Backing WeGift (& how the sausage gets made in a VC workshop)

Fred Destin

Pop quiz: what giant payments industry is stuck in a world of emails, CSV files and PDFs being sent back and forth, has no real-time capabilities, hardly any targeting and a massive incumbent with too much market power?

Answer: the $300BN non-cash rewards industry.

It’s a messy, fragmented industry with broken processes, prone to errors and leakage, aged technology stacks and plenty of misalignment and distrust between the players.

What if we could build an API-first platform company with real time capabilities that aligned everyone and hit the key business needs of the industry at 1/10 of the cost?

Meet Aron.

Aron Alexander started a marketplace for eVouchers, of which there are probably hundreds, and gradually discovered the mess of an infrastructure that the industry ran on. Growing up in North London, dissatisfied with his school, he did a stint in the Israeli armed forces in an elite unit, taught himself A levels and managed to get himself into Cambridge as an older student which he finished with a first, but never feeling like he belonged. Driven and thoughtful like only someone who’s been through a lot could be, Aron is special. Our kind of guy.

Alex Chesterman pinged me with his deck on a Tuesday afternoon in February. By Thursday, Aron emailed me: “the round is moving faster than expected, I have no less than eight (eight!) counterparties engaged”.

We talked that Friday afternoon. The pitch was simple — let’s build a real-time, transparent platform to issue any form of non-cash payouts and transform this industry. I liked the baseline, but my mind was racing with everything else we could do, informed by my time at Integral Ad Science: campaign management, targeting and personalisation … and what about making the rewards fully portable so we could send them over a WhatsApp message!

Aron’s quiet confidence and determination was infectious. Here was a guy who’d thought about every angle yet was completely open to new ideas and would push back when he disagreed. Neither of us was selling, this was true relationship building.

Anatomy of a venture deal.

I got off the call with Aron buzzing. That weekend was complicated for me, as I had my kids over and was flying to the UAE on Sunday night. Ah, the joys of fundraising. In the end, I made an exception, and invited Aron over to my house Saturday morning to meet with Harry and me.

With the kids moving around us, having analysed the data we received overnight (11:05PM to be exact), we did a three-hour deep dive into the business model, current metrics, industry structure etc.

I took Harry outside for a quick recap and did something I’ve only done twice before in my career: we decided to issue an offer on the spot.

We came back into the room with a clear message for Aron: here’s an offer, here are our typical terms, and here’s a clear process to a final commitment: one week to term-sheet, two weeks to complete diligence. And here’s our confidence level on the probability of a successful outcome: 75%.

We shook hands there and then. Aron cancelled most of his upcoming investor meetings and we got to work.

What were you thinking?

If I tell you we invested in a gift cards company, you’d probably roll your eyes. I get that.

But let me paint a different picture:

  • We’re attacking a large category which you can broadly define as non-cash payouts.
  • Non-cash payouts are everywhere — as an important part of employee compensation, as rewards for customers, as incentives, as retention tools, as gifts, as payout methods for insurance companies on claims etc.
  • The key incumbent is massive, powerful, but disliked by its partners and customers and lumbered with legacy tech. A giant with feet of clay.
  • The business model is well understood. Think Stripe, applied to non-cash payouts. Robust APIs, real-time capabilities, disruptive pricing, transparency. Hard to compete against.
  • The extensions to the core are also easy to grasp, directly derived from the world of online advertising. A playbook of upsells: campaign management tools, targeting and personalisation, new formats etc.

I like misunderstood industry segments with powerful incumbents and limited startup competition.

I dropped my kids off at ski school on the mornings of that second week and trudged back to my apartment to do all the customer and partner calls. My snowboard was left languishing in the closet whilst the Val d’Isere sun was teasing me to go out. Harry for his part leveraged his insane network to get us in front of some of the key thinkers in the payments space.

I wouldn’t hesitate to say that in my entire career as a venture capitalist, this is probably the most consistently positive set of reference calls I have ever made. We were in.

£4M in funding for WeGift

Conclusion: we are excited to lead WeGift’s new £4M funding round, to which we added our friends at Unilever Ventures and SAP Ventures, as well as some great founders such as James Hind at Carwow and Eamon Jubbawy at Onfido.

Read all about it from Steve at TechCrunch.

The company has benefited from the guidance of Simon Franks (Redbus Group), Alex Chesterman (Zoopla, Cazoo), Paul Ettinger (Caffe Nero) and Charlie Songhurst. I’m grateful to them as well as to Alex for the intro.

I’m also excited to welcome Perry Blacher to the board as our chairman, joining industry insider Simon Bird (Revlifter).

Onward.

Fred Destin

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Helping startups grow with money and mentoring to the sounds of Crystal Castles

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