Ashesh Shah (The London Fund): Be Brave!
20 Jan, 2022
Csaba Konkoly is General Partner at TillerPartners. He was Partner and Co-CIO at the global macro hedge fund Commonwealth Opportunity Capital where he focused on asset allocation and risk management. Before that, he was co-founder of GATKO Partners, a global, top-down equity hedge fund with offices in London and Singapore. He is also President of Capital (captec.io)).
My background is in traditional finance. I was a hedge fund manager for tMy background is in traditional finance. I was a hedge fund manager for the first 15-16 years of my career. By 2010-2012 it was obvious to me that the hedge fund industry has changed and the return aspects of public markets are significantly worse than the private markets. I was very constructive on world economy, probably, back in early 2010. I was looking for the highest leverage, and that was early stage technology. I made a strategic shift to start allocating money to early stage tech companies.
Investing in startups it’s just like having a family – you don’t have a favourite child, all your children are near and dear to your heart for some reason. I have so many interesting companies – it is over 25 companies in my portfolio. Probably, the most interesting is a plant-based botanical spirits company. During COVID-19 they reconfigured the business. They have to shift from producing gym and vodka to producing sanitizers. This has become a very fortunate turn of events, because alcohol sales are up significantly as well as sanitizer sales are up, so the business practically doubled overnight.
We review about 500 to 600 opportunities and make about 3 investments every year.
Mostly we wait for inflow – not because we are lazy, but just because that has been the dominant strategy for us. Thematic investing is very interesting, and my experience is that the entrepreneur, who is a domain expert in a particular field, always knows a lot more about this or that industry. So passive allocators of capital IVC are, typically, one or two steps behind. It would be foolish for me to presume that I can add more to market and predict trends faster than the actual entrepreneurs, who are building relevant technologies in those.
In my mind, it’s all about the jockey. It requires tremendous effort to scale and luck to build a successful company. I always like to ask the founders what gives them the discipline and the courage to work on their idea on sunny Sunday afternoon, when everybody else is on the beach. Because you need that kind of a dedication to build a successful company. Other than that, previous track record is super important. Typically, backing second or third time entrepreneurs is a better idea than backing young founders. Having said that I’ve had many successful outcomes where I backed first time entrepreneurs. And then we like to understand if we can help. That’s one of the ways we mitigate risk – by trying to be helpful to this company. So we tend to focus on things where we have some domain expertise or relationship capital that we can deploy. These are the initial things that we focus on.
We are very agnostic of any kind of industry, just because it’s all about the founding team and domain expertise. We’re happy to consider many industries.
Considering that idea flow is tied to our network, it heavily skewed towards the 5 places where we have the largest networks – California, New York, London, Singapore and Tel Aviv.
As early as possible. Our bogies that we would like to make at least 10 times our money. There is a limited number of startups that ever reach the billion dollar mark, therefore we like to get in at pre-seed or seed stage, but certainly before company reaches roughly 100 million dollar valuation.
We don’t like to be rushed, to be honest, just because making a private investment is almost like entering into a marriage or partnership. Early stage venture is a long duration investment, so you should be prepared to hold this asset and being a partner for 7 to 10 years. It typically takes us 2 to 3 months to get to know a founding team, get educated on the theme, the opportunity, competitors, and, probably, that’s realistic.
The minimal cheque size that makes sense for us to issue is $500k and up to $5m per company.
AAs I said, we would like to make minimum 10x.
It really depends on the stage of your involvement. So, for example, this particular company that I mentioned, it’s called AMASS, we’ve got involved at pre-seed, almost at concept stage. So the valuation was favourable to us, but we took a lot of risk, because there was no team, no product, just one very talented entrepreneur with an idea. If you invest in a company that is post-product, even generating revenue, has a team, process is in place, verified product-market fit, then the valuation is going to be different. I don’t think there is such a thing as fair, because it is a negotiation between buyer and seller.
