Duncan Davidson (Bullpen Capital): In Silicon Valley failure is a feature, not a bug.
04 Feb, 2022
15+ years in the Private Equity and VC industry, Business Angel, entrepreneur. In 2017 Riccardo has founded DIP (“Disruptive Investment Platform”) an Investment platform focused on tech-based disruptive new businesses, sponsored by Platina Partners LLP, and raised a first €40 million fund (DIP fund I). In 2010 he joined the London/Paris based private equity and infrastructure investment firm Platina Partners, becoming a Partner in 2011 and Managing Partner in 2014. In particular, in Platina Riccardo has driven the renewable energy funds in the main European countries and India. As managing partner of the energy team in Platina, he has been managing a portfolio of assets involving c.ca €2bln of equity and project financing debt. Prior to Platina, he was the founding partner and CEO of Atmos SpA, a private equity investment group based in Milan with a focus on renewables and cleantech. At Atmos he invested in wind, solar PV, biogas, and biofuels, as well as in energy efficiency and wave energy conversion technologies. Together with the management, Riccardo owns 9Ren People, a smart-lighting company based in Milan. He is one of the shareholders and directors of Brandamour Spa, a modern industrial platform agglomerating fabric businesses in Biella (Italy). Riccardo has also backed some innovative start-ups, among which: Mimoto, the first app-based free float electric scooter sharing business in Italy, and BuyTheWay, an app-based shopping-on the road geolocalized service. Riccardo is partner, shareholder, and director of The BoB Group, a global education platform for new business growth and branding, based in London with the first branch in Australia. He began his career in the high potential management training scheme of the Fiat Group. He holds a BA in Electronics Engineering from the University of La Sapienza (Rome).
I’m a mechanical engineer. At the very end of my university studies I started to learn about artificial intelligence and neural networks. It was in 1996, so you can imagine which kind of artificial intelligence we had at the time. It was very different from the one we have today. I made a small stop out of this, just a very small thing that I sold quite immediately.
When you are 24 years old, you just want to buy a flat and a car. And that was the aim of that moment when I have converted my engineering background into a more entrepreneurial background. I have been working with a couple of M&A boutiques in Milan at the beginning of my career. After that, I started a cleantech and renewable energy investment company in 2003 with two other more senior persons, which was the real beginning of my career.
When the renewable energy industry started growing massively in 2007, more or less, we were there as the pioneers. We had made a lot of investments already. We were experts on the field list and that key gave us a boost in terms of results. And as a consequence, it made it easier to raise funds, et cetera. I became quickly a partner at Platina Partner LLC, a midsize private equity player in London with a scope in Europe and they continued combined with both private equity and renewable energy investments until 2013-2014, more or less.
In 2014 I decided to go back to my early life, which was a digital technology investment and I created the DIP Capital LLP, as a spinoff of a Platina Partner LLC, with a specific focus on digital technology investments. It was created at the beginning of 2018. I raised the first fund for DIP at the beginning of 2018 and now it’s two years and a few months old. All our investments were made into different companies in Europe.
That’s my sorry. As an entrepreneur, I have some business engine positions in other companies, but I am always focused on the space of new digital technology-related businesses. That is the whole story in a nutshell, 23 years in a few minutes.
Our strategy is based on a concept which is we need to be able to bring some value, not only the capital. And normally in this space you invest as a minority shareholder, not a majority shareholder. It is not super easy to find a way to add value to the company you invest in. And in our case, the kind of value we can add is coming from the experience we had in all these years, dealing with private equity and different kind of sectors, helping the company in the phase where it moves from being a very good early-stage startup to a company. You could call it a scale-up phase or whatever you want.
Every single company, whatever the sector, the vertical or the technologies are, after the first years when revenue starts growing, need to develop its structure, mature and step from a very successful early-stage entity to a company. So, improve your processes, organization, human capital questions, expansion, and a number of elements in common, regardless of the sector or the technology for that. This is the kind of value we can bring because we have made all the possible mistakes you can imagine in some of these 20 years. We bring these mistakes as an asset base to be shared with the company, we met. To do these we need to invest in series A and series B. The principal has driven our choice to invest in this stage. Not earlier, not later. Normally we invest in companies, which are already generating revenues, not pre-revenue investments.
