Remy de Tonnac (ETF Partners): You must identify in your network 1-2 well-intended people who know and like you, who understand your business and have no conflict of interest.

Remy de Tonnac is Partner at ETF Partners in London, UK. He was CEO at Inside Secure, Gemalto and so on. He was also Venture Partner at Vertex Ventures. He joined ETF Partners in 2016. He is driven by the desire to demonstrate that technological innovation offers compelling answers to one of the most pressing problems of the world – achieving sustainable prosperity.

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

So I am over 60 years old which is considered to be very old in the new technologies world. A long time ago I was a co-founder of the company Gemplus, in 1987. In those days venture capital did almost not exist in Europe. It was starting in the UK. It was quite difficult for us to raise money; we were talking to banks which did not understand that business. And I remember thinking in those days, “Gosch! There is a hole here. Something is not right.” A long story short: we managed to raise money in 1987 and in 2000 we’ve got public through an IPO both in NASDAQ and in Paris. It is still a record for French companies to raise $5.5b during an IPO on NASDAQ, which says good things about us and bad things about tech companies in France because none of them took above that bar in 20 years. In 2002 I’ve decided to go into venture capital, after the Bubble burst, mostly as an operating partner to help portfolio companies during the winter desserts of the post-Bubble days. I really enjoyed that time, except that it was still too early for me, I still wanted to get back into a tech company as a manager and a CEO. I wasn’t the CEO of Gemplus and wanted to drive the car this time. And I did it from 2006 to 2015. It was a frantic rollercoaster, I raised over €180m in 6 rounds and then, during IPOing on NYSE Euronext Paris in 2012, where I raised another €100m. You know the big rollercoaster of tech companies, starting the post-Bubble days and going through the Lehmann Brothers crisis. After these 25 years, when, I believe, I’ve been doing everything – good, bad and ugly – in the management of tech companies, like starting a company, raising money, IPO, layoff plan, acquisition, selling off, I thought that I’m ready to go back to venture capital to help the next generation, the people who could be my kids. 

What was the most unusual startup you ever supported? 

I’m still a rookie in that field, With my first venture capital firm in early 2000 I was mostly an operating partner and did only 4 investments, then I went back as CEO. For the last almost 5 years that I’m back in venture capital as a partner doing investments, I’ve 6 companies in total, so we are not talking about very large numbers. So the most exotic is the one, and it is fascinating, this company is leveraging the power of the crowd of ethical hackers, white hat hackers, to find security vulnerabilities and weaknesses in IT-system databases of all companies big or small, like BNP Paribas or even for a small company that wants to develop the product as fast as possible while considering security as a distant second priority. This company has built the platform where they have over 15k hackers from all around the world – and they do KYC to make sure that these are white hats and then they are trying to find those vulnerabilities. Those specialists are freelance hackers, who are paid only if they really find some weaknesses. The company is called Intigrity, it is based in Antwerp and remarkably it is able to grow super fast. As you know, the biggest problem of a startup is often scalability.

How many startup projects do you review per year?

We are 5 partners, and we see about 1000 companies per year. I get to see myself probably 200 companies. 

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

I think you will be surprised by the answer: of course, we are getting lots of leads from the professional network, from other investors, from banks doing the fundraising for their clients. Frankly, this is not where you’ll find the best opportunities. Being an old guy who worked for the last 40 years in the tech world in Europe, the US, and Asia, I have quite a big network of people in the tech industry, and the best investment I have made came through my own network. I give you examples. My son has graduated from the Ecole Polytechnique de Lausanne. One day he called me telling me that one of his classmates started a drone company which looks very interesting. I went to see the guy in Lausanne, and 3 months later we made an investment – and there was no competition. Another investment I’ve made when another guy, who was an investor in my previous company, called me for help to connect him with one cybersecurity wizard. He told me more about the company, and it was Intigrity I’ve just mentioned. The best investments come from the network, from people who know me for a long time. 

What industries you’re interested in? 

