Emanuele Levi (360 Capital Partners): Our history of finding successful companies that we have been able to support since their very early days and have worked with for many years speaks for itself
08 Oct, 2021
Christian Lassonde is Managing Partner at Impression Ventures. He is a tech founder and CEO, having built and sold Virtual Greats, a luxury online IP rights broker, and Millions of Us, a digital agency. He has also taught high-growth technology entrepreneurship at The Next 36 to over 30 companies. He spent a decade in San Francisco selling and building software for Second Life, LucasArts, and Electronic Arts to customers Sony, Nike, Warner Brothers, General Motors, Coke, Intel, and many more Fortune 500 companies.
I am 4 times a founder and a software developer by training. I’ve spent 10 years in the Bay area where I’ve built 2 out of those 4 companies and raised pretty good venture capital at the time. Then I moved back to Toronto and had my “unemployed years” which weren’t really unemployed – I kept myself busy. I was looking for the next thing. Then I realized that the scars I had from building my startups were pretty useful and helping for other founders to build their startups. I’ve married that experience with the capital and that’s how Impression Ventures has started.
I can’t say that something surprised me too much. The only thing, maybe, is how far and too often we come across deals where the other VCs have done absolutely none, zero work to understand how the business works, how it operates, and the potential leverage point of that business. It’s not the majority of VCs, for sure, but even if there is a minority of VCs, it’s still a big surprise.
I would say none of our startups is really exotic – we’re focused on early-stage FinTech startups, largely aiming at the G7 economies or countries like Australia, that are not G7, but its economic model is pretty much similar. We marry our experience with the capital and we don’t do many deals a year. We’re going to high conviction deals and deploy a lot of capital, so we do 2-3 deals a year. And financial-sector tend to reward exotic startups. Still, our startups cover everything from InsureTech to Bank Regulatory tech to KYC/AML to alternative mortgage products – everything that consumers or businesses need with the financial sector.
We’ve done about 15 deals during the last 8 years. Those are pretty well split between ⅓ coming from our network and ⅓ just reached us out from pitch days, events, sites like LinkedIn, Crunchbase, or Unicorn Nest, etc. And ⅓ came from us actively searching for startups in specific sectors, where we were scouting for a startup with specific characteristics. It’s not exactly equally split but close to.
In the last year, 2020, we reviewed almost 850 deals. About 100-150 came through the first filter.
“Never” is a strong word. I’ll give you an example. We made an investment in a company called FlexPay in 2019. It’s in the payments space, it focuses on helping small businesses to recover failed credit card transactions. It’s a great business. Prior to FlexPay, I would have easily said to you that we would never have done investment in the Payment space. My logic behind that was that it was billions gone into payments and I didn’t see the line of exciting fintech startups within the Payment space in 2019. Then FlexPay comes across your desk and they’re working in a small, but actually, quite a large niche within the Payment space that really none of the big players is disrupting. And here we are – investing in Payment space, despite my predisposition against that space. So there are still some interesting startups on the edges or the fringes of some of those very very very large spaces that are really attractive. There’s no area within FinTech that I would not invest in. It’s better to say that there are certain sectors that describe themselves as FinTech, but we don’t consider them being such, like non-payment software that sells to banks, like HR software that’s primarily designed for banking employees, and so on. But our definition of FinTech is dealing with payment or transfer of money in software fashion, not the HR for banks or something like that.
We reserve about half of our fund for follow-on financing. We almost always invest at round B. Beyond that round, we syndicate all our LPs that then are largely taking up all of our subscription rights in those follow-up rounds.
My partner, I, and our team have built expertise within the G7 financial services sector – how is insurance sold, how is purchase regulated and underwritten (replace the word “insurance” with “baking,” “lending,” or “credit card,” etc.). This is obviously a multi-trillion-dollar market. We don’t see a lot of desire and need to move outside of that, so we will stay away from financial markets that operate under a different set of rules.
The fastest it ever happened from term-sheet to funds wired was 6 weeks, I think. The more typical time frame is 10 to 12 weeks. We have a fairly involved due diligence process – we question background, make reference calls, etc. And it’s done pretty quickly from the other side, but we are almost always waiting on the founders to return information 90% of this time. We strive to operate efficiently and as quickly as possible. Still, when you’re dealing with businesses that are regulated, there is a fair amount of due diligence that needs to occur.
