Ashesh Shah (The London Fund): Be Brave!
20 Jan, 2022
Arnaud van der Wyck is General Partner at Concrete Venture Capital. He is a specialist in identifying, creating and developing cross border relationships, investment opportunities and go to market solutions for investors and entrepreneurs with a passion for Environment Social and Governance (ESG). He started his career as an investment banker in London at S.G. Warburg and later SBC Warburg and then UBS with a focus on M&A and capital markets within the Telecoms, Technology and Media sector team. He then spent 10 years as the managing Partner of Capital Alliance Partners advising institutional investors and family offices on real estate private equity funds.
I joined the VC world because my background has been in finance and real estate, and VC was something I’ve always wanted to do from the very start of my career. When I started 20 years ago, the VC market was, I would say, in its infancy. There wasn’t a lot of room for a junior-type analyst or associate roles. To be an effective VC you needed to be quite mature in terms of your network experience. Having been an investment banker, having been an entrepreneur, and having spent a lot of time in the real estate private equity market, I joined Sway Ventures in the US about 8 years ago, focused on FinTech and PropTech (but we’re also invested in various other verticals). And I joined Concrete Ventures about a year ago to focus on another geography where my network is the strongest in Europe. I focus on PropTech: it is kind of a crossover of FinTech and Real Estate – a perfect fit for me personally.
I would say, probably, it is that there’s such a large discrepancy between innovation within larger organizations and the venture capital world, which is 100% focused on innovation. Ultimately you’re building innovation outside of those groups to then sell it to those groups as your customer. And what surprised me was that the gap was that big and still remains quite big. If you think about it, it’s quite logical that there’s very little innovation happening within large organizations and a lot of that is taking place outside them. VC serves as an external resource that large organizations use to bolster their innovative strategies.
We invested in a company that develops a smart mattress. If you think that your mattress would be very standard and non-technical, think twice! If you’re digging into it, if you look at the sleep data that’s out there, you find that sleep is obviously a very important part of how people feel during their awake time. Analyzing how people sleep and why they sleep well or don’t sleep well, a lot of it has to do with a mattress and the comfort but also with the temperature. I never thought that there were that many statistics that you can actually generate through a mattress. The company we invested in, is from the US and called Eight Sleep. It does very successfully and is, probably, the leading smart mattress company in the world. It’s almost making you a coffee!
They’ve just announced in the SPAC which turns them into a unicorn. My partner Taylor invests in that through personal connections. I have known about Matterport for many years. It became pretty much the standard when it comes to the internal scanning of residential properties and used as a tool by agents for buyers and sellers to get a better view and understanding of the properties they are buying. Certainly now, with COVID, being able to sell a house remotely, taking out the human component with a helping technology like this, is a huge advance for sellers. They started as a camera business training and very quickly became more of a software business with the camera became less of a core component of their business. They still have a very expensive, very high-resolution camera they sell, but you can also take pictures with iPhone and other less expensive cameras. It is the way to very accurately and quickly measure the inside of your building, of your apartment, of your house, which has lots of advantages when it comes to not only the visual aspects but also about insurance, underwriting, making sure you get the specs of the house correct. It was published that it is 10 to 15% delta in what being underwritten and the real measurements of a property. And a data that you receive provides other opportunities for other business models.
It’s a number of ways. There are references from other entrepreneurs, from other VCs that are not focused on Real Estate but understand the value that we can deliver, giving our Real Estate focus and the partnerships that we have with some of the leading real estate groups around the world. Some startups find us directly just by scouting the market for investors in a very specific niche. If you Google “leading real estate venture capital investors” you’re going to find us. Once you find us you’ll see who our partners are and realize that we could be a very good fit not only as a money source but helping them scale by leveraging our relationships and ecosystem.
Probably, 400-500. About 20% pass the first filter, the shortlist is probably 2%, and we invest in maybe 0.5%. We’ve invested in 15 and we’re evaluated over 2000 by now.
We are interested in PropTech, in everything to do with a built environment – anywhere where you’re living or working falls within our focus.
Outside of real estate? Hardware. I like a lot of hardware solutions, but we will never invest in Hardwire – it’s a different business model.
Definitely a show at the stage that we invest in. And I wouldn’t name it a show but we’re investing in people, so the ability for someone to communicate their business and the opportunity – that’s a key. You’re investing in someone’s idea but then you’re investing in the person. It is important for us to see what the product-market fit is, so we have to get a better understanding if that business can scale, giving the team and the idea.
The quickest is probably a month, usually, it’s 3 months. More typically, we follow companies at an early stage, so we meet them when they’re seed companies and follow them and stay in touch. More often, we have known them for 6 months to a year before we even get into the process.
It’s anywhere between $100k and $3M. We invest at the seed stage as well, and it’s up to $500k in seeds and anywhere between $500k to $3M in Series A.
As I mentioned, it’s very much team-focused. It has to do with is it a fit for the pain points that we have identified in the real estate market with the focus of our partners. We have partners in the construction space, in the retail space, in the asset management space, and we very much understand what their pain points are, so we try to map and identify solutions that help address that pain points. Once we see a solution addressing those pain points, the addressed market is large enough, and the team, we believe, can grow and scale the business that we like, that’s kind of the first level of analysis for us.