ETF Partners is investing in 3 big Buckets. One is Smart City – the city of tomorrow and the mobility of tomorrow, like connected cars, autonomous cars, etc. The second big bucket is called Smart Industry, Industry 4.0 – the new industrial processes that are less dependent on fossil fuel, more efficient and recyclable. And the third big bucket is Smart Energy. The 3 Ds of the energy transition are Decarbonation, Digitisation, and Decentralisation. If you want me to be more specific and pick just 1 area, I would say that at the moment I’m looking for the picks and shovels of the gold rush in the field of autonomous cars. Autonomous cars will happen; I don’t know – 5 years from now or 10 years, but my estimate for the latest would be 15 years from now, so we are talking about tomorrow. A lot is done by big guys – Google, GM, or Tesla, but to implement such a revolution, you need a lot of picks and shovels. I’m looking for smaller companies which are bringing incremental technologies that are going to be very useful for the deployment of autonomous cars. 

What about autonomous planes you know that Airbus just finished experiments?

I will certainly get into this area as well, but autonomous planes is a much simpler project, I guess because you have much less interaction. Considering the psychology of people, it still may take much more time. 

At what stage you prefer to enter?

We are the growth fund, we invest only in companies that already have a product, some product solution, already have real customers who like the product and ask for more of this product. We invest at the time when the biggest challenge is scaling, getting to international markets, bringing adults in the room, putting in place some professional processes. This is basically what I’ve been doing all of my life – growing companies from early-stage to well-developed corporations. 

Geography of your interests?

Europe. Unfortunately, it is only the whole of Europe. Of course, we invest in Switzerland or Norway who are not part of EU, but we cannot invest in Asia or in the US. I regret it because I’ve been living there and have a good network there. Still, we are helping our portfolio companies to get into the US and Asia markets. At the moment I help one company to get to Singapore, to establish regional headquarter there – with lots of support from the Economic development board of Singapore. 

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?

I think this is very standard: usually, it takes 2.5 months and may go as long as 3.5 months if we discover some complexity or issues we want to dig in. We tried to cover all of the aspects of a startup – the team/the people, the innovation itself and how breakthrough is it, how much IP, how much differentiation, the Marker – are we talking of a niche market of $100m or a zillion-dollar market. As I mentioned, we invest in companies that have customers, and I like to do something that not many VCs do – I run the full-blown customer satisfaction survey. It is a win-win-win process because I learn a lot about the customers, customers learn more about the company and feel being really important, and the company itself wins as it learns some important information about its customers.

How big is a check you usually issue?

It has to be at least €3m, but we can go as much as €10m for the first check. During the life of the company, we can go to €20m by putting more investment in the later rounds.

How many Xs do you expect on exit for your investment?

The expectation for a growth fund, like ours, is that on average we should return 3x on the whole fund, which means that our best companies will bring 15x while some will go bankrupt or get 0.5x on investment.

What percentage of ownership of a company is fair to take for investment?

We are looking at about 20% and we don’t invest if we cannot get less than 10%, because we are always lead or co-lead of investment rounds. 

What qualities you are looking for in startup teams? 

It’s easy! I have found the magic word that summarises what is needed for a founder, CEO, or even team at large. It is one word: Drive! With drive, you have everything else – passion, focus, persistence, resilience. I think, all the other qualities are kind of embedded in a driven entrepreneur. The driven entrepreneur has an objective and is going to get there, and will do whatever is necessary to get there. Great drive is absolutely important if you want to start a company.

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

Steve Jobs is the greatest visionary as well as tyran of the world of Tech and he has not played fair in too many situations. So, as a venture capitalist, I would, of course, invest in Steve Jobs, because he has this relentless drive, there is no question. As an entrepreneur, say, a co-founder, I would prefer to work with Wozniak.

Investors prefer to work with teams. But have you ever supported a one-person startup?

