Kai Chen (OceanIQ Capital): Investing is the ability to participate in the success of an entrepreneur without being in the trenches
28 Sep, 2021
Augustin Sayer is started his career in finance in NYC: first as an M&A analyst at Lazard Frères, then as a Private Equity associate at Colony Capital. Most recently, he started Rescata, a mobile refurbushing company in Mexico, opening 30+ stores in 12 months. Augustin got his BA at New York University and MBA at London Business School. His vision: a World where consumers placed ahead of shareholders will always benefit will always benefit shareholders in long run.
How did you become an investor?
My first encounter with investing was right after the university. I worked in a bank, in M&A, and after two years there it was a natural evolution to move to a private equity or hedge fund. So, when I was 25, I joined a private equity in New York. And it was the time I became an actual investor. After a few years I became a venture capital investor, which is a little different challenge. I decided to start my own company. So I started my business, raised money, hired people, made sales – and in two years I exited, I sold my business. Yet I realized that being an entrepreneur, being focused on only one subject at a time is not what I want to do in life. Maybe, because of my early years, when I worked on several projects simultaneously. But I realized I need more diversity in areas, in subjects. And I was already an entrepreneur, was a private equity investor. If so, why not to become a VC investor? I emailed most of VC funds in Paris (I’m a French-American) and I got something like 20 invitations to interviews. That way I found a job with a VC fund I’m still working in.
I was born in New York, grew up there. When I was 29, I went to Mexico-City to visit a friend from NY, who moved there 3 years before and started there two businesses. I came there and was amazed not only by a cultural aspect – the weather, great food, different language – but by emerging middle class there, who needed services. The percentwise middle class in Mexico resembled those of Costa Rica or Chili, yet the market was craving new services. And I also witnessed a lot of westerners – people from Europe, USA, Canada – who moved to Mexico and copy-pasted businesses from their local markets, trying to copycat Amazon, Casper, all those types of businesses. And I thought, “Why not me? I can do that as well.” So there was a company in France at the time named “Save My Smartphone,” that repaired smartphones in malls and raised 17m Euro. I repaired phones myself when I was in high school and college, so I thought that I may turn my passion into a business. So I partnered my friend, we raised $125000, opened 2 stores; within 5 weeks those stores became profitable. Then we raise $1m, and so it all started.
And do you like where you are now in terms of your current business situation? Or, maybe, you would like to try something new to apply you knowledge and ideas to?
For 2 years I was repairing phones. And it wasn’t really me doing this. As I was responsible for operations, I opened stores, closed stores, hired people, fired people – and it was that intellectually stimulating, as I thought it would be. Particularly, maybe, because we had a lot of problems with operations, we weren’t growing as fast as we hoped, we weren’t hiring right people to take over what we do on daily basis. So when I joined Newfund, I craved everyday meeting different entrepreneurs pitching me, presenting me new crazy ideas. One day a guy comes telling me he’s going to produce polyester with CO2 and afternoon I meet a person making a marketplace connecting electronics suppliers with electronic vendors, the next day it is someone who wants to make electric motorcycle. All these different ideas I listen to every day – and I cannot be more satisfied then in the position I am right now. I really love my job, I don’t even think about Mondays and Fridays anymore. I’ve found a career I’m passionate, and I do believe in passion and hard work to be successful. I’m doing this for 3 years now, we had ups and downs with deals we made, but I’m really looking forward.
How you select ideas to support ? What are your criteria? And what industries you’re interested in?
We are French-American VC fund, we have offices in SF (3 people) and Paris (7 people). About ⅓ of our deals is in the US and ⅔ of our deals are based in Paris. We do not invest in France-oriented businesses. We are looking for those based in France, but with ambition to be all over Europe, all way from Spain to Russia. We just don’t think that Franco-French business will be sufficient in terms of market size to be interesting enough for potential expand. Also, we are a generalist fund, entrepreneur-focused. Many funds say that they are made by entrepreneurs for entrepreneurs, but we actually mean it! Whatever sector you are, we will look at you. Many funds say, “We only look at SaaS and marketplaces” – well, you’re not an entrepreneur-focused fund, if you only look at marketplaces, you’re a SaaS and marketplace entrepreneur fund. Also, all the investment directors in Newfund are former entrepreneurs, we all have experience in starting a company, raising money, hiring people, firing, maybe even exit. And the last thing. All our investors are our limited partners — family offices or ex-entrepreneurs whom we backed, who successfully exited and reinvested in Newfund. We have 0% of public subsidies. In France the BPE bank finances 60 or 70% of VC funds with 20 or 30% of AUM in those funds. It is a great thing, because BPI made it possible for the VC market in France to emerge, yet they will need to stop at some point. The negative thing is that BPI puts a lot of constraints on how you can use the capital. We have no constraints, so sometimes we back crazy projects. Our best investment was in a medical robot back in 2011 or 2012. Not a single VC fund would look onto that deal – hardware, too complicated, not even based in Paris. Four years later they IPOed.
