Jacek Łubiński (Market One Capital): listen to your potential clients a lot to nail the value proposition and provide an experience which is ten times better than what they have right now.
21 Sep, 2021
Neeraj Vohra is Chief Investment Officer at Naples Technology Ventures. A forward-thinking seasoned executive and board director with 20 years of strategic, financial management, and capital markets experience and a record of success achieving company objectives. He demonstrates the ability to create shareholder value through organic and inorganic growth as well as cost and earnings improvements. He is a founding member of FBR’s technology investment banking practice and leader of the FinTech/Tech Services group.
CFO is more internal looking, controlling the financials of the fund – paying the bills, making sure you are in compliance from a regulatory perspective, doing the financials, and reporting to the LPs. Chief Investment Officer is a little bit unusual in the venture community but it’s very typical in the public market community. My role is pretty much like a GP role. I’m charged with finding investment opportunities, with diligence. Since the beginning of the year, we’ve invested in 8 companies, and I’m on the board of 3 of these. So, the title may be unusual, but the role is pretty much the one of a General Partner.
It’s something I’ve thought about through the years. I started my career on the research side, as a research analyst for the computer hardware industry in Standard & Poor’s, from there I went to sell-side research and then to investment banking for a long time. I headed up the Financial technology in investment practice in Friedman Billings Ramsey, which is Washington, DC, based investment bankю And I left to become a CFO. I’ve been a CFO of 4 different companies, but I’ve always thought about entering the venture industry. General Partners at Naples technology Ventures are 2 very successful business people – Mike Abbaei and Brij Sharma.I have known Mike from my investment banking days about a decade ago. When he started this fund he reached out to me and asked if I would have an interest in joining a venture fund.
I think the biggest surprise is the number of interesting companies you can see in a week, and some weeks it could be non-stop, so at the end of the week, you’re scratching your head trying to figure out which ones are the ones that stood out. Any given week we probably see about 10 to 20 companies in pitch decks and there’s also a lot of other companies where you don’t have a pitch deck, but some conversation as well. So I think the biggest surprise is the number of companies. I joined this firm in the COVID year. Before that, when I was in investment banking, every meeting was in person; yes we had video calls then but not that many. And it is a big surprise for me is that you can transact now electronically. In the old days, you were busy if you had 3 meetings in a day, because had to travel in between, and now you can knock out 3-4 meetings before lunch. This acceleration is a big surprise as well.
I think the biggest change has been driven by COVID. When I came here, my expectations were that I will have lots of meetings either in our office here or while traveling to major cities, spending a day there to meet with companies. Today, even though travel restrictions are starting lifting, we will travel a little bit more, but 80 or 90% of what we’re doing will be done remotely.
The fact that everybody now is comfortable with remote work. It’s not even just a fact that you’re working from home, because we, at NTV, had been able to come to the office every single day – we have large enough office work, and that was our initiative. The productivity is higher than it’s been measured by traditional productivity metrics is one of the longest standing changes going forward because of all of these technologies that came to the forefront. Everybody is using Zoom, like we are now, and 5 years ago you would probably call me. Another big change is that most larger companies are very much more open to a hybrid workweek, like working some days from home and some from the office. That’s a big big change, that, again, some companies might experiment with it, but most companies weren’t open to this idea. Most companies I talk to now say that if an employee is only coming to the office once a week, they have no issue with that. As I said, we did 8 investments this year so far, and in 4 cases we did not meet the company in person at all before we sent them a check.
We’re currently investing in $50M fund. We’ve closed it at the end of the last year.
We have internal conversations about that on a frequent basis. While we don’t have a formal reserve, but we have somewhere in the neighborhood of 30-35% reserved for follow-up. Different funds think about this in a different way, and there were times when we thought about reserving half of the fund for that, especially now, because there is a lot of the subsequent rounds have gotten much larger than they used to be. But, probably, at the end of the day, we’ll end up with about ⅓ of the fund.