Mostly we want to see domain expertise. I’m looking for cognitive diversity, for people that play nice together. Difficult personalities, while may be exceptionally talented, can also be quite disruptive to team, so I try to avoid confrontational people. Then again, I like my teams to demonstrate that they really want to win and are willing to sacrifice most things in order to achieve their goal.
The private investment cannot be a rule based, everything always depends. If I don’t see the qualities I’m attracted to in teams, like expertise, etc, it is, obviously, the red flag. If people don’t have appropriate backgrounds, if their reference checks come back unsupportive, or their social media presence is questionable – any of that sort, I would say we tend to shy away, just because you don’t want enter 10 year relationship with all these question marks in your head.
Well, every successful team needs to have both. Depending on what our role is, it’s not like who you prefer to work with, it is about what you need to do in order to succeed. Personality, based on what I know about this two gentlemen, I would stay with Steve Jobs, because I’m on the business side of things, not on the technical side of things. But I have interacted with brilliant engineers for the last decade, so hopefully, I can carry my own weight.
Of course! You always deal with imperfect information. Don’t forget, there is a tremendous amount of luck that is involved in anything in your life, not only startup life. I have some regrets. Even Bessemer Partners in New York have the famous list of companies that they rejected – the anti-portfolio. I think, every investor grapples with this, just because we make mistakes, we are human, we deal with imperfect information, sometimes circumstances change, like in poker: you can win a hand on the last draw, being a loser before that.
Actually, in that category I’m not a sore loser. I have had 3 or 4 companies that are no longer in business. Obviously, when you lose money, you can’t be too happy about it. The question is what do you learn from your decisions, did you violate any of the processes that govern your decision making, did you make any mistakes that were just dumb, careless mistakes? Or the reason that you lost is because this is how cards fell? I don’t have any regrets about companies that I lost money on.
I’ve been fascinated by cannabis industry, but so far I haven’t really found any good operators, with the exception of one that I’m currently delinquencing. That would be good example. Other than that, I’m quite good at getting access to things that I’m fascinated by, and if I find out or detect a good opportunity, I’m quite resourceful to make sure that I can have it.
Only if the founders believe that this is the best course of action for them. People start companies because they have a vision, they have a plan, and our job as investors is to back and support them. It is not our job to shorter course for these businesses.
It depends on what stage of your career you’re in. I love reading biography and history, because I feel that we can learn so much from the past. Businesses are based on relationships, businesses are based on teams, businesses are based on emotions, and those have been around for thousands and thousands of years. For me that’s what I learnt the most from. All the technical knowledge, that you need to learn, that’s readily available and is a small part of what you need to succeed.
I didn’t really study history in this regard, say, during the World War II. I am sure that the manufacturing efforts that the United States marshalled when they entered the World War II were incredibly effective, even measured by startup metrics, when the States started producing airplanes and fighter jets. But I would say Amazon is certainly one of my favorite startups, LinkedIn is certainly one of my favourite startups, and Apple is certainly one of my favourite startups.
It depends on the sector, but I always teach my children that nothing is black or white, every good has some bad and every bad has some good. We have to look at COVID-19 through the same lens. While it is tragic that more people are dying from this illness than anyone expected, it’s just a fact of life, and pandemics have been around forever. Even in my portfolio there are a lot of companies benefiting and a lot of companies hurting. I don’t think that you can address this in a general manner whether is good or bad. It just depends.
I’m actually very content – both professionally and personally. I get to do what I love. I am building companies. I’m currently building a FinTech company called Capital with 2 incredible co-founders and amazing team, which is an extension of our expertise as venture investors. Investing is tremendously exciting: I get to learn everyday, I get to interact with incredible, driven, smart hard-working people. I’m very content.
For me, venture businesses is poker. I know that we would like more to use a different category, but in chess, for example, you can always calculate the dominant move, and it is certainly not true in the venture business. Nobody has a roadmap. You’re inventing something and you are going from 0 to 1. There is skill-involved, there is luck-involved, and many other things. I would say, it’s poker.