We are a seed fund, investing in seeds or very small A’s. In France it means somewhere between 500,000 to 2m Euro and a small A is 2-4m Euro. That’s what we are looking for. Usually, we take 15-30% of a company we invest in, because we don’t want to be a fund giving money, but the one helping a company to grow and validate its products to the market. So in Newfund we have partners helping companies we invested in – marketing partners, accounting, finance and exit partners. They are all middle office, but their job is to call backed companies and propose help.
What a startup should have to propose to catch your attention?
At the seed stage it’s human fit. I need to have some fit with a person I’m talking to, because I will talk to that person the next 2 or 6 years. I’m not looking for someone as charming as me, I’m looking for someone who can listen, someone driven, someone hardworking. This is the #1. The #2 is, actually, a product and initial revenue. We are not expecting for a company to make a 1m Euro a year, but CEO has to be able to sell the product to someone he doesn’t know. So, even 1000 Euro a month is sufficient to catch my attention. The size of the market? We’re are not looking for a 1b people markets, because the entrepreneur will evolve, the product will evolve. What is also important is cap table. At the seed stage I want an entrepreneur who owns a vast majority of a company, between 75 and 95% of the shares. The correlation between the number of shares you hold and leaving your company prematurely is super negative, like -1. The less you have, the more likely you gonna leave at some point, saying, “I haven’t done much with the business, exit may be not even possible, and there is a nice opening in a big company.”
When you invest into a startup, how big is a check you usually sign?
The moment when they are already selling their product. I don’t care about how much, but if someone they don’t know personally opens a wallet and pays – it’s okay for us to enter. Only if it is something a too narrow niche, I won’t look at it, otherwise it’s okay. I invest to develop products and do growth hacking to increase revenues. I don’t want a person at the seed stage to take money and put it into marketing – it’s not the stage for the marketing. Seed stage is when you try to develop your product, try to find solid demand. About a check – one million Euro for 15-20% of the capital.
Investors like to work with teams. But have you ever supported a one-person startup?
Historically it was hard to finance a one-person “team,” because if such a person leaves, nothing is left. Recently we invested in a company called Avanseo – and it was a one-man show. The guy put a lot of money in his company, a kind of instant landing, based on financials. We had some question like should we invest, but we decided to take a risk. But we identified risks and decided, that we would keep a close look at the company and one of KPIs in the future would be somebody joining the firm on the sizable percentage of equity to be a sort of co-founder. It will increase the chances to rise to serious A.
What is your due diligence procedure and how long does the process take?
We have very light due diligence procedure. We do accounting due diligence ourselves. Another one is legal, it is done by a lawyer, but it is paid by the company. So the company pays for due diligence their lawyer (10,000 Euro), our lawyer (another 10,000 Euro), and it is normal for the industry, we have not much to check afterwards. Sometimes, when the product is too high-tech, we spend a couple thousands on professional opinion of independent experts. Actual due diligence we do in personal meetings with entrepreneurs, asking hundreds of questions.
How many startup projects do you review per year?
Newfund receives about 3000 a year, meet something like 1400. Out of those we want to invest in about 30 deals, but really do 20 deals. My statistics is pretty much the same, but I receive 500-600 decks a year.
What are the sources of all those applications/candidates?
Because we are an established fund in France, people naturally know about us, and emails on our corporate post is our #1 source. Also I try to go on TV every month or two months, write articles, give interviews to the press, participate at conferences. This morning I was a judge at a startup pitch show. This is a two-way road, because the number of startups are growing and their demand of money is growing as well. There are different types of investors: some look only on inbound, some only on outbound, some, like we are, use both sorts of sources. I try to do 50/50. And, yes, sometimes we share our inbound startups with others and they share with us. If, say, the deal is really interesting, but the check is too big for us, we call others and ask whether or not they want to participate. If we don’t like a deal, we may send it to another fund, but it isn’t a good thing, because if we don’t like it… A lot of times we send each other a trash.
How long does it take for you to cover the whole way from introducing to contract signing and check issuance?
Anywhere from 6 weeks to 4 months.
What qualities you are looking for in teams?