As our minimum track size is million dollars and typical is $1.5-2M, we’re looking for businesses raising more than $1M. We get a lot of requests from companies doing pre-seed rounds, but those are just too small businesses for us (still we talk to some of those businesses about our involvement in later rounds). We’re looking for businesses that have built version 1 of their technology, which works, and they had acquired their first customer. That is our most typical entry point. Obviously, there’s a normal distribution around that, so we do a little bit earlier or a little bit later stages. We only lead or co-lead deals. Part of this thesis comes from my time as a founder: we insist on extremely clean timesheets, extremely clean corporate documents, etc. We’re long-time investors, we want terms within the businesses that create long-term shareholder value, we don’t want any financial instruments in the term sheets, we’re allergic to financial engineering and non-standard terms, and we want all other investors to come as clear as possible. We want to help to build his businesses and set them to success.
Disrupting financial services вoes require a fair bit of knowledge of the service you try to disrupt. There is quite a number of immediate university graduates who started, sometimes while still in university, their attempts in disrupting capital markets or bond trading and failed. It takes a really deep understanding of the market structure in FinTech to be a success. There is an exception in every rule, and we’re open to those exceptions, but we’re typically looking for a founding team that has a strong background and history in the market and has a strong technical team with them. So we look for both the fin founder and a tech founder to be in place. But we’ve invested in solo founders, we’ve invested in teams of 3-4 founders. I think a good test is if, after the first pitch, I get the sense that I understand the financial space they try to disrupt better than they do, they’re not a good team for us. I need to learn something in a call.
Neither. By all accounts, Steve Jobs was a hell of a character. Steve Wozniak seems really nice, but he, maybe, back then had that hunger and drive to build something massive. I don’t think that we would select one or the other; the best description is we stay away from the extremes.
Chuck Norris? I guess I would invest in him.
Yes, absolutely. In fact, our last investment is a solo founder and we have several others. This last investment is an exceptional entrepreneur and he had a small team around him that he put together with the pre-seed finding that he raised. When he came to us, he had 5 or 6 people already, but it was really built on his knowledge of the business.
Probably, the biggest red flag is no clear monetization plan. And this is where FinTech differs a little bit from other B2B and B2C businesses – there’s a strong case for building high engage user platform, getting users engaged, and then monetize them. In FinTech, where you’re handling a payment or money transfer in some fashion, if you can’t monetize on a transaction, you have no business, and a red flag is a business philosophy that has no monetization plan from Day 1 because if you don’t have that on the Day 1, you won’t definitely have it on the Day 10,000. Another red flag is no understanding of the regulatory framework they’re trying to operate in. It usually happens with more traditional tech founders who are dismissed or regulatory environments. That might work in lightly regulated or unregulated businesses, but not in finance: we have strong consumer protection, strong investor protection within FinTech services space, you can’t disregard them. That’s another massive red flag. These red flags are really built around if are you really cognizant of how financial services work.
We talk to our founders weekly after investment, we look to spend the time with them both to help them strategically and tactically, trying to help them work through market issues and branding issues, like consolidation of brands vs building a new one – it’s a very tactical decision. We’re helping them to hire and interview. We’re trying to teach the startup how to become self-sustainable on these things, but happy to provide training is some of the areas where they may have little experience. We make 2-3 investments a year to have the time, as a team, to spend on working with founders and help them accelerate their businesses.
We are pretty happy with the 18 months of runway. We’ve done investments where the runway was shorter than that. We as a group are deemed to be the appropriate metrics to be able to raise the next round, and if the acceleration in the growth of the business is there and we feel very strongly that we can do it in 9 months, for example, then 12-months runway is more than fine. If a business is going to take a lot longer to get off the ground, 24 months may be a more appropriate number. So 18 months is a safe number and then we have to go up and down based on the rate of growth to hit the metrics.
We don’t have targets. In largely because I think, comes from our backgrounds as founders: we are here to build really impressive businesses. We’re not exit-abscessed, not exit-focused.
We put a fair bit of cash in, so we ask for 10 to 20% of a business, average it’s around 15% at seed level.
No. There are, certainly, businesses that we have passed on and have seen growing to be successful, and I’m really happy for them. I’m not at all bothered or upset, because we made our decisions based on the information we have at the time. I truly want the best for people.