Normally we invest in companies which do not have a deeptech kind of DNA. And the reason for that is if the business model is the innovation, we can understand it better and we can help. If it is a deep technology and very technical innovation the risk is that we don’t understand sufficiently the competitive advantage of the company, we can’t tell that much. That’s the reason why we avoid investing in deeptech kind of companies. We are focused mainly on Europe, even if, to be honest, most of these companies are normally based here or there, but the scope of their business is normally global. As an example, six companies, we have invested in with DIP fund one are all based in Europe in terms of headquarter, but at least three of them work more in the US than in Europe in terms of operations.
We have actually two investments which you could classify as e-commerce. One is a company that is the European leader in online groceries with an impact in Europe. The other one is a company, which is converting the offline brick and mortar stores into the online stores through the omnichannel scheme. I would say they are both in the eCommerce space.
It is very difficult to invest in healthcare, even if it’s very interesting. Healthcare tech is difficult, very difficult and it needs a lot of specific knowledge that we don’t have. Biotech as well. They are very difficult despite being super inspiring. These are the two examples that come to my mind first.
We are focused on 28 European countries, including Eastern Europe and the UK. Speaking about investment in Eastern European countries. Why not? A lot of European countries are developing very good hubs, in terms of, coding talent, digital engineers, technology engineers, and some of our portfolio companies have teams, that are working on the tech component of the business, in different European countries. The UK is definitely a part of the scheme.
Speaking about company registration, normally we don’t have any preferences. It depends on the business. If it has some advantages in being based in Germany rather than in the UK, France, etc., it can become good advice. But by default, we don’t have any requirements. The only point is the currency risk. That’s an issue also with the UK or the US-based companies because the fund is in Europe.
Anything that includes an additional risk, can be an issue. One of the companies we have invested in has 15-20% of its business in Poland. Of course, we have a currency risk issue in that case, but we would invest in any case. The only thing is you need to extend your risk assessment matrix and include this kind of risk. Normally you should invest in Euro-based companies, but it’s a part of the business.
Interesting question. Ever supported the ones that have not gone through? In the past I’ve supported the company, which was a social media dedicated to music artists and the idea was great – digitalization of the music talent show business instead of having X-factor on TV, that says which is super followed, very famous, etc. You have the same thing in the form of a dedicated social media, and you can support the artists through followers through likes or sponsorship, etc. It was very smart and it was one of those cases in which execution is fundamental for 99.9% if not a hundred percent. In a business like these, which is entirely driven by artists, execution is very complicated. Managing an artist is a very tough and unusual kind of business model. That’s why they were never able to fly.
Normally the ticket size in total is somewhere between $2-4 million per company. We can reach five or even six as an exception for very good deals, but normally the average is between $2-4 million.
Usually, we reserved the possibility of making a second or even a third add-on, but not more than that. The idea is to make a first investment, which is normally the bulk and could take effect at this stage. Now we have 1-3 companies in which we have done the second investment, which was in many cases more or less than the original investment. I don’t see us investing more than two or three times in the same company.
I don’t know. I believe that the success of a company doesn’t depend on skin color or gender. It actually depends on some different things. To me, it’s important that the management team and the founders are available to talk and discuss because it happened many times that we were in front of very good founders and managers, but they had no skills of listening or communicating with their shareholders. Zero. This is a super frustrating part, but normally it’s something we try to avoid for the same reason I told you at the beginning. If it is so, the company will never get any material support or value added by the shareholder. Normally they are not good at listening to anyone in the business. That’s one thing.
The second thing is if we can, we try to avoid a situation in which there is a one-man show or too much of the talents and key skills in the company are concentrated in one or two individuals. The capacity of attracting other talent is very important. I like founders with good vision and good execution. But they will leak if the company grows. That’s why we invest. They will need to be able to attract other colleagues and people; they need to understand the value of human capital.
And the last point, which is probably the most self-evident, they need to be very good executors. Sorry to repeat that, but we have seen too many cases in which the idea was fantastic, the business model was the right one, there were years ahead of the competition, but the execution was not their job. They just lost themselves in thinking, visualizing and trying to add something more to the product, the service, or the idea. Execute your boundary road and stick to milestones that’s what you need from a team.
Normally, the best situation for us is being between 10% and 20%. We could drop lower than 10%, but we try to stay higher than five. For us it’s okay. We are a minority shareholder.
It depends a lot on the level of risk that we perceive in that specific company. Normally the range for us is between three and four times as investment a case. Now, of course, in some cases, we are expecting to make more than that. When we make an investment decision that’s what we normally use as our reference for an investment case. And usually, it took us 4-5 years to exit.
