Duncan Davidson (Bullpen Capital): In Silicon Valley failure is a feature, not a bug.
04 Feb, 2022
Jacqueline van den Ende is Partner at Peak Capital. She is an entrepreneur and investor passionate about building high impact ventures. In the Philippines she founded Lamudi Philippines and over the past 3 years grew it to be the clear market leader in online real estate. Prior to that she worked as an investment professional in a leading private equity firm. Prior to HAL Investments she founded a non-profit company which now employs over 200 students in three countries.
I personally have a bit of a mix career as an investor and a venture builder. As a student, I started my first company and then I accidentally ended up in private equity. I wasn’t looking for a role in investing, but I’ve got an opportunity to join HAL Investments. I worked there for 3.5 years and that was my first encounter with investing. After those 3.5 years I really wanted to be at an entrepreneurial side of the table again, so I joined Rocket Internet and spent 6 years in SE Asia, in Philippines, building companies. Lamudi Philippines was my first company with Rocket, after that I was CEO in a large fintech company TrueMoney Philippines. Four years ago I pitched a company myself to raise capital. I was invited by a Dutch entrepreneur to join him in pitching startup, so I came to the Netherlands, we pitched it and raised €1m from various VCs. This is how I met Peak Capital. I was really happy in SE Asia at the time. Three years ago they were looking for a new partner, for somebody with investment experience and entrepreneurial experience and thought of me from that pitching. They asked me to come back to Europe and to join Peak Capital.
I think, in the first half of this year we’ve reviewed about 2000 companies, which makes 3000 to 4000 a year. And we made 4 investments. We target to make 6 to 8 investments per year.
We do both. It is not unique for VC to be very active on outbound. We have 2 associates doing outline calls almost full-time. Our starting point is that we take databases – from Crunchbase and many others – scan for interesting companies and reach those companies. In addition to that we receive, maybe, 15 to 25 decks a weekю But most of our deals come from outbound sourcing.
We look at 4 main criteria, we call it T-Score. We evaluate Team, Thesis, Traction and Timing. In terms of Team, we look at how complete is the team, to do you have a hacker and a hustler – a person who can build a product and a person who can sell it. We look for an entrepreneurial experience and coachability. As for Thesis, we look at what problem do you solve, how big is a problem, how painful is it, and what is your solution to that problem. And then we look at how big is a market, how many people have that problem, how competitive is that market and how defensible and what drives the defensibility of your products vs the competition. Then we also look at things like your sell strategies – how do you sell it, what is your pricing, how long is your sell cycle and do they match up, like if you have a very long sell cycle for too low price, that doesn’t match up. These are the main things that we value as in terms of the Thesis. In terms of Traction, we look at how you’re doing. Occasionally we back up pre-revenue startups, but very rarely, mostly we take companies with MRR of tens K. We look at your month on month gross, what is your new customer cohort, how strong is your customer acquisition and retention. And we look a lot at engagement – how do people use your product, how often they log in, how much time they spend, is your customer satisfied. We look at product-market fit, net promotion score, and may check how disappointed will customers be if they can no longer use your product. The fourth thing we look at the Timing. It is critical for us that in the phase that we invest, which is the seed to Series A, the founders have a significant share of the business. At the seed stage, it would be 70+%. We look on how much money have you raised to get to the current phase. If you rased €3m to get €30k MRR, it is not very impressive; if you were able to bootstrap to €80k MRR, that is very impressive. So, we look at how much money have you raised and then how much money you’re looking to raise, what are your valuation expectations and doing the things that are reasonable. That is how we evaluate every startup.
Only restrictions that we have is that SaaS or marketplace. We don’t do hardware. We don’t do super specific industries, so we haven’t done much in HealthTech, or in FoodTech, or in very scientific areas, rather enterprise software, SME software, consumer place. Personally, I’m quite interested in FinTech solutions, Future of Work, Productivity solutions, and DataPlace, like Synthetic DataSpace or Decentralised DataSpace. I like those areas and think they are very exciting.
At the seed stage. We prefer to be the first professional investor in the cap table. We prefer to enter at the moment that a company has problem-solution fit and a little bit of initial traction – that’s our ideal phase to enter.
BeNeLux, DACH region and the Nordics.
Typically it takes 4 to 12 weeks – 4 weeks would be very fast, it does not happen too often, but it’s possible. First, you have an introductory call from one of our analysts. If they think it is interesting, they pass it to the partner, who has an initial call. Then we do an initial commercial deep dive to understand the key metrics. Then we do 2 partners call (we have 3 partners, of which 2 must evaluate a deal), then it is a 2 partners meeting. Depending on how convinced we are, it may take a couple more meetings, after which we issue a term sheet. Some VCs issue term sheet earlier to get an exclusivity, but we prefer to do much of the research and due diligence prior to issuing it. When we issue a term sheet, it is a very high probability of us doing the deal.
Between €300k to €2m for the first investment. The sweet spot is €1m to €1.5m.
We evaluate our investments as having the potential of 10x return. Often we think, for example, that we invest now at a valuation of 5 million – what is the probability, and do we believe that this company can exit at 50 million? This is how we evaluate opportunities.
We prefer to take between 10% and 20%. I think ideally around 15% to 20% in a first round, seed stage. In a Series A it is more around 10%. That’s a good percentage. As a VC, I would never want to take 25% or 30%, because it doesn’t make sense when founders dilute too much. They will need to raise funds in the future. It is very important for us that the founders always remain in the driving seat and retain the majority of the shares to feel that it is their company, not the investors’ company. We prefer to take less equity, leaving more to the founders.
