Lesson 3: How to deploy a first-time specialized fund?
On Wednesday, April 29th, the baby vc team had the pleasure to host its third “meet & greet” session. The concept: to welcome a VC or an entrepreneur every week during lunch time for a one hour live to ask any questions you may have about VC, fundraising, latest technological trends and much more.
That day, you were more than 120 listening to Alexandre Guillot, Principal at Spring Invest, a newly created French VC fund specializing in the RetailTech space.
Here are a few key points to remember from this session, but first let’s get to know Alexandre Guillot and Spring Invest better.
Alexandre Guillot, who ?
Alexandre has both a financial and entrepreneurial background. He started his career in investment banking in New York (2012), five years later, he decided to launch his own company alongside Le Wagon bootcamp. Since 2017, Alexandre has founded two startups (last mile, payments), joined the start-up studio BigBlank as Entrepreneur in Residence and more recently joined Spring Invest as Principal.
>> If you are looking to raise funds, you can reach him here: alexandre@spring-invest.com
Spring Invest, what ?
Spring Invest is a new French VC fund dedicated to investing in RetailTech companies such as logistics, payment, adtech, supply chain, DNVB, e-commerce. Spring Invest is an early-stage fund that makes Seed and Series A investments with tickets from 500k€ to 3m€. They have closed their first fund in early 2020, and is composed of seasoned investors that have realized more than 40 investments in both traditional and digital retail. More here.
Takeaway #1: How to break into VC?
Breaking into VC is such a tricky question for a lot of students. Let’s be clear: there is no unique path to break into VC. For him, it is important to build a solid relationship with VCs, while learning how to think like an investor. For instance, he first met the founders of Spring Invest (Xavier Faure and Laurent Foiry) one year before he was recruited. The fund was not even closed at the time. For months, Alexandre managed to build a professional relationship, sourcing deals, discussing investment opportunities or market trends or simply by having lunch with the team. Building its network in the ecosystem is key to detect weak signals about the industry (fundraising, the launch of a recruitment process, resignations, etc.).
Thereby, LinkedIn can be an easy way to start building a relationship. The approach might be relevant, but you must distinguish “spam” and “hunting”. When people approach VCs, they often immediately talk about the recruitment process in a fund. The only way to stand out as a potential VC analyst is to prove that you already have the skills needed: being curious and proactive, able to initiate a discussion and using your sense of observation. For instance, pinging a VC with a deck from a startup that is looking to raise funds might be an intelligent way to approach an investor. It will arouse the interest of your interlocutor, demonstrate your ability to source potential opportunities, and the connections you already have with the entrepreneurial ecosystem.
Actually, having a solid knowledge about the tech ecosystem is crucial. It is often recommended to have either a financial background or an entrepreneurial experience. In fact, venture capital is not only a financial job. It is not necessary to pursue a career in finance before joining a VC fund, but you must understand the basics of finance and accounting. However, an entrepreneurial experience would be very helpful to have a deep insight into the tech ecosystem and understand the stakes entrepreneurs face (HR, sales strategy, fundraising process, etc.). In the same time, you must take personal initiatives to learn as much as you can about the industry. For example, by joining an investment club, sharing resources about your own experiences (ex. 20 Basic Principles For Aspiring Entrepreneurs, The best 100 tech newsletters), listening to podcasts (ex. Dans la tête d’un VC, Equity101, Oui are New York, etc.) or even invest your own money into startups through platforms like Crowdcube. It clearly demonstrates your ability to be a “risk taker” and your motivation. Thus, working in the tech industry (Tech M&A, startup studio, start a company, etc.) is clearly a path to follow to build a solid entrepreneurial network and dive deep into the tech ecosystem.
Eventually, it is not a secret that venture capital remains a very competitive sector. Alexandre Dewez (Idinvest) and Maxime Fonsale (Jumia) recently published a great analysis about how to break into VC. They’ve done an amazing job and looked at the different career path of junior VCs. When looking at 70 French VCs, 85% of them have studied in top-tier universities. It is great, because these are often smart profiles, but it clearly “leaves very few seats for outsiders”. In fact, the VC industry structurally needs diversified profiles (culture, academic background, professional background, etc.). This is the reason why, if you are truly determined to break into the industry, meet with VCs as early as possible to catch “weak signals”, stay smart while approaching investors and be curious to learn as much as you can about a thriving industry.
