Massimiliano Sulpizi (HSMI Corporate Advisory): I will never invest in a person from a rich family because entrepreneurs should have this hunger, a need to succeed.

Massimiliano Sulpizi is Founder and Managing Partner at HSMI Corporate Advisory. He is an avid venture capitalist, merchant banker, entrepreneur and executive. He is also the creator of EquityMatch.co. He currently serves as an advisor and board member to numerous EU healthcare and technology startups and growth-stage companies. Previously, he founded and sold his merchant bank, Milano Merchant Bank and brokerage insurance firm, Absolute Capital S.p.A. with €20M+ revenues in a multi millions exit.

How it all started? How did you decide to enter the venture investment business?

I started 4 companies, all related to corporate finance, brokerage, insurance, and finance. I had also been an angel investor for some time. Because of that, I’m still doing a lot of advising for companies. After being an Angel, deciding to become a professional VC (now I’m rising my first venture capital fund) was an obvious move: I want to do it more professionally rather than for pleasure. VC is an extraordinary sector, but also it is very challenging: you need to be quite well-skilled to move forward. You can make a good profit and you can also lose everything. There are no guarantees there. 

What was the most unusual startup you ever supported?

Probably, the finest one had nothing to do with technology. It was one guy in Italy who invented a soap – natural vegan soap. The startup did succeed, but not because of the product – because of the execution. Sometimes entrepreneurs can be very very good in the product – not in execution. And sometimes a person with a background in management and entrepreneurship may start from scratch with quite an everyday product on a busy market – and be very successful. If you’re not good at execution, you’re going to fail in 99% of cases.

How startup teams usually find you? Do you wait for inflow or scout for interesting ideas and perspective teams? 

We, HSMI, have an extensive network thanks to the advisory we provide to VCs and private equity firms. We also launch our platform, matchmaking startups, and venture capital as well. We do Angel investing as well. And LinkedIn itself is a good source of inflow.

How you select startups to support? What are your criteria? 

I’m agnostic, so we are not pretty much sector-oriented. A sector can be a proxy, but not everything. My venture capital firm now, while still in raising mode, is investing in Education, which is a big thing for me, investing in Healthcare and in Technology. Inside these, we go all way down the verticals. But we can also invest in Data Cloud, which is very fashionable now, in Renewables, in CleanTech. And any kind of investment has to have a certain degree of sustainability and impact. If you don’t have that, I don’t move forward.

How many startup projects do you review per year?

To many! Now we are discussing with my partner about a way to pre-select them because it can be 50 to 100 a month. Just 5-10% of those pass through the first filter. Normally, we invest in 3-5 companies a year. It depends on how how much money you have, how big is your team, because you have to go through many stages, make a lot of due diligence, and it takes you at least 2 months. 

What industries you’re interested in? 

I feel that in the next 2-3 years we will be very focused on Healthcare, MedTech, and Healthcare in terms of devices, Digital Healthcare. I also think that cloud-based Technology and Mobility are going to be another big thing for the next decade because we need to review all the way how we move. And Smart Cities and CleanTech, of course.

At what stage you prefer to enter?

I’m an Angel investor, and I like to leverage as much as I can. It means pre-seed and seed. My average check as an Angel is $100M. As VC, we invest $1-2M. 

Geography of your interests?

Europe. Europe, for me, means EU, the UK, and, of course, Israel.

When pitching works better – boring numbers or a show?

Let me be honest: I don’t look at numbers at all. This is a startup, and startup is all about people. You really need to understand is “What is this guy?” I don’t mind if they come from Oxford or Harvard. Actually, sometimes entrepreneurs don’t need to be too much educated, because it often means that you have a framework in your mind, and it blocks your idea, the way you think. An entrepreneur should be very inventive, should be thinking outside the box. What I care about is how much are they determined, are they willing to give up everything, are they ready to put all their money, time, and effort into their company? I will never invest in a person from a rich family because entrepreneurs should have this hunger, a need to succeed. Most of the richest guys in the world come from very poor backgrounds. During the pre-seed to Series A it all comes to the team, and you should be focused on the team and how they are going to deliver. Numbers come afterward. After 2-3 years you can start reading numbers in a good way. Of course, there are some important numbers even at the early stage:  you need to see how big is the market, how much you can get into the market, how big is the share you can get from your competitors. But talking about cash flow and revenue – it’s absolutely not. 

