Claudine Emeott (Salesforce Ventures): We invest with the same core strategy as other Salesforce Ventures funds, meaning that we’re looking for enterprise software companies that can integrate their technologies with our platform
01 Mar, 2021
Sergiu Negut is Co-Founder, CFO & EVP Corporate Operations of Fintech OS. He has a proven track record of business growth in different roles (adviser, board member, angel investor, manager) and across different industries (healthcare, IT&C, financial services, HR, consulting).
How it’s all started? How you decided to enter the venture investment business?
I had an opportunity to run a pretty large healthcare organization. Today it is called Regina Maria, and this is the largest private healthcare chain in Romania. When I started working there it was a small chain of clinics. And it was on the wedge of raising private equity finance and to grow to become a market leader. For me this was a journey of about 7 years of coming from multinational position to Romania based semi-entrepreneurial company and semi-entrepreneurial position (I was a hired manager there). I hoped the owners grew the company, got the finance, reinvested a number of times, sold the company to another investor, and so on, and grew the company ten times. At one hand, I had a good stock package that allowed me, when the company was sold, to have a good exit package. And that gave me financial resources to start a small investing business myself. Also it gave me an opportunity to find out what I would be good at and not so good at. And when it all ended and I wasn’t in good terms with the new investor, so I had to leave the company, I did a little introspection on what I was good at, what somebody would be willing to pay money for and what I liked to do. I realized, that it wasn’t for me to get to another company into an executive position, but rather I enjoyed the most setting strategy, learned what other companies were doing and helped to grow companies. I realized also that buying a tiny percentage of a company when it was small and selling it when a company would grow very big could bring you nice money, as it was with my previous company. I thought that I could help companies to grow while taking a minor stake, yet larger than a typical stock option package, typical angel package. The first company of the kind was a small food company making fresh deli food deliveries, and that eventually became a market leader in delivery of fresh deli natural foods in Bucharest. The last year it was acquired by Univeler, so I had an exit to Univeler last year. There were more companies where I reinvested a little bit of money. I’m not a typical angel investor, not a multimillionaire who had multiple exits or one major exit and decided to invest a part of earned money into high risk new companies. All I had was a reasonable size exit, because a small part of something rather big is still good, but I put to angel investing a significant part of my smaller fortune.
Have you tried to invest into Kickstarter projects?
I’m not a big fan of crowdfunding. Not because I don’t believe in the model, but I think that, in most of the cases, to deliver your message and to convey investors you need to give broader information than can be done through crowdfunding platforms. Also I’m not rich enough to give money in what II won’t be able to participate at all in managing. It doesn’t mean that I’m taking executive positions in my investments, but it does mean that I have to be in a position to provide strategic advice to the majority of owners or entrepreneurs who run the business. If it is formalized in some kind of board of advisers who meets from time to time like, say, friends, it is less important. But in my case I prefer to have fewer investments than I can track and participate in than just “spray and pray” type of investing.
How you select startups to support? What are your criteria?
Again: it is an opinion of a small angel. For me, the most important criteria is a team, and under the team criteria there are several things that are important. The first is: are these guys or this entrepreneur and his team able to manage business and is he or she able to manage this business. Which means a little bit of industry expertise and a bit of ability to run teams before, having proven that this works. And having a commitment that they won’t be abandoned in the next month or so. The second: idea is a good thing, but I prefer to see something as MVP at the time of investment and some clients being convinced already. Maybe, not a commercial viable model yet, but some clients being already willing to buy this service, or, in retail, to see some adoption. It has to be some traction for the business already at the time when I’m coming in. Ideas are nice, but they’re not exactly business. The third: I prefer to see a market that is speaking up somehow. Of course, it has to have some growth potential, so the market has to be attractive per sé, but, at the same time, something that is happening already. So, yes, moving objects with your mind or doing something sci-fi is an amazing idea I won’t put money in. I need to see business able to make money over the next couple of years. It has to be something concrete, with specific client in mind and having clear business traction sense. And the last: I’d prefer not to be alone. I don’t want to feel that I was the only idiot in the world who was told that this was an opportunity; I’d rather syndicate with other angels who also would think that that would be an opportunity.
At what stage you prefer to enter?
I prefer to have anecdotal evidence of commercial success. Not that the company is profitable and has huge traction, but an evidence that somebody is willing to pay for product or service, and that customer in person should really exist at the market. Also I need to conceive the level of scalability.