We learned early on that we have to be proactive. I personally have a great network from my investment banking days, and both our GPs have a great network from their past lives. We leverage our network. We do now get more inbound as we’ve invested in companies, we’ve done a good job on social media letting the world know that we’re actively investing, and we also proactively reach out to companies that are interesting to us. We read about the companies in media, we find companies on Pitchbook, we talk with other VCs about their portfolio companies and see if there’s something interesting. It’s a combination of outreach and inbound.
We are generally seed (late seed, I would say) and Series A investors.
A few weeks ago we co-led the Series C round for a company called Kasisto. We have a very large strategic investor NCR, the company that makes ATMs among other things, as a co-lead, and Kasisto’s existing fintech investor invested as well alongside us. It was $15.5M Series C round, so yes we will occasionally do something that’s not seed or Series A financing.
We look all over the country: we have an investment in California, a couple in Texas, New York, North Carolina. Again, this is one of the changes with COVID, because you don’t have to travel and you can speak with somebody just as easily across the country as you can next door. We are doing much for outbound in Florida because this state became one of the hotbeds in technology – it is one of the Top-10 states receiving dollars in technology now. Miami and Tampa are big now, and we make outreaches to both of those cities. We look at everything all over the country.
We are definitely looking at them, we definitely had conversations with companies that are outside and we come close to one company that was in the UK and was entering the US marketplace. We work with companies outside of the United States, we just want to make sure that whoever we’re contemplating investing in has a plan to enter the US market. If they’re not planning to enter the US, then we’re probably not the right choice for them.
We broadly look at enterprise software and stay away from direct-to-consumer. Within B2B software, while we look at it pretty much on the whole world, we especially like the broad umbrella of Financial technology and Health. Within FinTech we look at Banking technology, Capital Market technology, Insurance tech, RegTech, Compliance tech. Different people describe different verticals differently, and we describe FinTech very broadly to include anything that has to do with technology and broad financial services. Digital Health is the other vertical that we look at very closely. We have not yet found anything in Digital Health that we’ve invested in, so the majority of our investments to date happen in FinTech.
It’s tricky because I don’t want to say “No” to something I will invest in just a couple of days later. I think it would be a company that is more hardware dependent, like those interesting wearable healthcare devices, so IoT is a great example. To me personally, it’s super interesting because of the capabilities IoT represents for business customers, but because it’s generally a function of the devices and we try to stay away from hardware companies, this might be one industry that we find fascinating, we look at things there, but we’re likely not investing there.
We look at a lot of the same things that other VC groups look at. We look at the management team, do we feel comfortable with it. We look at this software solution – is it good, does it aim a big enough market, are there some competitive advantages that this product has over the others. We look at the industry – do we feel comfortable with that industry trends that can be favorable for this company. As you know, we’re not investing for the next 6 or 12 months, we have a 3-5-7 years’ time horizon. In terms of how companies can get our attention: I do have a bias here because of my investment banking background. When a company comes to us, it has to have a well-organized presentation: Here’s the problem that I discovered because of my experience or my background or because I read or heard about it, here’s the solution that I was able to create and it’s already resonating with customers – I already have large enterprise customers and growing. But this is like the ideal set. The reason why that’s important it’s not just you want to see it, but because this is the same team that has to go and sell the solution into the market. If they’re not able to sell to us with a clear distinct message, how will they sell to the people that are writing the check on the customer side? During the pitch, you’re showcasing yourself in how you are trying to do business with the whole world – not just with potential VCs, but with potential customers, and if you’re not able to show the value proposition and things that we expect to see in a pitch deck, then you haven’t done your homework and you don’t have respect for our time.
There are different ways of thinking about it, and this is how I think about it, and I’ve been the CEO of a company that tried to raise money. The way I thought about it is like that: having a bottom of projections built up for the next 2 years (it gets very very difficult to do longer than 2 years because of too many variables) you can have a base case, depending on sales growth, and see what that requires from a cash perspective. Try to raise something that’s just a little bit north of that, because no company was ever going out of business for having too much capital. Having at least a 2-year runway is the right way for most companies in the seed and Series A stages to be thinking about.