When you first meet a team, what do you do to get to know them better?

In the beginning, we talk about where are they from, what is their background, and why did they decide to be entrepreneurs. You need to make them comfortable, to break that initial ice. This is very important for me. An entrepreneur may be big-headed, have this kind of ego to launch the business. Afterward, come questions about how he or she identified their problem, why do they want to solve it, and how. Determination is, for me, is absolutely important, then comes the rest. When you start a company, trust me, you will fail now and then, you will wake up early in the morning so many times thinking that you’re ready to give up. If it is your first startup, you have no idea what you are going to get through. I’ve done 4 startups, I know this type of morning. You need to be very sure when you decide to go. 

Have you ever supported a one-person startup?

Yes. You cannot be a solo entrepreneur in terms of the team, but an idea can be yours only. And I cannot validate your idea, so I want you to come back when you have a team. Otherwise, I don’t invest. I’ve been mentoring many guys (and I do mentor for free), I’ve seen many good ideas, but unless you have a team, you cannot deliver. An entrepreneur has to be a leader, and a leader leads a team, as simple as that. 

Who you would prefer to work with, Steve Jobs or Steve Wozniak?

Hands up – I like Steve Jobs. When an entrepreneur is too focused on numbers, it’s not my type of person. I like those who want to change the life of people in the whole world. For me, Steve Jobs was Michaelangelo of the 1990s.

What are your red flags?

When you sit down and talk to entrepreneurs, they may seem to be cold, until you know them better. So, my biggest red flag is this: If you come to me because you have an idea and you want to make money, we won’t go anywhere. If you really want to be big, you need to really want to solve the problem, and if you really want to solve a problem, you should care about it. We all want to make a lot of money, and I, as an Angel, want to get a unicorn in my portfolio, but it all starts with a problem existing in a very big market. 

What is your due diligence procedure and how long does it take you to cover the whole way from the first meeting with founders to contract and check signing?

For Angel investments, it’s less than a month. For a VC firm, it will be more or less the same because we don’t lead, and it’s a lead investor who needs more time. When due diligence is done by a good VC, you don’t need to do it yourself at all. 

Your target multiplications of your investments on exit?

For the VC, the target is 3-5x. If you have a $50M fund and do $1-3M tickets, you can’t do more than 10 investments, roughly, because you need to save some money for follow-ups. Out of those 10 investments, about a half will fail. So any investment should be able to return the fund – at least. 

Have you ever rejected a startup and then regret it? 

Of course, you make mistakes every time. I did a lot of mentoring and passed a lot of good ideas and prominent entrepreneurs at the initial stages. But you know what? I’m constantly in contact with them, and if you miss the first round, you may invest in the second one. 

Can you name industries you really like, yet will never invest in?

I like to invest in verticals where I feel very very confident. I’m not a tech guy, I rely on my team there. Sectors, which I do love but, probably, will not invest, are Space – and Robotics. Space is very expensive and the market is still not completely defined. You need a bunch of billions to enter it. The good thing is that you don’t have so many competitors there. Maybe, one day I will be able to enter it, but not now. Another market I think is good, but I’m not going to be involved with, is Cannabis.

Has your VC approach changed after the COVID-19 started?

I am a strong believer in technology and digital. So we are already quite ahead in our investments. What COVID did, it told us who was very well funded, who had the right business plan, who is capable to adjust when it is time to do so, who has good management, who always leaves some cash for any problems. But our approach is almost the same. I don’t see that we’re going to see this level of valuations for a long time (Tesla is traded more than $100/share now, it is absolutely too much). We need to talk more about digital in COVID era.