Not necessarily. In the end, what we search for is a business, that is providing an improvement in the customer’s quality of life, either it means B2B or B2C. We see a lot of very smart businesses that are producing or providing something that is making a difference, but that difference is not really different for anyone. You are able to deliver a certain software solution, which makes that specific thing in 5 seconds instead of 20 seconds. Fantastic, but it does not change the life of anyone at all.
That’s a strong example, but in terms of specific kind of products, we don’t have any requirements. We have invested in a company that now became the global leader in connected cars data monetization. We have another company, which digitalizes the grocery markets and you can do your grocery there. Also, we have an Alta which is doing grocery for you. These are completely different companies and the common element is that customer is making a difference for them.
As I told before, one of our requirements for the team is that their talent is spread between more than one person. The reason why it doesn’t work with a one-man show is the growth of the company, in which we invest, depends on an expansion, which needs other people to be involved in the first line of the company. And the one-man company, unfortunately, have an intrinsic limitation in terms of rules because you can’t clone or replicate that one man.
At the end of the day, it can make sense to invest in a company which is a one-man show if this man is available to transform the organization, including other talents, immediately after we invest in that case. It is difficult, but it can be done if a solo entrepreneur is not too focused on the destiny of the individual. Otherwise, we can’t help in such a case.
Another problem is a family business. The only experience I have is a negative one so far. It is good when members of the family are involved in the business and each one of them is adding value to it. Why not? The situation when we need to be careful of is when the whole family is involved, but in the end, only the only member is adding value. The cost of all these people and the difficulties of a decision-making process involving a family, which is not sufficiently cohesive, could be an issue. It’s not necessarily something we would not do, but of course, we should pay attention to what I just said.
I would say we make two main steps. One is the preliminary due diligence where we do everything internally. It means that financial due diligence, due diligence on the unit economics numbers, competitive landscape, and the business model of a business plan, is entirely driven by my team. Normally it took 2-3 weeks or four weeks in the worst case.
After that, we should go further. Normally we run some technical, legal, and if needed – tax due diligence, and all these by outsource. Timeline from the first talk at the first meeting to investment depends on a number of things and it ranges from three to six months. Normally we have these kinds of cases.
In one case we have been good enough to close in three months. By the way, it was during lockdown and COVID-19. Other cases took longer because one of the shareholders wanted to add something to the shareholder’s agreement and they needed to get advice from a lawyer. Usually, it could take six months or even longer than that, to be honest.
If we will exclude things that are killed immediately, I would say normally we run 100-120 per year. It’s difficult that we run more than 3-4 serious potential investment per week. To give you an idea, we received three to four times more than that. At the beginning of the funnel, we have 400-500 opportunities per year, which becomes 100-120 deals that are considered seriously, which becomes 30 processed and at the end of the funnel we made 3-4 investments per year maximum.
Our origination is made a bit of every channel. But the most successful channels have been the personal network of me and other members of our investment committee and advisors – specialists who advise us in the space they know well. They read our press release when we make a message and normally they call or drop us an email the day after to share information about a specific company with us. Conferences are helpful too. Our team is scouting actively and from time to time they originate something directly just through an unsolicited contact. The one size fits all kind of products don’t work very well. When you receive lists of startups from different kinds of editors in the space that is good for having an idea of how the market is moving, but it’s not good for originating application investors starting investment in my experience. That’s more or less how it works.
I would say we don’t have a punch list with red flags. The behavior of the management team and the founders during our two or three meetings can become a red flag if they demonstrate they are not actually interested in collaborating with investors, in listening to the investors, or if we understand that for them the stock stuff is just one of their interests and they are not focused and not dedicated. These kinds of things can become a red flag. Of course, if the business is not showing sufficient integrity it is definitely a red flag. When you get reasonable valuations it’s also a red flag. I remember once we saw a business where founders wanted to remain on that forever. These kinds of things happen but are more an exception than the norm. That’s natural.
Sure, and not only once. But it never happened to me that the reason why I decided not to invest was wrong. Not yet. It could happen, why not. Some companies I have not invested in are doing very well. It happened and it’s a part of the job. It is compensated by the fact that some of the companies I’ve invested in have done much better than what I was expecting when I made my decision. These are the positive and negative surprises. I think the biggest was a case in which if I had invested I would have made about seven times money in three years. It’s a very good case when I probably don’t regret, but feeling sad for my investors. They could have made more money.
I think everybody in this business makes mistakes. Normally the most recurrent error is that you have not assessed properly the founders or the management team. That is the most recurring thing because you can make mistakes on your assessment of the potential growth, market demand, competition and that are the most difficult to avoid because you meet the management three or four times. And when you spend years with them, you should learn much more about them.