In the SaaS we follow some very well-established key metrics – customer acquisition cost, long-term value for the customer, operating leverage turn rates – all those things, that are leading indicators of growth. We look for leading indicators of growth within customers, not only new but existing customers as well because you’re early stage. We look at gross margin, at cash-burning rates. One of the things that’s always a turn-off for us is very high compensation rates for their senior management team. It’s a start, an early-stage company, and the executive team should recognize that and have reasonable expectations about their compensations until they get larger. We have a very thorough due diligence process – we look at everything. I know, lot of VCs don’t do that much diligence, but because my background is a CFO, I’m used to that level. We literally ask companies for the bank statements, we literally ask companies for payroll reports, we look through the projections. A lot of earlier stage companies generally don’t have clean accounting because they haven’t spent much time thinking about it, we help them clean that up a little bit. Sometimes we meet founders who don’t know the difference between revenue and cash, so we have to deal with all of that stuff – it happens more often than you would like to think.
When we’re leading the round, the diligence is a minimum of 4 weeks. It can, definitely, take longer. Part of that is just how well prepared the company is. Sometimes a company is very well organized – they have a data room organized with everything that we need already there. Other companies are just not as well organized, so we have to wait on them. There is one company that we are in conversations now for several months, and they haven’t been able to deliver everything that we want.
One of the things that are a key differentiator for us is domain expertise. I know there are examples of companies that have come from outside the industry and have done something phenomenal, but in my experience those are rare. One of our portfolio companies is a company called SoftLedger from the West coast. This is a 21-century accounting software ERP solution and it’s real-time financials with the ability to give a company or a division real-time financials. Here is a team that knows the accounting industry very very well: both the CEO and the co-founder have backgrounds in accounting, and domain expertise matters there a lot. Could somebody that doesn’t know accounting do something like that? It’s possible, but I have a lot more confidence in this case.
It’s hard to bet against Steve Jobs, right? He’s obviously a legend for the right reasons, so, I think, our preference will be to work with him. Not to take anything away from Steve Wozniak – he’s a legend in his own way!
I think that’s really really really hard, at least for us as a $50M fund. Maybe, if we were Angel fund or if I was an angel investor, I could get more comfortable with that. There are simply not enough hours in a day for a solo entrepreneur to build something scalable and interesting in a short period of time. That doesn’t mean that we look for companies that have a lot of headcounts. I won’t give the number, but SoftLedger I’ve mentioned brought a super small team and unbelievably they built their company with the skeleton crew. They have really large customers, they are growing every month, they have a real product that works. You can have a successful startup with a handful of really good employees.
That is one of our differentiation. Because I come from both a banking and operational background and the rest of the team has operational expertise, we very much get involved with the companies. As a lead investor, we always have a board seat so that we can guide and monitor the investment. The typical relationship is that we check on a weekly basis or every other week what’s going on in a company, either having a phone call or a meeting. More importantly, we’re asking them if there are any challenges they’re facing this week that we can help with, like what accounting software to use or customer opportunity on a specific market. We’re definitely hands-on and try to add value, and we do it because we do know how business models work. If a company we’ve invested in does well and grows, we have a win, and if a company doesn’t grow, then we have a loss. So we’re doing the right thing for our LPs by making sure we’re super involved in investments we make.
So this is just to make sure I understand your question if you’re asking specifically in their interaction with dementia care, I think, most entrepreneurs make it that they don’t necessarily understand the market they try to serve. They have a great product but haven’t found a product-market fit. That is a big challenge. Also, companies are trying to be very lean and not spend many dollars, and they don’t generally spend enough time thinking through the back office – things like HR, finance and accounting, etc. It’s not that expensive to have that part of the operations taking care of. I think, it’s a big mistake that a lot of young companies think that that’s not important, because it’s important to know what’s going on with your business, to get financial reports and keep your eyes on them.
The bigger the better. Naples Technology Ventures started in 2018 when Brij and Mike got their first $10M fund, which was pretty much a friends and family fund. It brought about 50% IRR. As we think about this fund we have every expectation to match those returns.