Is COVID a threat or opportunity?

It is a big opportunity. The average VC invests in technology. COVID can be quite challenging for private equity firms, that invest in small and middle sized companies, that are not that much tech-oriented yet. For venture capital COVID was a blessing, but for many others it was a serious problem. 

Can you name the three most breakthrough startups in history? 

I’ve been astonished by Mark Zuckerberg, I don’t believe they could have done all this job. When Facebook started, I was sure, they won’t go anywhere. And I was completely wrong. I have been very wrong with Tesla as well. I’m still not sure with it, honestly, but I do believe that Elon Musk is the kind of modern genius. What was extremely new is PayPal: they spend not that much time developing it and send it later for $1.5 billion. Of course, there are companies like Amazon, but it is a huge difference when you start a company that requires not so much money and your time frame from start to exit is a matter of a few years, and you sell it that big. Amazon took almost 20 years – what Bezos did is a masterpiece. I don’t think many people believed that he could do something like it is today. The funny thing is that all the big big guys, like Musk, Bezos, or Jobs,, when they started, were told by everyone that they can’t go anywhere. One of the most disruptive things today is Crypto. Actually, I’m not a big fan of crypto, but I do believe that in terms of innovation, of how you can get something from nothing, Crypto, Blockchain are big deal and can be a serious changes in the way of now only how we do business, but how we live. 

The greatest startup failure?

The first thing that comes to mind is Elizabeth Holmes with Theranos. But if we move close in time, it’s Uber. They got so much money, they are so big, and they lost billions in 2020. They can’t just close it, because SoftBank is inside and many others, but for investors it is a total failure. 

Are you satisfied with where you are now in terms of your career? Or, maybe, you would like to try something new to apply your knowledge and ideas to?

I love venture capital. I just get started. I did Angel investments as a hobby, now I have a VC department and I do believe that it is the most beautiful job on Earth for me. What I’m doing now is not the usual VC, because we start very early, at seed and pre-seed, but we move up all the way to be pre-IPO or exit. It’s going to be a different deal, a different way to invest. I like corporate finance, I like investments – it is a beautiful job for me. Working with startups is beautiful because you change every day – there are no 2 days you do the same stuff. 

What qualities, you think, are important for a good VC? 

There are so many things, I just mention 3. The first and most important is vision. Another one is the way you can manage risk – you need to be a risk-taker. And after that comes all the capability to use your vision to understand both the startup you’re investing in and the way the VC market is going. If you’re the only person investing in some sector and other VCs are not interested in it, you won’t go anywhere, because there is no other money and, however big you are, you cannot be the only investor forever. 

Is VC business chess, checkers, backgammon, go, card games?

It is a mix of many games. It has a lot of common with chess because a lot of guesses involved. You can make some predictions, but you never sure what your competitor’s next move will be. In terms of strategy, chess is the best game ever. Also, VC, like chess, has so many different figures moving according to their own rules, that it is the closest proxy to the economy in general, where your most powerful piece can get stuck at any moment or be captured by a pawn. But, as I said, VC can be compared to so many games. I wouldn’t compare it to betting on horse, though. 

Your advice to founders.

The one we said to everyone: Think twice before entering. You need to be extremely aware of where are you going. One day you will wake up and read, “Elon Musk is a trillionaire!!!” But he is an exception: for everyone who became a billionaire, there are thousands, maybe millions, who failed. So be sure that you’re ready to commit your life to become an entrepreneur and why you want to do it. Make sure you’re able to handle all this responsibility and keep moving forward. And if you decided to go, you have to go all the way down, you can’t look back anymore. I try to discourage them (I’m sorry!) all the time, because, as entrepreneurs, they will be discouraged all the time by everybody around them. If they really believe in what they’re doing, they come back to you and say, “You know what? You were wrong.” If they don’t believe 100%, they will walk away forever.