I have to say the skill of understanding quickly if founders and managers are good enough for doing what they are supposed to do is something that I have developed and anyone could develop it too by doing this job. But the risk is always there. That is the most frequent mistake for all of us and it is the part of the job that does not depend on how good or how hard you work. It’s a combination of things and you need to do the best for reducing the risk of making a mistake.
I think conferences can be helpful for deal flow. They are not the most efficient tool, but they can be useful in particular because they concentrate in one place a number of investors and founders for one or a couple of days. The last four month changes conferences a lot.
I prefer events where you could find a discussion between the founders and investors. Let me mention some of them. The Web Summit is too big for being efficient from an investor’s viewpoint because you have so many things to attend and so many startups to see, which is very tough to make efficiently from a deal flow view. But definitely, it is one of my favorites, because in a few days you have a lot of inputs, much information regarding trends and technologies where investors are going. You could see a lot of startups, meet a lot of young people, etc. I’m normally involved in these mentorship corners, where you answered questions from startups the same way we are doing during this interview, with more than one founder around the table.
From the overall format, I found very good is the NOAH Conference, One as well and some of the Tech Crunch conferences around Europe. Some of them were better arranged, others – less, depending a lot on the city. These are my favorites. Overall, the best advice I could give to startup founders to make up a good result out of conferences is to get information about investors as early as possible and try to get in touch with them before the conference. Just set up a meeting of 10 or 15 minutes and use that slot well with a little information just to create the bridge for a proper meeting outside the conference. Use a «guerilla approach». A hundred or more staff stops during the conference, going around, trying to get business cards that are filled. I don’t think it works well because as an investor you get a lot of confusion in this way and you don’t have time to focus on meetings.
We made three investments in the last four months, of which two were done on existing companies and one was a new deal. Now the approach is of course more conservative in terms of cash. When we invest we need to have evidence that the cash runway is much longer than before. And for sure COVID-19 impacts the risk part of our analysis.
Let me give you an example. We have invested in a company that is leading with the digitalization of distribution and sales. One of the things that people think about now is that everybody is getting poor and nobody will ever buy a car. That is not true. There is an increase in car ownership in the European market. Why? Because people are afraid of public transport now. You definitely include the impact of the pandemic into your investment criteria, risk analysis and the biggest element of changes. We just extended the minimum cash runway to 18 months before making an investment decision. If there would be another lockdown or another difficult situation a good company needs to have at least 18 months of cash. Otherwise, it’s too risky and too dangerous. Even a bad company can run out of money not because of their business, but because everything is shut down for two months.
Will it bring us to a new Renaissance like in Florence after the black death in the 15th century? I don’t know. Of course, now it’s easier because is dedicated to technologies and COVID-19 gave a very strong acceleration to digital transformation. It’s sad to say, but it is a good time for some of our companies.
I would say it’s a 30/70. For most VC investors it is an opportunity, but a minority of them see it as a thread because they have already invested a lot and now they need to focus on a defensive strategy rather than a goal strategy. The more you are in a dry powder investment cycle the more it is an opportunity. The more you are at the end of your investment cycle and you don’t have a lot to invest because you already made your investment, the more it can be a thread. But for new investors, for people that are coming to invest today, it is definitely an opportunity. There is no doubt.
Definitely, it is an execution, underestimating the marketing efforts for scaleup in a larger majority of the cases, the business planning is not addressing the proper acquisition costs of their assumptions. Very often they are very convinced that their idea or business model is better than the rest of the world that they don’t consider the tools for Implementing the sales strategy, like the product or the services, are selling automatically, which unfortunately doesn’t happen. Also underestimating the recruiting and hiring strategy, which is a big question mark in particular if you’re not based in London or you are in a place where you have a lot of talents that are needed for becoming a large company.
I saw a very interesting business in Iceland recently. They wanted to keep their offices in Iceland, which is fine and I have nothing against it, but it’s difficult. A startup to become a hundred million business needs people. And in case you want to keep everything in Iceland, you can hire people elsewhere but it’s difficult to ask them to go and live in Iceland. It’s like to make a development office in Switzerland or try to make up a lean non-bureaucratic business in Rome, for example. These are the weaknesses points I normally meet in startups most frequently.
I would like to be a friend with Bill Gates, a friend and partner, or being involved in business with Elon Musk. Also, I would like to become a friend with Steve Wozniak, because he has so many stories about Steve Jobs and it would be very interesting to listen in front of a beer. And that would make Wozniak a very interesting friend.
