a project as such is a project margin of somewhere between 40% to 50%, so that on an individual job you make enough money, and then maybe the company gives you an operating margin of 20-25%. There are people who make more than that, I think many make way less than that. If you're doing well, your jobs are somewhere 40 to 50% margin and then your company's at somewhere between 20 to 25%. Then, the question is how much of that are you willing to trade-off? Now starting to say, okay, I will do 70% of that, but then I'll do 30% that gives me no margin but also makes me no losses. I'm basically starting to draw that down. And then, I'm more in the range of 15% operating margin which, especially if you're not leveraged, is still fine.
But if you're drawing down too much and if you're going more towards like 40% and 50% venture building, you're reducing your margin to 10% or even less, you're putting quite a lot of risk in the business. The structure can become quite challenging, especially if you're reliant on credit lines. The loans at a company size are easily at 6% but rather 8% interest, depending on the country - if you look at China, maybe even 10 to 12%. Your cost of capital suddenly becomes significantly higher or even too close to your actual operating margin, then you just expose yourself very much to downturns.
As soon as the corporate work dries up, the client doesn't pay for a while, it just becomes a huge issue.
Personally, we are very comfortable with doing around 20% venture building work more or less than that, but not significantly more than that, because for the overall health of the business, the growth trajectory that we have in mind is to be completely self-funded. I think this gives us the peace of mind to sleep at night.
Andries De Vos: Have you considered at some point to potentially build your own kind of SaaS products 100%, like lifestyle products, instead of venture backable products, simple utilities that can generate 1-2 million a year and build a bunch of those?
Sebastian Mueller: We have thought about it, we've tried once or twice. We usually end up with years in the enterprise space, and then in order to do that properly, you'd really have to have a project manager, sales. We never really had any ideas for low-hanging fruit, as we might call them. It sounds like you could just launch and put it there, and somehow it will mostly just sell itself, but you'd actually need a proper product organization. We just don't have to, so we gave up on that. Not to say it could never happen, but we just so far haven't had any of those kinds of ideas where we'd say that this is easy to do on the side.
Andries De Vos: Absolutely, but I sometimes wonder for businesses like ours, the approach of the low-hanging fruits could be powerful. If you conceive of let's say 20-30 low-hanging fruit ideas and you capitalize it as part of the margin, in this case, let's say there’s a 25% operating margin and you're willing to drop that to 15 to 20 as a company. So you capitalize, say, 5% of the operating margin as an experiment for a year or two, don't you think you could get some of those low-hanging fruits to profitability?
Sebastian Mueller: I think for us, it would be a distraction. I don't think at the stage where we're at we have the focus to expand, because we have a very clear growth roadmap on the enterprise side in terms of services, revenue and profitability. And we are open for the venture side. For us now, opening a third line would be more of a distraction than we would actually be able to get out of it, just because we wouldn't really have the management capacity to put attention into it. In the end, I think it is still a business that is revolving around my partners and me. Everything that we touch needs our attention. At the moment, we just wouldn't have that. This is not to say that if we did it, and if you pay attention to it, it wouldn't be successful.
Andries De Vos: How do you incentivize your team? Because it seems like the way you structure it, it's really much more of a bonus scheme.
Sebastian Mueller: Magic coins - it's a sort of shadow equity. Basically, you don't have direct options. You don't have shares, you don't have any legal responsibilities. The idea was that anybody working at the company and also depending on the years in the company and their seniority, would maybe once a quarter or once a year be awarded a certain amount of those virtual coins. Then over that pool of all the coin holders, once you have a larger distribution, for example, from a venture exit, you would distribute 10-15% of that exit. As an example, the idea is if we get $50 million from a venture that exits, we take 5 million and distribute it, for example, over the whole pool of magic coin holder, in proportion to the holdings, to the overall issued magic coins.
Andries De Vos: So I know it's now kind of still an idea stage, but what will be the challenge to implement this? What's holding you back other than just maybe thinking about the design?
Sebastian Mueller: The main challenge for us is the different jurisdictions that we're in and making it work in a way that fits all of those. When you look across China, Germany and Singapore, we are growing, having some remote workers in other countries and just becoming increasingly an overhead on working out the legal side of things of these agreements, to make sure that they are structured in a way that is similar, fair and equitable. We just put a pin on since we really don't see any exits in the very near-term future. It is something on the roadmap, but for now, yeah, we're putting that on ice.
(#1)HAK podcast: Productizing Venture Building as a Service: A conversation with Coventures CEO Marko Oksanen
Marko Oksanen is the CEO of Helsinki-based corporate venture builder called Coventures. Coventures is building game-changing ventures and corporations by combining corporate assets and know-how with the venture building of skilled entrepreneurs. Marko's experience ranges from co-building one of the most successful growth entrepreneurship movements in Finland to senior product management roles in high-growth ventures.
About this episode:
Along with other topics we will discuss how to productize Venture Building as a Service, what are the best ways to support entrepreneurs with their mental health, what entrepreneurs can learn about risk management from poker, and how to measure the entrepreneurial skills of the founders.