Takeaway #2: Is there a Typical day for a VC?
We’ve asked this question to many VCs and they all have the same answer: there is no typical day for VCs. Alexandre told us about his daily occupations as a Principal at Spring Invest. VCs usually have five main tasks: (1) sourcing deals, (2) meeting entrepreneurs, (3) digging into opportunities and market trends, (4) executing deals, and (5) helping startups of the portfolio.
Responsibilities go hand in hand with experience. Analysts are usually focused on sourcing potential opportunities and realizing the first business analysis, such as (1) tracking KPIs (churn, growth, CAC, LTV, etc.), (2) digging into the business plan or (3) realizing market studies. Indeed, sourcing opportunities is clearly the most important assignment in a VC fund. Marc Andreessen used to say that “to succeed in venture capital you must be one of the top five firms. And to get there, you must have an amazing deal flow”. That way, being very good at sourcing the best entrepreneurs is a core skill. In 2018, Jonathan Userovici from Idinvest gave a lecture to HEC students about sourcing great deals. His intervention was mostly focused on the sourcing part of the job. He gave some examples of his sourcing channels: talking to other VCs, analyzing markets with industry experts, attending conferences, or even talking to friends and family about global trends.
On the other hand, this is not the only task an analyst will be in charge of. As much as he will be experienced, as many responsibilities he will get. An analyst may also assist the Associate while accompanying their portfolio startups. For instance, they can help the Associate over the business plan, the construction of the next fundraising deck or even recruitments.
The most important thing Alexandre told us is that to become legitimate in the VC industry, you have to learn from the best and work a lot. As many sectors, people must not only bring value into their fund but also bring a fresh perspective. That’s what it makes your VC diverse, which is the only way to address as many concerns as the portfolio startups will face. There are different ways to bring value to a fund. For instance, a sectorial or geographic specialization might be very important to a VC. Besides, adding value goes in pair with working intelligently with your partner. Mutual talks must be constructive to challenge the right points in a due diligence or kill an opportunity fast. That way, VCs often have to say no to entrepreneurs. To Alexandre, who is also a former entrepreneur, it is always frustrating to explain to an entrepreneur that you won’t be able to follow him on his ambitions. He believes that VCs should be honest and explain the reasons why they won’t be able to invest. By giving constructive feedbacks to the entrepreneur, the VC probably helps him and is therefore doing his job.
So, indeed, there is no typical day for a VC. There are a lot of other missions a VC is in charge of, it mostly depends on the structure. Spring Invest is also a first-time fund, so many cross-disciplinary missions might be made by VCs, such as: hosting the ecosystem, recruitments, organizing events, etc.
Takeaway #3: Why a specialized and not a generalist VC?
Spring Invest is a specialized fund. Many people in the industry talk about the importance of “differentiation”. Early stage investors and VCs are increasingly looking for ways to differentiate themselves and produce better returns. One popular pattern for this is specialization. There are different types of differentiation: industry, sector or geography. The Spring Invest team defines itself as a “Venture Capital firm, shaping the future of retail”. It clearly offers such a VC a competitive advantage over the Retail Tech industry.
First, it makes the difference during the fundraising process. Indeed, it is important for LPs to understand the asset they are investing in. Investing in a vertically specialized fund is a way for the investor to clearly identify a thesis and support a trend in the long run. LPs also believe that returns might be higher. That way, the team must have a solid track record linked with the industry they are specialized in.
Thus, building a verticalized fund enables to develop a solid network in a specific industry. That way, specialized VCs have a better knowledge about the market and might be better to address industry specific stakes. It also increases the efficiency of sourcing potential opportunities through an expertise associated with network effects. From a market perspective, focusing on specific verticals also reduces the product market fit risk, that usually goes with a pre-Seed investment. That way, better returns could be expected.
