Tom Kelly (IDEO and Design for Ventures): We have a team of venture capitalists in the startup community in Japan all the time and we are always looking for things.
20 Nov, 2020
Alain Dib is Founder & CEO at Knuru Capital. He has 25 years of experience in Investment Banking, Capital Markets, Private Equity and Venture Capital. He has held senior positions with Deutsche Bank and BNP Paribas across multiple asset classes and more recently was COO/CIO of Waha Capital.
I’ve been in investment banking and private equity all my career, doing leveraged buyout, financing leveraged buyout. I decided to go into into VC because my latest investment, when I was a CIO in an open investment company Waha Capital, was a tech company. I decided that was very successful investment. I decided to partner with the founder of that company to launch Knuru Capital.
I would say that somehow it is the nature of the startups, in which we invest, to be unusual, because they are coming with some degree of innovation, tend to be in on usual.
A lot, probably 250-300 that would go through our desk. Obviously, a lot of them we will review pretty quickly and decide whether they are for us or not, there is like a funnel. The ones that we select, go through the second funnel, where we have discussions with the founders, with the management teams, and then, from that first discussion, we decide to move even further to the next level, where we do further due diligence.
We do both, we have inbound and outbound. We are a recent fund, so we’ve been around for a little bit more than a year, but now we’re getting to be known more and more. At the beginning it was more outbound efforts, now we’re getting increasing amount of inbound applications. Still we continue to drive our own pipeline, diving into themes or sectors we like particularly. If we decide to approach a company, we do it directly: we can simply cold-call a company and ask for a call or information. Of course, there are some advisors that come to us: some companies approach us directly, others go to advisors. And we do pretty much the same.
When you are investing, you can find the great companies, but at the end of the day you have to be humble enough to understand that the people that are going to invest into, the founders and the team around the founder are those who can make your investment either a great success or a total failure. And for us the #1 criteria is the people, the quality of the team, their energy and resilience. To have some previous experience is also a big plus, whether is this experience was a success or failure. Not that we wouldn’t backup a first timer, but previous experience of having creating companies and startups is very good. We like serial entrepreneurs. Also we like very much the mature approach. We prefer people who are not only focusing on topline growth at any cost, but those who are pretty well rounded, who look at all the parameters and are very credible in the way they look at economic and the path to profitability. That is very important for us. We tend to invest in companies that have, I would call it, an unfair advantage, something that gives them an edge, for example, because they are in a certain country that favors what they’re doing and they can build a global player from there. This may be not only the recipe to success, but the barrier to entry. It is not like choosing among 6 completely the same companies, it’s more about the uniqueness either in product or environment.
We’re sector agnostic, but we have our preferred verticals. Those are FinTech, SaaS, which is not a vertical, but a model, and HeathTech.
We are global, but I would say that we are interested in relatively underserved markets, we believe we can serve. Those are Africa, Middle East and Southern Europe. Those are our regions.
It varies a lot. The reason why we are proactive and tend to be more outbound is that we want to have a relationship with a company and with the founders early on, before even there is the question of investment arise. We like to build that relationships with a company for a while and be sort of ready mentally, before the company decides to raise a new round. This is ideal for us – to spend all this time to decide that this is a company we want to invest in. When the time comes to actually invest, wу make financial and legal due diligence and come to the closing. That’s an ideal scenario, and it could take time, because they may be not raising for a year or more. But generally, from first discussion to closing a deal, it really takes less than 2 months. All those meetings, and following the company, and legal due diligence is going to take time.
We prefer to enter at the post-revenue stage, and we’re rarely looking at pre-revenue companies. Depending on the region where you invest, stages might have different names depending on the size of the round and even stage of development of the company. For the Middle East, we enter at a kind of late Series A through Series B to early Series C.
When we look at a transaction, we try to consider 2 criteria: what is the conservative case that we are underwriting and what is the upside. If everything goes well, if the stars align, how much can we make? Generally speaking, we like to have close to 10x at the upside. On a conservative base we got a present to our investment committee, it is going to be more around 4x.
For us, we don’t want to be just a number in the capital structure. This is not out of ego – it’s simply because we want to invest in companies where we are relevant and can contribute to a company, where we can add value and finance. If you own 1%, it is going to be difficult to justify. Of course, when you want to help a certain company, any percentage would do. Still an ideal steak would be between 5% and 15%.