Website URL https://www.coventures.io/
Marko’s LinkedIn https://fi.linkedin.com/in/markooksanen
Listen to the Podcast
Andries De Vos: Marko, I want to start our discussion with a topic I've been thinking a lot about recently. Do you think entrepreneurship can be taught or do you need to be born with certain attitudes?
Marko Oksanen: What it would mean if it couldn't be taught we would have a certain type of entrepreneurs, so this is a fact that we know is not true. Obviously, there are some stereotypes of the most vocal and the most extraverted entrepreneurs – they are the ones we hear the most about, because they are very vocal and so on. There is a lot of research about the psychological traits of entrepreneurs, and the findings of that research that there are minor traits above others. That is probably a bias of how you get to be an entrepreneur. I believe really strongly that anyone can be an entrepreneur and it's more about opportunity and what you do, the skill set you learn or not.
Entrepreneurial skill set is just like any other skill set, which can be learned, and some of the best universities in the world like Stanford have been teaching it for quite a while, and very successfully. In the scientific world, it is pretty much proven that entrepreneurship can be taught and anyone can become an entrepreneur.
Few people understand what entrepreneurship actually is. Most people think it's founding companies, but what if we would think about it as a skill set? Few people actually understand what type of skill set it is and how to define it, and so on. I had background in entrepreneurship already, I had founded my own company, I had worked in the startups, and still when I started researching this topic in my thesis, I banged my head on the wall for three months before I understood that entrepreneurship is a skill set, even though all research from economic faculty likes to define it as something else. But in the end, especially if you are studying how to learn or how to teach it, it has to be defined as a skill set.
Andries De Vos: As we democratize the startup way and more people become entrepreneurs, some of them may not have the natural grit or resilience to be one, which could lead to serious mental health risks. How can ecosystem better support entrepreneurs with their mental health?
Marko Oksanen: I learned entrepreneurship the hard way. After some ventures, I got really down, and I think not all personalities could handle this sort of adversity, but that's part of the problem. I had to find the career path the hard way. I didn't know about product management when I started my first venture, and sometimes I envy the people who graduate places where we have really good entrepreneurship education in Helsinki. They learn a lot of stuff I had no idea about and they have much better opportunities to become successful. Even if their venture fails, they will have the knowledge of senior product manager or head of product and get investment easily. And when they get investment, they can cover their own payroll, they can pay themselves a decent salary. They don't have to take the path I did, working without salary for a year.
I think it is a much smarter approach. There are some people who have gone the same path as I and become successful at some point, which I haven't. Some people like to think back and think of it as a requirement, consider that everyone has to go through it and do all these hard things, but I'm of a different opinion. I think it is a big problem that people are forced to learn it the hard way. We can create more value in a psychologically safer environment. Many more personalities that aren't ready to do things the hard way can still become great entrepreneurs the more easy way. We still have this myth of a super entrepreneur and people don't understand that entrepreneurship is a skill set that can be learned, and it can be learned in roles that are employee roles.
Andries De Vos: At Coventures, you're all about partnering with fellow entrepreneurs. How do you measure their skills? Have you defined some kind of Coventures framework for entrepreneurial skills, like a periodic table of skills?
Marko Oksanen: We are really in the beginning of systematizing skill sets. We have been creating a market on top of the skills, so we have been trying to find problems that corporates or startups have and then define systematic solutions on how to help.
Many startups have some type of mission and they have some type of reality, but the whole product vision or product strategy, having clear vision and clear roadmap on how to get there - that part is really messy. So, we have been helping them to get their strategy in order on how to actually get where they want to go.
Obviously, that helps if they're raising funding or doing sales - to have clear narrative there is a good thing.
We've just published this "What we do" section on our website as well. Then there is the dimension of what kind of person, what type of team we need to do these projects, what skills are required. That is where we are still in the very beginning. There's a lot of things to uncover there, the concept of effectuation and how well-versed you are in this effectual thinking - that's one approach. There are also the attributes for traditional consulting, and so one. Those are the two different spheres where finding people who are good in both entrepreneurial skill set and effectuation and the traditional consulting, the causation thing is hard. I think some projects require more of this creative entrepreneurial thinking and some require less.
Having this portfolio of different types of projects and then hiring people who can do these projects is the start of building up the IP of our company. And then, when we start moving people inside our company to do more and more entrepreneurial projects and we see what other barriers are there, that's we really start to learn how much we can stretch the skill set and if there is some inherent personality thing to play a role or not.
Andries De Vos: Let's talk about the "venture building as a service" model. What does it look like and can venture building become something like contract manufacturing?