One is the complementary skill sets. You need to have at the house your major development team: it’s OK to outsource some development, but CTO and architecture should be at the house. Commercial skills are very important: you really need someone who loves to sell. Then it depends on the type of business what kind of other key competencies you need. All the key competencies in a company should be represented in the founding team. We look for entrepreneurial experience and industry experience. For example, if they are in FinTech, they need a co-founder with some strong financial experience. We call it founder-market fit. That is how much experience does somebody have, does somebody have a network, proper insights. Ultimately the question is what do you know about your industry that other people don’t know. Another important thing is coachability and integrity. This is where the personal chemistry comes in, like do I trust you, can we have a good conversation, are you open to feedback or to criticism? If things don’t go well, will you tell us? How good are those relationships? For founders, it is equally important to access how much they trust the investors, the value of investors, and the quality of these relationships. Typical VC-startup relationships are very long, around 10 years. It is very important that you, as a founder, choose a right investor, and, of course, vice versa.
Very rarely. The reason for that there are a couple of things very difficult to manage. It is very difficult to start a company, and the risk of the company not succeeding or, for example, the founder wishing to quit if things get rough is much higher if you are a single founder. So simply the risk is much higher for the Investor. And we want those complementary skills – and commercial, and tech competencies represented in the founding team, and it is very rare to combine in a single person. It can happen occasionally that you meet a very experienced entrepreneur who has shown that he or she can build a successful company, and that person has sufficient qualities on the commercial and the tech sides, so we could consider the investment. That’s not a 100% blocker, but more or less 90% blocker if you are a single founder.
Probably, with Steve Wozniak. This is just the impression that Steve Wozniak is easier to talk to. Steve Jobs was amazing, but you should just give him your money and then trust and pray that he will do the right thing because he wouldn’t listen to any kind of feedback. He was a genius, but you had no control as an investor. You would have a little bit more control with Microsoft, than with Steve Jobs.
Red flags are insufficient ownership among the founding team. A red flag can be when a company is not totally honest – it has happened in the past. I don’t want to mention a company, but we had signed a term sheet and were about to invest when the Paris bombings happened and the revenue of this company got completely wiped out – and they were not transparent about that, did not mention that that happened. And we decided to pull out the deal – not because the revenue dropped, but because they had not been transparent about that. So not being transparent or honest is the major red flag. Another one, that may be good for founders to know, is your responsiveness. If you ask for the data, and it takes weeks to get the answer, and there’s no proper follow-up from the founder, that is often an orange flag of a kind. Investors start thinking that they are not so sure about the executive powers of this founder and might drop out the deal.
We definitely have an anti-portfolio, but it was before my time, because I have only been a partner for one year and have very short experience in that sense. But we missed out a ticketing company – Tiqets – which ultimately did very well. Another company we wanted to invest in but our funds were too small for the time is Temper. We wanted to invest in that. It is one of the things that is difficult for a VC: when you see companies that you feel are good, but they have really high valuations – how much risk are you willing to take? Sometimes you reject good companies because their valuation is not for you.
Personally, I’m very passionate about climate change. I’d love to invest in companies that are battling climate change, but this is just out of the scope of our current fund. Sometimes you see some amazing hardware companies or companies that are very specialized, like Biotech, AgreTech or HealthTech, but they are also out of scope because we do only SaaS and marketplace companies right now.
Not much. Overall I think for investors it’s not a bad thing. I would say that pre-COVID valuations were super high. They are still very high now, but during this crisis, some investors were saving their portfolio rather than doing new investments, so overall we have less competition. Which is good because valuations tend to be more reasonable now. Better valuations are ultimately resulting in better returns. I think, it’s a bit of a healthy adjustment. It would be more difficult for companies to fundraise, which means less “nice to have” and more “need to have” value proposition. The bar is set higher now: you need to have a product that is crisis resistant. These adjustments are taking a little bit of the bubble out of the market, and it is very healthy.
For me, the first one is Tesla. It was a revolution that accelerated the adoption of electric cars. Microsoft is the second one. It revolutionized, even started the whole concept of software. And Google. It created search internet and the interface of internet as we know it now. I think those are the 3 most impactful startups that made step changes in recent history, taking the world to a different level in terms of the way that we work or communicate.
I am very much an entrepreneur at heart, and sooner or later I will go back to building companies because that’s what gives me most energy.
Monopoly! And I think that’s not necessarily a good thing. You start at the equal starting points. If you get the best company (in Monopoly that’s a pure luck and hopefully in VC it’s luck PLUS some insights), it will make you some money to invest in another company. If you are not lucky – and smart – you won’t have money to develop and be dead at the very start.
Make sure you have a personal connection with the VC and don’t get blinded by valuations. A lot of first-time buyers get very stuck on valuation and that’s the only thing that they look at, like having offers from multiple VCs and then taking the highest valuation. I think, it’s short-term thinking because valuation is nothing written on paper, it’s not a real thing. It is something you need to grow into. What is important is the terms of the deal, but what is more important is what relationships you have on a personal level with your investors, do you trust them, can you call them anytime, even in the middle of the night, are you comfortable to share your biggest insecurities and challenges. Do you feel that your investor will back you and support you when things go rough, or they are very opportunistic? It is very important, as a founder, to do your due diligence and find out how they work with their companies and what they do when the things don’t go well. It is very important.
Osaka is amazing for me. Japan in general is amazing. In SE Asia it is Bangkok that is the most relaxed and cool city.