I had supported several solo founders as an angel investor. I have invested in one company just because one guy, whom I knew. Was that kind of relentlessly driven person – I didn’t know what the company would be doing, but I was just going to invest in that guy. As a venture capitalist, I did invest in solo founder companies as well. It wasn’t an easy decision, I hesitated for quite a long time. Still the founder – he is really a character! He will find ways to make this company a success. 

What are your red flags?

It is easy. If there is a doubt, there is no doubt – we don’t do it. Especially if there is a doubt about the character of the founder unless I have an immediate replacement solution. Sometimes the founder has created a great company, made a great technology, but he’s not the one who will bring the company to the next level. If I have a replacement, then I would do the investment. Apart from that, honesty is very important. If during the due diligence process, we discover that founders have been doing some wishy-washy things, crossing the grey line, we don’t do it. 

Have you ever rejected a startup and then regret it? 

In the year 2001-2002, in my first investment company, we came across a company developing some very small cameras for phones, they were one of the first UK companies doing this. I even asked my kids, who were 12 and 14 at the time, do they like to have a phone with a camera, and they said, “Yes, for sure.” But my partner said, “No we don’t believe in that,’ so we passed and investment happened without us. The company was purchased 2 years later by Broadcom with a multiple 10. I still regret that I haven’t been adamant and didn’t fight for this investment, but I was new to the game. My other opportunity was even more impressive: I could invest in PayPal. They came to my office in San Francisco, in 2000 or even earlier. Their idea was to use infrared communication of PalmPilot for money transfer between students for micropayments on campus. Simultaneously they introduced a sort of online payment demo. Few months later they realized that much more people were using that demo application on their website than the infrared application on PalmPilots. So, at the time when I met them, it was a completely different model than the one that’s made them successful, and I cannot blame myself too much. 

Accepted and regret?

I can see that today I, probably, I wouldn’t do some investments I did 5 years ago, when I just joined the company, because the risks were a bit too high. But I still have those startups, they are still alive, I still think they have a good chance to succeed, just they won’t bring me 10x on exit. I have not done a very stupid mistake. It is so much easier in the hindsight to say this. 

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

The whole HealthCare/MedTech industries are something that is quite fascinating, but it is not an area that I know well and it is not part of our focus of investments. Another area is FoodTech: we have not done it so far, but this, maybe, would change one day. We have to add some talent, people who have knowledge of the area to do it right. You need to invest in things that you understand a bit.

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

I never met the team of the last investment I’ve made – we spent 2.5 months doing zoom meetings. And I must say that the end of this process, strangely enough, I have developed quite some level of intimacy with people I have never met. The last day when we said, “OK, everything is signed, the investment is done” during zoom meeting, I said, “Let’s have a big hug!” – and everybody was hugging each other on the screen. I’ve discovered as well that one can be an enemy with some people on the zoom meetings, but after being enemies, we became friends. I realized that despite the fact that you might think that we have very limited emotions’ communication, in fact, the process was pretty efficient. Of course, we saved the lot of CO2 emissions, because there was no plane, no train, no nothing. Yes, it has changed the way I’m looking at doing my job and, probably, will fly less in the future, making more video conferences. 

Yet, is COVID a threat or opportunity?

It is clearly both. We had seen unbelievable progress even of mammoth companies, like Google, Amazon, etc. It is an opportunity for all the companies that enable social distancing and met companies that are in that global area of allowing people to be better protected against COVID and other diseases. For companies selling products to people who have to use them in groups on-site or while doing an inspection, it is a threat and they have already seen the revenue going down by 30% or more. Until we get back to the New Normal when people can begin to work together, these companies are severely handicapped. 

As a private person, do you donate to non-profit-oriented projects?

Absolutely. I am a hero of the ocean Plastic bank . I have given a donation to enable this foundation to get the plastic collected before it gets into the ocean. This Plastic bank is a great initiative. Of course, collecting plastic is not very profitable and requires some support. Also, I try to lower and even neutralize completely CO2 footprint for myself and my family, which is about 20 tonnes of carbon by donating to the companies that recycle this carbon from the atmosphere. And I do some humanitarian donations as well. 