Like everyone else, we’ve had to go to Zoom meetings. We’ve done 2 deals now, which part of the course, exactly on target, where we’ve never met the founders in person. I think we have just as good a relationship as we do with our other teams, when we met them in person. I do look forward to going back to things as normal, whatever that means, like travelling again and seeing teams in person. Humans are social animals, and I’m looking forward to breaking bread with them in person and spending that time, but we’ve had a shift to online only, but we’re always a partially virtual team, so that wasn’t that big shift for us.
For FinTech, and I’ve been saying it since August of last year, if you didn’t hit your market during COVID, you never will. We’ve seen 5-years acceleration in FinTech during the last 9 months. For sure, some sectors took a big hit, like travel medical insurance or ‘buy now pay later” for travel services and other sectors where fintech is overlapped with travel and leisure.
In 2008 the crisis was centered on the financial services world, and financial and non-financial businesses, banks, insurance companies tried to do anything other than bankrupting out. We see the exact opposite in this crisis: it was not caused by the financial services industry. Despite the sector was hit initially, in North America and other jurisdictions governments issued injections of capital for people through the relief bills, and the monetary system was washed with a lot of capital. But people refused to go to the bank branches, so it was a massive shift into online services. The same was with insurance products that were always sold on paper and now are sold digitally. It was a massive acceleration and introduction of new financial technologies – very very different from 2008. It’s much harder to compare this crisis with Dot.com, because there was nothing behind those business plans – just a domain name and an Excel spreadsheet that show revenue going up to the right. That was a completely different crisis.
I am a voracious Twitter reader, it’s a great first line of info. Sometimes it’s even too much coming in. Then I use Apple News, I read Business Insider, The Economist, Financial Post, Wall Street Journal – all these publications are focused on business, and financial services take up a big chunk of that. I’m a voracious reader when it comes to publications focused on FinTech. And I almost forgot Bloomberg, which I read multiple times every day!
Probably, on the top of my list, it would be PayPal. Plaid is the second one, it does a lot of interesting breakthrough fintech. And the third one would be SoFi – only because they were very early lenders that really disrupted a whole category. But there’s a whole bunch of others, like Robin Hood – another super interesting company that has changed the game in the capital markets space either for good or bad. The list can go on, but I stop at 4 of these.
Theranos is the first one to cross my mind, but it wasn’t FinTech. You can always name a couple of different cryptocurrencies, e-coins, marketplaces – and we will see more in the years to come.
Oh, that was a big one!
I think this is where those of us who are steeped in the financial services sector is very dubious about the future of cryptocurrencies. At the end of the day, cryptocurrencies and Bitcoin, in particular, are great for all to buy goods online anonymously where you don’t want the government tracking you. There have been desperate attempts by the cryptocurrency space to drive other adoptions, to claim that it is really useful to do things other than that, to be an easier way to pay for things everywhere else, outside G7 economies, because other jurisdictions have their payment platforms. To me, it just appears speculative. I’m trying to preach that I’m right on everything, I try to preach that I’m right on investments that I’ve made.
The number one quality is that you have to understand: it’s not about you – it’s about the founders and their teams. You’re there to help them build their businesses – nothing more, nothing less. I think the rise of the celebrity VC is completely counterproductive over the long term.
I don’t think it’s any of those, because all those games have a winner and a loser, and you play the game to beat somebody else. It’s actually more like Solitaire – you play it not to beat somebody else, but to help them create a big impressive business. Therefore it may be best described as one-player chess ( I don’t know how to play that!), but it’s not about beating the other side – it is about strengthening your side to come up with the best possible outcome.
What I do and I don’t see myself changing that anytime soon if ever. I don’t know anything that would be more enjoyable, more fulfilling. I like working with teams and hearing from them that I was helpful, that I was able to drive their businesses forward and drive them forward individually. I get a lot of personal satisfaction from that and I can’t see myself doing something else. Unless I start really fail in that. But for the moment I seem to be well mashed from a skills perspective to the personal fulfillment perspective.
Focus. Founders’ job is to see possibility everywhere and go after it, but lack of focus is killed more startups than anyone can count. The hardest thing to do is ruthless prioritization, and the focus is the one thing that will have the highest potential outcome for success. I find myself often times helping the founders the most by telling them to stop doing things, to stop trying to be all things to all people, and focus on the smallest functional set that drives the most amount of value.
I don’t think I have one. I’ll go with France only because my family is originally from France, but I love them all equally for various reasons.