It depends on the stage of development. We don’t get too hung up on the percentage ownership. If it fits something that we really like and if we can justify the company’s required capital, we’ve definitely tried to put as much capital as a company can use. Ideally, if we can have 15-20% ownership at the late seed or Series A round, that generally feels right to us.
I have to put Intel into that list. Intel has changed the world because of the microprocessor. I grew up in a time when the computer industry was just happening, and Intel was crucial for it. I’m debating whether I want to put Microsoft on that list. It certainly had a massive amount of impact, there is no doubt about that… Okay, let’s add it, because, without Microsoft, Intel wouldn’t become as big, without the big relationship between the two of those companies for the longest time. And the other one that I would have to give credit for because it’s changed not only consumer lifestyles, but also has had an impact broadly on the whole technology ecosystem, is Amazon. Right now you can start a software company without having to buy $250K worth of servers – you can just rent the server on AWS. The impact they have on the commercial side of things is as large as they have on everybody’s lives. The idea that you don’t have to go to a store on your way home but just order whatever you need and get it the next or even the same day is a life-changing event.
There’s been a number of those. The one that I remember vividly is Webvan. It was a pre-large startup failure that raised a lot of money, hundreds of millions. It was a company that pioneered grocery delivery. At the time it was a very spectacular flameout because of all the promise that it had, and it had some very high-level senior executives from well-established companies. They grew too fast and went bankrupt during the dot-com crisis.
I had good luck in being in investment banking when PayPal was going public, and we were one of the co-managers of the IPO process. The whole team at the time, and they weren’t obviously as bigger and well-known back then, – Peter Thiel, Roelof Botha who is in Sequoia now, Elon Musk – so the team, and what I saw from that transaction, was not only able to bring a revolutionary new solution to market, like PayPal, but even after they left PayPal they had a massive level of success independently and in completely different areas. That team is one of the teams that I look up to and say, “Wow!”
Intellectual curiosity is one of the most important elements or qualities for a VC. You’ve got to be interested in looking at new things, you’re going to hate being VC because it is all the new things that are coming on you on the daily basis. That’s number one. Number two: Having a little bit of operational background is super helpful. A lot of VCs don’t have that and they are super successful, but having that experience and being able to help entrepreneurs with that is definitely a big plus. Number three: Just being able to manage your daily schedule and organizational skills, because there are just so many companies you should work with on a regular basis. Having a good methodology, having a good workflow, being able to move companies through the pipeline are very important skills.
I think it’s more of a card game. I’m not a big card game player, but there’s an element of poker – a little bit of chance, a little bit of skill, and a little bit of outbuilding the table.
There’s a book that just came out, called Super Founders: What Data Reveals About Billion-Dollar Startups by Ali Tamaseb. It is super interesting for not only founders but also venture capitalists. It is a data-driven analysis of the companies that have become Unicorns recently: what are the common themes, not so common themes is it right school or something else. There’s a classic book on competitive analysis – Competitive Advantage: Creating and Sustaining Superior Performance by Michael Porter. It’s an all-time classic on industries and competitive positions. Entrepreneurs should look at that if they want to be cost-effective and to know what axes of competition they compete against. It’s a terrific book. And sometimes one of the toughest things about being an entrepreneur is making sure you have positive energy and are ready to fight the next battle. There’s a lot of books in the “positive psychology” genre if you will that people should keep at their bedsides. From the blogs perspective, there are just too many of them. Entrepreneurs should be looking at their industries to know what is going on there.
Number one: Make sure you’ve got a product that is interesting, that is actually solving a business problem; don’t just come out with a product that you think is cool. If you can demonstrate to your prospective clients that you’re going to be able to get an IRR from using this product, that’s fantastic. Number two: Make sure you’re surrounding yourself with people that compliment you and don’t be afraid to hire people that are smarter than you, because they bring different things to the table you don’t necessarily have. Numbers tree: Make sure you’re able to know what’s going on in the business all time, and that can only happen if you have the right accounting and finance back office.
I have no idea where I dream to be when I was a child. Maybe, a fighter pilot?