Marko Oksanen: My context, obviously, is highlighted by my background where this whole idea started, and I started from entrepreneurship to research, so I bit my teeth about how to teach and learn entrepreneurship. That got me thinking about the question of why couldn't this be systematized? The problem is really similar to poker: you can easily automate and systematize everything related to limit hold'em, but when it came to no limit hold'em, it was really hard and the smartest computers in the world only now have started to systematize and actually craft theories on how computers could play a no limit hold'em. The professionals only now - about 10 years ago - have started writing books about how no limit hold'em could be cracked and what the elements are there that create a winning player. The big similarity there with entrepreneurship is how you handle risk. In no limit hold'em, you obviously have many unknowns and risks, so you need to take pretty advanced theories on risk management and you have juggle portfolios of risk. And you need to take this information to guide your actions so that you can be sure this action will be successful, but you only be sure that in the long run it will cause right things.
With entrepreneurship, in some ways it is a similar field, and as you said in the beginning there isn't one silver bullet or model that is winning. I can say there is definitely a market forming, and in some ways, if you look for example at BCG Digital Ventures, they seem to have cracked one model that kind of works in a really limited context of super big companies which have a very high budget, room to experiment, and they actually throw in a lot of money there, hire the best people, and have this assembly line approach.
What we believe, what we want to make is a more entrepreneurial model that in some ways is definitely systematizing entrepreneurship and will not be a model that causes 100% of ventures to succeed, but we do believe there is room for another type of entrepreneurship that utilizes the assets that are currently available in big companies or research institutions.
There are a lot of assets there that can't be utilized in traditional entrepreneurship, where there is just one entrepreneur with super limited resources. They can never defrost a lot of markets, which just require a lot more assets.
This is where we see potential not only for successful business but also for solving the world's biggest problems in impact entrepreneurship, because many of those problems are such that they just can't be solved with a super niche approach that is almost required when you do it the traditional entrepreneurship way.
Andries De Vos: What kind of entrepreneurs thrive in venture companies and in the "venture as service" business model? Are those entrepreneurs similar to the ones that venture out on their own or is it a different type of talent?
Marko Oksanen: Our long-term vision and focus is definitely to solve big, impactful problems together with the assets of corporates. That's where we see potential and our long-term focus is to get there and work together in creating new type of ventures, companies that aren't companies that could be created by sole entrepreneurs.
Then again, our more short-term focus and what guides us now is actually the supply side, how we build are team and so on. We believe that none of our entrepreneurs in residence right now are Elon Musks or super qualified entrepreneurs with billions from exits. We don't believe we can attract this kind of superstars to work with us from the beginning.
What is interesting is that if entrepreneurship skill set is just a skill set, there is no reason why we couldn't work together and create a team of entrepreneurs, share information with each other that could become really powerful. Together we could be some of the best entrepreneurs in the world.
Building this skill set and then creating a market for it, finding how to utilize that in consulting projects in the beginning, but also taking bigger and bigger steps and actually building ventures - that's the more short-term or mid-term focus.
Definitely, in all our projects we consider the impact aspect as well, and we're willing to work harder to build those projects, but we do think that the supply side needs to be built first. We need to be a maybe 10-12 people company with many good entrepreneurs and product managers who have the required talent before we can start building actually big things.
Andries De Vos: What is your ideal team configuration, skill mix for Coventures as a company and for your projects?
Marko Oksanen: The ideal configuration, in my point of view, is that we would be mostly entrepreneurs, people, who have built companies before and who know the craft of building digital product in a smart way. So, it would be people with background in product management and entrepreneurship.
In terms of whether we'll be a platform for entrepreneurship, enabling independent entrepreneurs to create value or if we'll hire people so they will be employees, that doesn't really matter that much for us. We believe that we can actually also work in a platform way, where we are a more loose company and not necessarily have those entrepreneurs as employees, but just have them working as a team, as long as we create a coherent culture.
Andries De Vos: How do you incentivize venture builders inside your team?
Marko Oksanen: To be honest, some parts of the model are still open and I think it's on my to-do list to complete by the end of the year to get to the next step of the model on how to incentivize.
There are a lot of things we can work with. One, obviously, is that when we build ventures together, the people building the ventures can be equity incentivized from the venture. Of course, we can share the equity pool of our own company as well, but does it matter if there is still a question mark over what kind of company we will become? Will we become platform based model and employee based model? There are a lot of non equity-related things we can offer that are of value, which we have identified already. That is, if you think of yourself as a sole entrepreneur or product manager with background and skills, and maybe you don't want to found a startup right now, we offer a lot of things. We have our brand, peers support network, we have built an advisory network, we have deliberate partners so we don't actually employ any developers or designers but we have partnerships where we can definitely get the best talent whenever required.
So, you get a lot of benefits, you can get into bigger projects. Obviously, we will also need to make a cut from that, but overall the equation looks pretty good, it's pretty easy to crack win-win situations.
One of the biggest reasons many entrepreneurs have decided to work with us is the community. We also want to recruit people, be it contractors or employees, who actually believe in the mission and the vision we have.
These are people who want to solve big problems, they want to be part of the 20-people entrepreneur group that becomes more powerful together than sole entrepreneurs and gets synergy, so maybe in 10 years we can be as good as the most skillful sole entrepreneurs out there.