I want to see humans – people who have heads at their shoulders, who are mature. I want to see complementary profiles, people who complement each other – an engineer, a business guy and an operation guy. I rather don’t like seeing two business guys, but I don’t mind if there are two engineers, because today good engineers are much harder to come by while business people are much easier to hire. If I see too many business guys, I won’t necessary say “no”, but I will be aware of the situation and a lot of my questions will be about what are you’re doing with the lack of tech experience in your team. I do prefer to work with Wozniak rather than Jobs, because he is more technical guy, but much more I would prefer them both working together. As I said, it is much easier to hire a businessman than an engineer. Yet, I had invested in a team of two businessmen who were smart enough to surround themselves with strong IT-people and became profitable.
And what are your red flags?
If they [founders – BS] don’t listen. You can measure the ability to listen. I’m not asking for someone who listens every word and then does everything I said – it would be terrible. I’ll never be an expert in that industry as that entrepreneur is. But I want him or her to listen. Another red flag is if a person has several businesses, because he or she will never be as focused as one should be when you start and build your company. Showing up late, as stupid as it sounds, but there is no good excuse, if you cannot organize your life correctly. It’s a combination of many things. It is a red flag if an entrepreneur tries to oversell his or her business. When you find that the actual numbers are smaller than that person has told you, you’re annoyed. You have wasted a lot of time on that company, you has been thinking it would have better results. Also when someone tries to push you saying that “other VC funds are interested and we have to move quickly”. But VC funds talk to each other a lot, so I can call the others and get information. Don’t try to bullshit me.
At what point you may decide to stop investing into a project?
When it’s not going well. Typically, when everything goes well and we keep communicating with an entrepreneur, who listens to us, we keep reinvesting. We stop reinvesting, if we think that the results are disappointing and we don’t agree with the fundraising, so we let that person to raise funds on his/her own. So, if it’s not going on either with the relationships or the numbers, we may stop investing. Otherwise we invest till the end.
Have you ever rejected a project and then regret about that?
You know, I rejected a project something like four months ago, and right now the entire VC ecosystem of Paris tries to invest into that project. When I think, why I rejected it, I realise that I thought the entrepreneur was too crazy. And for me it was enough to say “no,” even if I liked the business. It wouldn’t go well between me and the entrepreneur, so I don’t really regret. And my answer is I did reject some businesses with big future, but I still don’t regret. If I decided to close, I had good reasons to close. Maybe one day I will look back and think, “I shouldn’t close it. It was a bad criteria. I’ve made a bad assumption,” so I may change that specific assumption onwards.
What books, movies, blogs, events can you suggest to startup founders?
All I read is really French-focused. There is a French incubator named The Family, and they do a lot of videos about mistakes you can made as a first-time entrepreneur. I’m not sure, if they have English language [they do – BS], but this is a great source for everyone who wants to be an entrepreneur. On Twitter I follow 30-50 famous VCs and click on every article they publish. I try to write a lot about business, so it’s biased, but I recommend to read my blog. I like reading TechCrunch, it gives me a quick idea on how market is doing.
Can you name three most breakthrough startups in the history?
The first two coming into my mind are Facebook and Google. Google – for the ability to give knowledge to everyone and not just limited amount of people. Facebook – for giving people ability to stay connected, to get in touch and meet. They revolutionized the way we connect to each other. And the last one will be Apple with iPhone that allowed everyone have everything in their pocket, including Facebook and Google. I’m sure there are others, dealing with micro-computers and CPUs revolutionised the backend, but at front-end these three companies revolutionised the world in the last 15 years. I, personally, am really excited to see the next 20 years and how social landscape is going completely change leveraging on this technologies.
Why mainly France?
France is the sixth or seventh largest economy in the world, and a lot of people tend to forget this, and seventy million people live here. When you have 70m people with average wage of 35 Euro [per hour – BS], you have a pretty big economy. In early 2010th France started to understand that the country needs to move to more globalised world and started facilitate entrepreneurs life. The government created BPE to finance innovation. Also the culture switched from country where young people want to work for all their lives in one company to the country where young people want to be their own bosses, change the world and make money. It took several years and finally resonated in 2016-17, when people realised that France is a big market, with educated workforce and can make a really good returns on your investments. For instance, Germany economy is very self-sustaining and make excellent cars, electronics, furniture. France is much dependent on import-export, and we much more open. France will be a great VC country, despite we need more exits to get credibility. Look at Israel – it’s much smaller than France, but has three times more exits.
What was the most exotic startup you decided to support?
Neo-bank in Nigeria. A guy from Germany, a German-Nigerian entrepreneur moved to Paris to finish school and started here Neo-bank. The reason is that in Paris you have a very multinational population with almost everybody speaking English and a great lot of engineers coming from tech-schools whom you can pay half of the salaries in SF. All their operations are in Nigeria, all tech is in France, and this is one of the best investments I’ve ever made, I’m really happy about it and like the founder. He is a hard-working, focused, determined guy; we just reinvested into this business and are looking forward to reinvest again, because the company is growing.