Duncan Davidson (Bullpen Capital): In Silicon Valley failure is a feature, not a bug.
04 Feb, 2022
William Goulding is FinTech VC Analyst at Arbor Ventures. Before joining Arbor, he founded Skipiit during his final year of college, a Fintech and AdTech platform that significantly boosted revenue at hospitality venues. He raised $400k from angels and scaled the platform from Washington DC to New York. Since then, he has helped source exciting US and UK startups for an Asian private equity firm. He brings a passion for technology and real startup operating experience.
I was at university studying International Affairs in Washington, DC, at an entrepreneurship course. To pitch a business as part of a competition, and I already had this idea for a mobile payments company. While I was doing an internship in a bank in London, I ended up pitching the manager of the bank, whose daughter had raised $10M from funds in California, also as an alumnus by the university. I’ve got inspired to start a company and end up building MVP, launching this mobile payments company in my final year in college, raising a little bit of Angel money in DC, and actually winning $20000 of prizes from my university. My professor was very helpful, introducing me to lawyers and getting me free legal help. I launched a mobile payments business aiming to allow ordering, payment, and delivery of FNB to high-volume hospitality venues. I wanted to target stadiums, theatres, large venues, and ended up serving small bars, like American sports bars. Our launch started in DC, and we realized that the user base is a bit too transient there because it was low spending power there, so we moved to NY trying to do the same. I run the business for about 4 years, ended up selling it down and moving back to the UK. Along the journey, I got to sit with many VCs and Angels and really got interested in the venture business. It’s like having a window into the future – you’re seeing companies today that can shape tomorrow, and that’s what really intrigues me. You’re helping to shape tomorrow by investing in these companies. The second part is the tremendous respect for these founders, facing unbelievable challenges, which requires a huge level of dedication to finish the marathon. It’s inspiring to work amongst them.
It depends on the perspective you’re looking out. All of our companies are pretty unique in their own way. One pretty interesting is a company called EverCompliant which designed cyber intelligence to detect and prevent transaction laundering in e-commerce, monitoring global transactions. It mountains a dashboard with a live map of all the illegal transactions all over the world. Another company which I find fascinating and which has been expedited by COVID is a company called InCountry. It is looking at data residency and all these different data laws and regulations around the world. It is really interesting in FinTech what’s happening in the spaces, like one country or one region, and, obviously, a good example is GDPR implementing state regulations. It is important for transnational corporations to be able to see what’s happening across the globe, in other regions, there are countries to matching the highest level of data regulation with those where they are not required to do so. We probably see the perforation of data regulation across other regions, so that’s a very interesting area.
We’re a global fund, interested in SEA, Middle East and Israel, and the US. A lot of startups and companies that pitch us come through traditional sources, like demo days, pitch days, etc. I think the most valuable startups that we have come through our strategic network: we’re introduced to them from another portfolio company that may be using their products, or our LPs (and we have quite a unique LP base that includes many financial institutions). We’re very conventional as the investors, and what we do is we do less of fishing, but we identify a sector that is particularly interesting for us, write deep sector analysis on it, and then we’ll go hunt for companies in that particular sector – looking online, or visiting pitch days, but mostly through our strategic network. We ask companies in our portfolio what they know about that space, do they use any products. A good example is a company called Paidy which is a Buy-Now, Pay-Later solution which we invested in. And another interesting area was an underwriting chargeback risk for credit card fraud. We found a company called Forter. We had a PRC with Paidy to get the feedback and to understand how they worked with each other’s portfolio, did really good wedding diligence for companies. We ended up investing in Forter. It then helped another one of our portfolio companies out – 2C2P. Later we were able to repeat this across the region: we invested into Paidy as Buy-Now, Pay-Later solution in Japan, than to Akulaku in Indonesia, and recently in Tabby, which is based in UAE. It’s two-fold where we can identify a company, use our portfolio companies to diligence that company and understand the actual winner, and then once we’ve identified an original trend we can repeat that investment effectively and successfully across different regions and share that networked knowledge across these regions, which is massively beneficial for portfolio companies.
It ranges: if it’s a very competitive deal, we can do it very quickly, but typically we like to take our time and run some PRCs, so it takes around a month. Traditionally, the human risk element to investing in a company is underweighted and underanalyzed. while we access product risk by analyzing the market, comparing with the other products out there, doing demos, and you can understand that risk, but the human risk is really underweighted and underanalyzed. Typically people make a decision on founders by speaking to them, maybe asking for some references, and, I think, more VCs are starting to look at the psychological and behavioral traits, but that’s really become a key focus for us – to really understand that outperforming traits of founders across the world and how they differ across regions as well. And my recommendation for founders: You, guys and gals, should be doing this yourself for your co-founders and other members of your team, as the team, at the end of the day, is the most important thing. So understanding whom you’re getting into bed with for this marathon is really critical.
We are interested in different Payment verticals. InsureTech is a new area that we starting to look into. Definitely, Data regulation and different types of RegTech. Another area that we’re particularly looking into is Application Security.
We are an early-stage company and we typically invest seed to Series A. We do do some later stage Investments, but it really depends on the company and the sector where we want to enter.
You’re not going to invest in a company if it’s got a small market, you want a minimum 10x return – that’s, definitely, the minimum bar. Of course, you also need to have a decent share in a company: there is no much use in making 10x on $100k investment.
We’re looking for about 10 to 15%.