Are you investing abroad or work only in Romania?
I started in Romania, but for several years I lived abroad. I think that in the technology sphere (but not only there) borders are not to separate, but more to expand opportunities both for the companies and investors. So, I’m not confined to Romania. In fact, I have some investments that I did in other countries, smaller, but still.
What qualities you are looking for in teams?
Understanding of the market. Good business skills. And then some personal qualities, like high level of energy. And this is very important, because you need to work a lot at startup. A good level of optimism, because occasionally things may not look so great, and I don’t want you to be taken aback because of some potential hiccups and straggles. I like you to continue to believe, to work for the company and believe in it. And a sense of good humor, because when we meet now and then I want you to participate in conversations and I want to be sure that we can work as partners, can relate to each other and be a larger team.
Investors like to work with teams. But have you ever support a one-person startup?
Yes. Both successfully and not successfully. In most of startups you see a central figure, and building of the team doesn’t necessary mean that more people can perform that central role. They can be first employees, but not co-founders in the true sense of the word, even if they have some share. I did invest in single entrepreneurs and I will continue to invest in individuals, of course if they build a team which they had hired. But it is important for them to have a record of being able to manage a team.
How many startup projects do you review per year?
I think, at average I get several messages per week and, honestly, I’m reviewing a couple opportunities per month. I invest in one or two opportunities per year.
How startup team usually find you? What are the sources of all those applications/candidates?
In the beginning it was more complicated. I showed up in gatherings of the companies pitching their products (I continue to do that way) and then approached teams with proposals. Nowadays I already have a track record as an angel, and companies reach out to me. Again, it is from pitching events organised for startups by communities.
What do you do if customers approach you and ask “I want that product”?
I’m facing this situation right now and have mixed feelings about it, because I don’t feel that this business has a huge potential. Although I trust the client. But, no, I don’t like it.
In not so hypothetical situation, when you see that several startups can perfectly compliment each other and create an incredible product, what you do?
I’m sceptical. Prior to being an angel investor, I was meeting people, mentoring entrepreneurs and helped them to contact each other. By using my network, you know, it happens quite often now, that I tell people: “You need to meet these guys. I don’t know, what happened, but I think there is something complementary in your businesses, so you need to meet.” It’s not only about businesses I’m angeling, but also about startups and more mature businesses. When I see an opportunity for people to do business together, I make an introduction. Sometimes when there is a commercial way for the people to engage in business, they do. But if there is broader partnership or merger, it is almost impossible. When people are in the driver seat, they don’t want to share that basing on some synergies that are relevant, but not equally relevant for both parties.
What is your due diligence procedure and how long does the process take?
I have one, but it is very schematic and has nothing to do with the process by more structured level of investors, like VCs, is done. I do a little background checking, like finding common acquaintances who can give good references, if I don’t know that person well. To trust the team, members have to have good reputations. Typically, the companies I work with are not very old, and there is not much due diligence to be done for the company started just a few months ago. I check, if legally everything was set up properly, but it is a subject of change during the transaction. Sometimes it is more complicated, sometimes people do spin-offs, sometimes people are still involved with another business, and those are things to be clarified and put to perspective. But at the early stage I don’t consider due diligence as a blocker.
How long does it take you to cover the whole way from the first meeting with founders to contact and check signing?
In my experience it takes somewhere between two and six months.
And how big is a check you usually issue?
The amounts I have invested range from 20,000 to 200,000 Euros.
Have you ever rejected a cooperation proposal and then regret it?
Yes. There is a company called Bittnet Systems in Romania, and I had discussions with the founders. They were small academy teaching IT courses at the time and were looking for angel investor. We had some good discussions. I liked them, but their expectations of evaluation and mine didn’t meet. So, I rejected the proposal, but they liked the conversation. They approached me immediately after closing the investment with another angel to participate in advisory board, which I did. They were using this advisory board very smart, very efficiently. A couple of years later they grew, listed in Bucharest Stock Exchange at SMA segment being the first IT company listed there. To make a long story short, they grew, perhaps, 30 times. I’ve got my small participation as a board member and it’s not an insignificant amount of money, but had I invested, it would be a lot bigger. This is my favorite anti-portfolio/semi-failure story.
Accepted and regret?
Regretting is one thing, losing the money is the other one. Sometimes you lose money, but get something from that experience, and it’s a good learning you’re happy with or get not extraordinary, but good exit. Looking back: there are situations when, knowing the outcome, I wouldn’t invested, but not knowing, I would still invest.