Ideally, we’re looking for someone who’s been a successful entrepreneur before, who has a maturity of having been through a startup process before. In Europe, it’s harder to find them than in the US. We’re looking for an idea that is born from a real identified problem, a problem that has been identified while they were working within the industry. You don’t see tech entrepreneurs that have a real estate background too often. It’s really more of an art than a science, it’s really bringing together an idea, an entrepreneur that has a certain maturity in terms of understanding the problem set that he is addressing and how he puts together a solution, how is he able to explain and vocalize that problem set. And you need to have an entrepreneur who is able to build a team around and grow a business together. It’s a skill set which either is proven by someone who’s older or is something you need to recognize in someone who is younger by having been an investor for a period of time and followed people with the search type of character and skill set. This is a high-risk game, and our job is to de-risk an investment as much as possible using our experience and network.
That’s an example of a great team – one of them potentially would not have been successful without the other. Steve Jobs is certainly the visionary, and you need to also execute and have the technical abilities and skills to build and develop a product. And respect parties, by the way. In a hardware company like that you need to attract both types of peoples. Me myself – not comparing myself to him – am certainly more Steve Jobs: I’m more of an idea and I’m not a technical hardware guy. Long answer short: probably, Steve Jobs.
We have lots of red flags. It’s very easy within one conversation to understand is it a fit for us: it needs to be stage-appropriate, we need to have a click with a team, it needs to be a cultural fit. Someone who’s rude and thinks that he knows it all in the first conversation is the biggest red flag. Although it’s funny enough that a lot of very successful companies’ CEOs meet that description, so that’s not the key to success – to invest only in good and nice people. If a person is confrontational and makes you feel uneasy, it may be a sign of good CEO as well.
We’re very hands-on and we feel that the real work starts after we invest. We have a very proactive value-added approach. The reason why we invest in companies is not only what we think if the company can deliver financial and strategic returns for partners, but we want to feel that we can leverage our network and ecosystems to help augment, if not multiply, their growth. We’re looking at 3 main things where we may add value – product, capital, and revenue.
I would say it’s not being ready, not having answers to the very simple questions, not understanding your client base well, not understanding your product-market fit. This is more related to earlier-stage companies. Entrepreneurs may also focus on high valuations very early on not realizing that the valuations are quite theoretical until you have an exit. That’s another mistake we often see.
That’s 3x across the portfolio. You can have 100x, or 50x on 3 or 4 of those companies, a couple of 10xs, then we have a lot of write-offs, etc. The bend of those is 3x, and this is our target.
It depends upon when you’re investing. If you’re a lead investor, you should be looking at taking double-digit ownership, anywhere between 10 and 20%.
Always. Many times.
You learn more from unsuccessful investments, for sure. You learn that the team is very important because the team can make you understand that you need to pivot, you need to be flexible, you need to address whatever the problem is, you need to put your ego aside – that’s the key.
No, I wouldn’t say “changed,” I would say paused a little bit. There is a lot of areas where we just don’t know what’s going to happen if people will come back to the market. It’s hard to predict what’s going to happen. We have 3-4-5 different scenarios and we feel confident about one or two of those scenarios. We’re a little hesitant to invest in some areas right now until we have a clearer picture of what’s going to happen – it’s going to take another year after COVID to get this clearer picture. Other areas have deepened our conviction: when it comes to anything that’s remote working or flexible leasing, we’re more convinced that this is going to be a driver in the future.
It’s both. It can be a threat to existing portfolio companies that are focused on areas which are negatively impacted. Likewise it can be an opportunity for areas which either are in trouble and those companies bring solutions or just benefit from the situation. For example, for asset management, because residential is coming out of COVID looking really good. Before COVID there was a very small shift towards residential and now that shift is accelerating within lots of different investment groups. And technology which is allowing those groups to access that specific asset class in a much more efficient consolidated way will benefit as well.
If you consider Apple a startup, Microsoft a startup, Google a startup – those three.
You need a good network and ecosystem so you need to have senior partners that have experience as an entrepreneur, having a walk in the shoes of the companies that we’re investing in. You need to understand how hard it is to build companies from scratch. You need to have, I think, industry experience if not the founding partners or general partners of a VC fund have surrounded yourselves by enough industry experts to provide good frameworks and good depth of knowledge to make the right investment decisions in the sector. You need to have some financial expertise and background. And ultimately you need to have investment expertise and be able to identify the winners. A lot of these have to do with people, and you need good people skills. You can have 10 companies addressing a similar problem in the same competitive landscape, but ultimately you’re making a bet on people. It is a macro view as well as the micro view.
It’s definitely not chess. It’s much more like backgammon – it is a lot of luck involved.
I’m very happy with where I am.
Don’t give up. Keep ongoing. Make sure you have a reality check and someone who can do reality checks on the way – in terms of everything. You need a lot of resources and a lot of advisors to help you think about all the different things, like valuations or product-market fit. Be very open to external input and then you need to have a very strong conviction about where are you going and stick to the path and keep ongoing.