A specialized VC is much more disposed to assist their startups over specific points, both in their sales strategy and in an operational way. For instance, Spring Invest is able to bring qualified leads to their startups by connecting them with executives among 50+ European retailers who have expressed short-term needs for operational deployment. It is clearly an assumed sales growth strategy that makes their future portfolio companies more likely to succeed in their first customer acquisition. This sales acceleration could not have been as efficient in a generalist VC. Spring Invest has also managed to build a solid relationship with Venture Partners. They have gathered 9 Venture Partners, that are all former CEOs of successful Retail Tech companies. Their role is to help startups with the challenges they have already faced, both in their career and with other portfolio companies, such as: HR, branding, etc.
That way building a specialized fund is a clear strategy for a fund. Indeed, it is expected to be both efficient for startups through their sales strategy, or a personalized operational support, and for LPs that expect a better return due to a focus on a specific market.
Takeaway #4: Why the Retail Tech industry?
Spring Invest is specialized in retail tech. Retail is an old business that went through many difficulties over the past twenty years. New entrants have tried to transform the industry, such as the DNVB in the early 2010’s, but no model has managed to disrupt the whole industry. Retail tech remains a promising segment. The 2020’s might be a shift in the industry.
The retail tech vertical is pretty large. It covers in-store retail tech, e-commerce, new retail formats, supply chain & logistics tech, on-demand and Direct-to-consumer food companies. The sector remains very dynamic. In 2019, 31 retail tech startup became unicorns, including StockX, Casper, Grove, Glovo or checkout.com.
Nevertheless, 2020 remains a turning point for the retail tech industry. The “mattress-in-a-box” Casper, that IPOed early 2020 has shown some weaknesses of the DNVB model. Investors should be aware about flashy consumer brands and the risk of incurring heavy losses in the name of rapid sales growth. Over the first nine months of 2019, Casper has increased their revenues by 20%, while their losses were 5% worse than 2018. Alexandre argued about the shift of VCs towards these business models. He believes that new business models will emerge in 2020. It is now important for consumer tech companies to demonstrate their ability to create a “hedge over the product, acquisition and distribution”. By “hedge”, Alexandre insisted on the importance to have solid barriers to entry over the product, while hacking the acquisition and distribution strategy. These three hedges will now be truly analyzed by VCs.
That way, we believe that different trends will emerge in 2020. While customers are now looking for more personalized experiences, AI might be an answer. For instance, smarter stores using computer vision and AI will better fuel shopper and inventory tracking, as well as enable more cashier-less checkouts. The retail tech shift industry is only at its beginning.
Takeaway #5: How to raise a first-time funds?
Having a conversation with Alexandre was also very interesting because of the nature of Spring Invest. The team has just realized its first closing a few months ago. Raising a first-time fund is also a very difficult task. Each year, dozens of teams are trying to raise funds, but only a few manage to do so. In the French VC ecosystem, in 2019, the only first-time fund that has realized its first closing was Gaia Capital Partners. In 2020, it is Spring Invest.
Raising a first-time fund is a very entrepreneurial path. They have a (1) vision, which is their investment thesis, they have to (2) recruit a team with a solid and a complementary track record, and they are (3) building their product. In a VC, the product is their sourcing structure and the way they will assist their startups: Do they have operating partners? Which region will they be able to cover? What is the added value of their network? On what specific subjects will they be able to accompany their portfolio companies?
Finally, they also have to raise a fund. The fundraising of a first-time fund is the moment when the whole team has to demonstrate its ability to pitch their projects to LPs. It is very close to the fundraising process of startups CEOs. It usually takes a few years for a VC to raise a first-time fund. In the market, there are four different types of LPs: (1) Institutional Investors like Bpifrance, Pension funds or Insurances companies, (2) Corporates, (3) Family offices and (4) Individuals like entrepreneurs or executives. They all have their own specificities. All along the fundraising process, the team must demonstrate their ability to be the right team to invest on. That way, they are working on their: network, track record and an innovative investment positioning (e.g. Tech, Growth, Retail, etc.).
Alexandre insisted on the parallel between VCs and entrepreneurs. A lot of VCs are trying to raise funds, few succeed, and fewer build a tier-1 VC.
Thank you Alexandre for your time !
Feel free to connect on LinkedIn and do not hesitate to give me a feedback about my first article.
And here we go. An hour live is much more than just a few tips but I hope you get the most out of it. If you feel like it you can find the replay here.
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>> Baby vc meet & greet, each Wednesday from 1 to 2 pm (CET), on Storm: storm.live/babyvc