I should mention one thing that’s important, but this is not really a quality: we want to invest in companies where we have good chemistry with the founders. And you will feel it very quickly. If there is no chemistry between us, there is no point to cooperate. Chemistry is very important because this is when you feel that you can work together. It’s really like a marriage: you going to be together for years, through the downs and ups. You need to be sure that you can work together effectively and constructively, whether you have successes or difficulties, stresses, failures, etc. Sometimes you meet a good businesses, but you realise you have no chemistry with the founder. This is the most important criteria. Another important thing is you meet the founder for the first time, you want to see that he has a clear purpose, that he has a reason why he’s doing what he’s doing, does he have very clear ideas of his vision, where he is going and why he’s going there. For us, personally, it is very important to be with very transparent people, who are not selling you their company, but tell you the reality, and you sense it. The rest is the common qualities you want to see: drive, energy, resilience, etc.
The funny thing is that, despite we try never do it, right now we are in the situation where we are going to support a company which is, basically, a one man show. It’s not a team of founders, but one man who is a driving force and a team of very good people working for him. But it’s clear that if he was not there, the company would not survive. Of course, there is a risk, but we are taking it, because it’s a very mature founder who understands that as he grows, very quickly, he will need to reinforce his team at the top level. That’s why we believe in his vision, we believe in his business, and that’s the risk we take. At the end of the day, it’s always risk. We don’t have a policy, we do or we don’t do. We just put it on the balance – the risk and the mitigation, and if it is unbalanced, it doesn’t make sense.
I think, this is exactly where you need to have both of them. You can start with Steve Jobs, but then you will have to hire Steve Wozniak.
The first one is clearly a founder who is lacking transparency. We don’t invest when a founder is not realistic and lacking clarity in the vision. Another important red flag is the founder who is motivated by quick money, who’s talking about exit and exit valuation at the very beginning, Money shouldn’t be the main motivation to approach a problem.
Of course. I think, it’s a part of the game. If an investor tells you that he always rejects only bad deals, he isn’t open with you.
One is BioTech. It’s a great industry, but Rule #1 of investing is to understand what you’re doing. If you don’t understand it, then you shouldn’t do it. It’s not a casino, it’s not spray and pray. So we know this is not our speciality, this is not something we can easily get an expertise on, and I think, it’s something you need to do in quantity in order to be able to invest. It’s such a special sector that you wouldn’t do it. We don’t do also hardware, for example, Robotics. It is very interesting, but, again, we don’t know these things well enough and we think they carry too much risk for us.
No. Well, I wouldn’t say that the approach to investment and our methodology have not changed at all, but already before the crisis we were very much focused on cash flow, profitability and unit economics. This situation of the crisis has either reinforced the message or helped some people to discover this new world and realize that people and cash are actually important, that to accelerate your path to profitability is important. But for us it’s always been a focus, so I wouldn’t say that the current COVID-19 situation has changed anything.
I think, if you are in our industry, in the digital kind of industry, it is clear that, if there is something that COVID has changed, it сreated even more opportunities for a number of companies; think of E-commerce, or HealthTech, for example. It accelerated the move towards digitisation. It’s clearly an opportunity in our sector, it’s a blessing for people who have invested before COVID and a blessing for people who continue to invest now. There is one more impact we don’t necessarily see now, but I think that there will be some effect on the size of the rounds and the valuation of companies, and I hope investors will be more humble for a while.
Be ambitious. Be humble. And be open.
Google comes to mind first, of course. It has changed the world, clearly. Another one is Amazon. Again I’m pushing on an open door, but it’s obvious that those companies are changing the world as we know it. The third one that is coming to mind is the one that is connected the most people in the world, and that is Facebook. These 3 has marked history and we will remember them forever.
Obviously, I’m happy with what I’m doing now, especially that it’s something that haven’t started a long time ago. I’m still very excited and looking forward to it continuing over a long time.
I would say, it’s Bridge. It’s strategic, and you have to make educated guesses. Bridge involves a lot of calculation: you observe the cards that are going through the game and then you make educated guesses basing on the probabilistic approach. So I’m taking Bridge.