What was the most unusual or even exotic startup you ever supported?
I’m not doing exotic staff. It’s one of my criteria. I have to believe that there is a true business opportunity that has real clients.
Can you name industries you really like, yet will never invest into?
Renewable energy is a very good industry, but you need to have a lot of knowledge to make a good decision. I invest in industries I understand and where I can contribute at the strategic level. So, renewable energy is not for me. To some extent, the same with agriculture. There are several areas growing very fast now, but I still don’t have nether understanding, nor knowledge to be part of that.
Have you invested into projects you do not expect revenue in your entire life?
Yes, still I wouldn’t say “not expecting revenue.” I do invest, but just don’t call these “investments,” call them “donations.” I believe in creating ecosystems that work. If you want a sound business ecosystem in Romania, that gives ample opportunities for entrepreneurs and jumpstarting social entrepreneurship or social conscious entrepreneurship, you need to participate in educational projects. Some of those project I initiated myself. There is nothing about making money in that, but investing some of my money and a lot of my time to make these things work. We are as strong as the communities and ecosystems we are a part of. Of course, some people chose to change the ecosystem by moving somewhere else. But I think that we can make the world a better place if we try to change the ecosystem we are already a part of and to make those ecosystems stronger.
What books, movies, blogs, events can you suggest to startup founders?
I think, the most important thing is to never stop to learn. When I see people, who have certancies rather than opinions, I’m getting concerned. As you learn more about the business, you realise that there is more to be learned. This curiosity in understanding what makes a business successful and what doesn’t and extrapolating that into your own business that matters. There are many ways to do that: there are programs by accelerators, there is that conscious search for models and successful business people you should talk to and try to understand what makes them successful. The conscious search for failure models. The structured learning, such as MBA or longer-term programs. But understanding that running a business has two parts, both of which are very important. One is strategic, technical, numbers driven, money driven, where an entrepreneur has to be very good at. The other is passion driven, relationships driven, empathy driven, because it is about relationships with other people, being clients, or team members, or investors. It is another area of learning. If you want to broaden your horizon through books, get structured education, but you have also to communicate with other people to become a well-rounded entrepreneur. There is no unique source of knowledge. Having read Business Model Generation is good, having read Lean Startup is good, having read Zero to One is good, having read some behavioural economics from all the major writers is good, having participate in conferences or read the blogs is good. But none of them or even all of these together is not business knowledge. The business knowledge is learning something, trying to apply it and learn something more from this process.
And what are your red flags?
Lying. Pretending that you have something while actually not having it. It is an absolute no go. Overconfidence to the extent of unwillingness to change one’s mind whatever happens or whatever advice he or she is given. The rest you can never say until you start to work together.
Have you every work with a team starting with one idea but exiting with a different one?
It is an everlasting idea of being an entrepreneur – this lack of bigotry. As I mentioned, idea is relevant, but a team and understanding of the industry are much more important. You start with something that appears to be right, but validating it to the market, scaling it, changing it, transforming or eliminating things in the process is just natural.
With who you would prefer to deal, with Jobs or Wozniak?
When we build teams we have to look at qualities of people and how they can be put to work to the best interest of the business in teams. But I’d rather work with businessmen than with engineers, so my answer is Wozniak. It is important to understand business. Unlike an engineer, it’s not a profession, it is a state of mind.
Can you name three most breakthrough startups in the history?
I think that learning is literally unlimited, and you can learn a lot from so many possible startups that just making a shortlist of a few?. Maybe, it’s not the most relevant. I’m fascinated by Cirque du Soleil, Innocent and Microsoft.
And do you like where you are now in terms of your current business situation? Or, maybe, you would like to try something new to apply you knowledge and ideas to?
What people I admire do is that they have a possibility of shifting. They did something, they did it well, then they shifted, did something else and were good in it as well. What I did so far and what I’m planning to do is that I don’t want to settle, to think that I will do something for the rest of my life. I think that this continuous exploring of opportunities and understanding more about the business is something that will keep me going for quite some time. I believe that business is the craft, it’s not a science, and it is about how you applied what you learned as opposite to what you learned, how you chose the right theory or the right mix of theories, how you found out what works and what doesn’t. And this is much more important than the information per sé or theoretising. I believe in practicality of business knowledge, and you should never mix good theory for the good business. Because it doesn’t matter how good the theory is if it doesn’t apply for a particular business.