Well, MPS – Monte dei Paschi di Siena, which is the first bank ever. By coincidence, it was created in a place called Sienna, which is very close to Florence during the period we just mentioned, after the pandemic and middle age, at the beginning of the Renaissance. At that time, it was a startup, because it was the first bank ever. They were the first who lend money to people.
Speaking about one of the most revolutionary startups, from my personal viewpoint it is Amazon. And not for started selling books on the web but for understanding that what they were selling was completely irrelevant for their growth. They understood that the sales channel that they were creating was disruptive for their growth. And their approach when they were investing all the time to innovate and make mistakes that were also disruptive.
And the last one I would say is Tesla, even it’s probably too obvious. Tesla as a whole, not only electric cars but electricity and solar power, reinterpretation made by Elon Musk is definitely a game-changer.
For the first part of the question my answer would be yes, I am happy with what I’m doing at the moment. The best answer is to give you the purpose. For me it is the remuneration and return on capital that we make out of this job, but it is not the only and the main purpose. Being a part of good things happening or helping and contributing to making cool businesses happen is a very important part of the job for me. And together with the financial results, this is the component which is doing well and the reason why I can tell you that I’m happy with that.
As a consequence of these and having these as a purpose, I don’t think anyone retires from being a venture capitalist ever because of the instinct of helping, mentoring and supporting someone younger in doing their own thing by using your mistakes as an asset. Either you have it or not. And if you have it’s not a matter of how old you are. You keep doing it, maybe less intensive, you do business engineer, or you’re just helping two or three companies.
The plants for my organizations for the next 10 years are very clear. We are finalizing the investment cycle for fund one and we will get out with the raising fund two. Starting from the second part of 2021 or latest first part of 2022 we start fundraising which will be materially bigger than fund one. I think we will raise under 50 million or something like that. Together with that we will start as soon as possible a sort of accelerator. I would not call it so, because this is not what we want to do, but the organization will arrange some meetings for startupers and founders just to share experience and answer questions even if we are not invested in. We are not interested in just creating an environment because there are a lot of them around. It would be a different place where they can ask questions and position themselves in front of 20 investors. That is the plan for the next 10 years or actually for the next 5 years.
I still like paper despite it is becoming a whole old kind of tool. Paper books are still on the top of my list, technical and fictions as well. I can read at least one book every two weeks. That’s part of the plan. It can be higher or lower, but the baseline is one book every two weeks. I spend a decent amount of time listening to podcasts. It is a good tool for me and I am listening to some that are related to business, technology, or venture capital, but also podcasts that deal with any kind of personal growth. Music is also involved for sure, but it’s more a way to share different moments with the team, going to a concert or inviting them to an event where I’m playing is a way for sharing something, which is a part of normal life and has nothing to do with the business plan.
I would not recommend a movie. I don’t have any titles in mind. There are 2-3 books, which definitely are helpful. Zero to One is a book that I would suggest to read and Start With Why: How Great Leaders Inspire Everyone To Take Action by Simon Sinek as well. It is technically good reading for startup founders.
Podcasts… There are so many of them. Institutions normally provide a good source of information in the form of podcasts or videos. I like a lot of what Atomico and Catapults normally publish on their websites. Simon Sinek’s podcast and YouTube videos are good ones. These are the teams that I would recommend.
I will use my father’s aphorism: there’s a reason why we have two years and one month, which means that we are supposed to listen at least twice than what we talk. And that’s the advice I would give them: listen, listen and listen! There are too many founders spending so much time talking and they don’t listen to investors and their team. That is a big thing. If you are good, with a good business, good progress and you show that you are flexible and is available to listen it is unlikely that investor doesn’t want to invest in your business.
The second advise – be focused on execution. And the third is a resilience. I don’t remember if I’ve ever invested in an entrepreneur, who made everything perfect from try one. Everybody goes through a number of ups and downs before the company starts doing what everything good. Be resilient. The first 2-3 years are very important.
I’m originally from Rome. I’ve been working in seven different countries. The countries where I spent working most of my time are the UK, France and Italy. Now I’m normally working and moving between Milan and London. During COVID-19 I spent most of my time in Milan because traveling as you may imagine was not that easy. As soon as the new normal becomes clear, I will start commuting again between Milan and London. If I should choose my favorite place I think it could be Italy but 200 years from now, or it would definitely be California now. I spent one year in San Diego and it’s difficult to find a place with a better quality of life for a venture capitalist. It is definitely easier to make business there. I think it’s difficult.