Can you name the three most breakthrough startups in history? 

It is very difficult to avoid the big guys, I guess. Google. You know, my neighbor in Silicon Valley was Andy Bechtolsheim, who was the very first contributor to Google. There is a story about the early days of Google, although I’ve never found any written record of it. Once John Doerr, a managing partner of Kleiner Perkins and one of the greatest VCs of all time, came to Larry Page and Sergey Brin saying, “Guys! You’ll be rich because we are going to sell the company for $200m and each of you will get $50m.” And Larry Page said, “You don’t get it. We are not here for quick money – we want to change the world.” Google has changed the world. Amazon. I remember in 1994 I was reading Business Week, and the Man of the Year was Jeff Bezos. I thought, “What? An online book store? It won’t go anywhere!” I have no clue the guy will change the world the way he’s done it. The third one that I would name that is unavoidable: of course, it is the ugly Elon Musk with Tesla and SpaceX. And I want to abuse my power and name the forth one – the Flyability. It is the company I’ve already mentioned, the one created by my son’s friends in Lausanne. The idea behind it is this. There are lots of spaces, especially industrial, where you don’t want to send people because it is very toxic or otherwise dangerous. And you cannot send drones there as well, because of limited visuals – drones will just bump into walls. So they put drones into a kind of cage that protects them from collapsing after a bump. They’ve created a piece of art drone, that can fly confidently in very dangerous places with really limited space. For example, you cannot send anyone to a mine that is threatening to collapse, but you can send a drone there. I love this project and think it can change the world as well, saving lots of lives. 

Are you satisfied with what you do, or do you think to apply your knowledge and skills to something else in the future?

Never say “Never,” but I believe that I am in the venture capital for the next many years, till I’m 82, at least. As I said, I was an entrepreneur, then I worked in VC fund, then I felt that I want to go back to entrepreneurship, get back into the car to hold the wheel and have another wild ride. Now I feel like I’m ready to pass my experience to younger guys, who want to change the world and make it a better place for my kids and grandkids. I think that’s a great mission, so I really enjoy what I’m doing. Sometimes I miss that time when I was holding the wheel – for sure you don’t get as much adrenaline as a VC as what you get as a CEO of a tech company. Plus ,ETF Partners is not about just making money – we are here for sustainability and «profit for purpose». 

Your three advices to founders

I would try to avoid giving all the common things. Let say that those guys already have the drive and made me invest in the startup, ok? My advice #1 to this guy will be: Take care of yourself. You must take care of yourself, must take care of your partner in life, must take care of your kids, because they are going to suffer a lot from the crusade that you have embarked on. Nobody gave me this good advice when I was 25. When realized that I needed to find a good work/life balance, I’ve started to go at least 3 times a week for 1.5 hour of sport. I like biking because it is a mix of sport and meditation. You’re in the middle of nature, you are spending a lot of energy, lots of serotonin is going to the brain and you have a chance to think and solve many problems. This is my way to get rid of bad emotions and to find a good solution for some problems. Advice #2: You must identify in your network 1-2 well-intended people who know you and like you, who understand your business and have no conflict of interest – and use these people as coaches or mentors. You need somebody you can talk to, with whom you can vocalize the problem, who can help you to find the solution. Advice #3: If you feel that, despite my previous 2 advices, you’re about to go to burnout, you must take a real distance from your life and work. And I mean, take a car, go 50 km from your work and home, and then take a distance from everything in a beautiful peaceful place, can even be a monastery. It is a bit of the same advice as taking the bike for an hour, but this time you need to make it longer to take better care of you and from where you will be, alone, you will have a very different view of what you are doing, how you are doing it and what you must change in the way you are managing your own life. Take care of yourself! If you have the drive, the rest will happen. 

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

It is close to Chess, but I’m choosing Bridge. You have to come with a common strategy with another player in Bridge, some roadmap, and then you have to come with proper execution. Bridge is the best.