As we’re talking about the team, we have to remove the market element, but they surely need to be going for a large market. Product-wise and team-wise – they need to be extremely customer-centric. What’s interesting about early-stage companies is that they put a product to market and it is not used as it intended by the customers, so they need to adapt and learn quickly, and the way you do that is being very customer-centric. That’s really critical. But the human element is really-really important, especially for early-stage companies, again, being extremely adaptable is very important: the team has to adapt, the product may change, etc. Another element is listening – the ability to listen, to be externally focused, to understand what’s happening in your market, understand your competitive landscape, and to be able to take all the information you can to make the right decision. People often get confused between being very decisive and making good decisions: it’s better to take your time, to listen, to collect all the information you can – and then make the right decision on a long-term basis. This type of being able to make an excellent judgment is something that we look for in founders.
Overly decisive and rashing founder is definitely a red flag. Some VCs may debate about this but if we’re speaking to an early-stage company and they’re already talking about the exit, how they going to be a unicorn and have Goldman do their IPO, that’s definitely a red flag for us. We want you to be focused on building this product at its early stage. I think, what that insinuates is that you’re really in it for them just to make money rather than solve a problem, and we like founders to be mission-driven with the by-product of that is being successful.
I think every VC has this, and we have our share. Maybe, the reason is that when you’re investing in an early stage, the team and how well you get along with these people is extremely important. And if you are not comfortable that much, you’d rather prefer to pass while other VCs may get better with the team. If we don’t like a team for whatever reason, it doesn’t mean they’re not going to be successful – it just means that we are not going to work well together and we probably can’t offer them that value we intend to offer and underway the interaction the way we have with our startup founders when the relationships would be good. That’s why we pass some teams.
We are a FinTech focused fund, and FinTech gives you a broad arena, because anything that touches payment, may be justified as FinTech. For me personally one area that I find really fascinating is AgriTech. Actually, I worked very briefly for an AgriTech venture fund in London before moving out to Singapore. It’s a really exciting area, it has huge benefits for the world, for people, for the environment. I find insect farms really fascinating. But it’s not something we would invest in.
Everybody augments during the COVID, and we augmented our approach to fit the new climate. We’re very aware of the burn rates of the companies in the market environment they are operating in. Probably the majority of our portfolio companies has benefited from COVID, they’ve seen an acceleration in the industry. I think that’s because we’ve invested a lot around digital infrastructure and financial services which been huge beneficiaries of COVID. We have more hands-on and try to help our founders as much as we can whether it’s helping to raise new capital, helping to handle their balance sheets, or making strategic introductions, or adapting product-market fit. We tried to be as productive as we could, especially during the first months of pandemics.
It’s definitely an opportunity. When you look at the last financial recession of 2008, there were a number of huge companies that were drowned out during that time. Still, the new types of fintech companies were born out of that recession, because no banks were willing to loan, so the new generation of alternative lenders was born. There will be a new generation of very interesting companies born out of COVID-19. It’s also an interesting time because it will sort good startups from bad startups, good resilient teams from non-resilient, and adaptable from the unadaptable. It is an interesting time and it provides a huge amount of opportunity.
Probably, I will mention the stereotypical ones here, but social media companies, like Facebook, are a real breakthrough. They had a lot of negative media recently, especially because of how they handle data privacy and how people get controlled by social media (which I do not quite agree with). I think that’s massive value been brought to the world by social media, helping them to lead independent lives and work from home. They were a huge driver for small businesses to bring a lot of benefits to the world and truly disrupting not only their own industry but the way people can leave and work. Another one, which is really fascinating and again obviously stereotypical, is Amazon, but not only Amazon itself as an e-commerce company. What is more interesting is what’s beneath Amazon. Amazon really is an economy now, but there is a multi-billion dollar company beneath Amazon which no one’s ever heard of – whether it’s third-party sellers, whether it’s micro delivery, whether it’s storage, whether it’s data providers, whether it’s marketing or companies that are solely focused on optimizing the Amazon marketing algorithms. It’s a fascinating ecosystem beneath Amazon and other players, like Walmart, Shopify, or Lazada, that can use the ecosystem economy that Amazon has built, and move on further.
Some VCs may consider it more like backgammon and rely more on the roll of the dice, but we, in Arbor, view it more as a chess game. We try to put ourselves in strategic positions to get access to the best startups, we leverage our network to understand different areas, different types of companies, and we try to repeat the winning strategy across the globe, from one region to another.
Judgement and reasoning is probably the top one out there. Diligence is the most important aspect of VC in order to identify the winners. Obviously, the network is extremely important as well and it is really what defines one VC from the other. That network gives you an ability to effectively source high-quality deal flow and actively diligent those companies. And it also gives you access to knowledge capital: no one can be an expert on every subject, and therefore you have to be able to leverage your network in order to be effective while performing due diligence of various companies.
Stay as lean as you can, especially in this market environment, and watch you burn – there is a lot of uncertainty happening. Hustle, get traction, get market validation. Not everyone will use the product the way you intended, therefore you need to be very customer-centric. Understand that the world is changing rapidly, so make sure you really understand the fundamentals of your market. Be thoughtful: listen to everyone and everything, take as much data as you can, and make well-reasoned decisions. It’s better to take your time to make a decision so that you don’t have to reverse it later on – think long term. And then again: be resilient, keep going – and good luck!