Start-up Society #106: Crossbeam Venture Partners
Keeping the American Dream Alive
Welcome to the 106th edition of Start-up Society! This blog highlights some of the most exciting start-ups in the country striving to keep the American Dream alive.
Make sure you check out the previous issue, if you have not already, here!
Crossbeam Venture Partners
HQ: New York City, New York
Founded: 2020
Employees: 15
In today’s Meet the Investor #4 double feature, we connect with Sakib Jamal, Senior Associate at Crossbeam Venture Partners.
Sakib is a member of the Investment Team at Crossbeam and serves as a Board Observer for seven different companies in the portfolio. Prior to Crossbeam, he was an investment banking analyst at J.P. Morgan. Sakib also founded The Capsule, a South Asian news aggregator / podcast that has over 23,000 subscribers across Instagram and email. Sakib received a B.S. from Cornell University, where he served as a teaching assistant for classes in Entrepreneurship and Equity Research. Follow him on Twitter - @skbjml for unique insights and commentary around investing, startups, business, and life.
This article provides a summary of the conversation. For the full details, tap into the podcast here!
Tell us about your career and Crossbeam
Sakib built trust with his general partners (GPs) since his time in college, where he served as the teaching assistant for the entrepreneurship class. He was the first employee at Crossbeam, having joined the Partners while they were raising their first fund. Today, the firm is already on Fund II and also has separate funds and other investment vehicles focusing on specific themes such as e-commerce aggregators.
Crossbeam operates almost like a start-up itself, carefully considering what the fund wants to be known for. Crossbeam treats every founder as its customer, and considers how it can offer value to its customers — ranging from founders’ personal needs to what it takes for the unique needs of an early-stage company.
As Sakib is still in the early stages of his career, he is focusing on earning his stripes and being ultra-serviceable to his portfolio companies. Thinking beyond selling money as a product, the Crossbeam team looks to roll up its sleeves and build trust with its portfolio companies in order to differentiate themselves from other VCs.
What does Crossbeam invest in? How do you structure your deals?
Crossbeam is a generalist fund with certain specialties. Due to its affiliation with CoVenture, a firm that lends to technology companies, they have a unique view on highly structured, credit-enabled businesses (e.g. roll-ups and cash advance businesses). A lot of their deal flow involves structured credit, regulated industries, and esoteric structures that enable novel asset classes. The fund also invests in standard B2B / SaaS deals and looks for diamonds in the rough in legacy areas.
It is clear that Crossbeam has a deep understanding of credit in various forms. The firm is constantly digging to find opportunities in spaces that have conventionally not been considered venture-backable, and have found ways to grow them in an equity-efficient manner. We wouldn’t call them contrarian though, it sounds like the correct word to describe Crossbeam’s approach to investing is esoteric.
You want to find markets that are large that no one knows about…sneakily large markets.
You want to find markets that everyone thinks are small, but you accurately predict some sort of tailwind or structured element that will make it huge.
Crossbeam is very attracted to aggregation strategies (‘rollups’). A rollup is when an investor buys up companies in the same market and consolidates them together to create a larger entity with various benefits from scale and cross-selling. While rollups are very common in private equity, venture capital firms have historically shied away from this strategy due to the capital intensive nature. While Crossbeam acknowledges this model can be expensive and dilutive, they look for areas where debt can make the play equity-capital efficient. When you structure these acquisitions using 80–90% debt, you are using a lot less equity and with proper risk mitigation in place, you are able to fuel growth without giving up much equity. Given this dynamic, Crossbeam has done many rollups in the e-commerce, gaming, software, and digital media space.
Investing in the equity of credit-enabled businesses is another strategy that venture capital firms have avoided because it is often seen as commoditized, low margin and difficult to scale. However, Crossbeam specializes in this area and attempts to invest in credit businesses that look like software businesses, meaning businesses that have very high stickiness, have high barriers to entry, and have high margins due to some structural advantage.
Investment criteria for credit businesses
- Unique and proprietary origination
- Underwriting advantage from better data or better algorithms
- Advantage on the type of capital sourced (e.g. being able to lend cheaper than competitors)
- Better servicing and collection
While many investors aim to determine where asset prices should be, Crossbeam ideally looks for assets that are not fully priced due to their novelty. For example, no one really knew how to value YouTube catalogues or Amazon brands. The idea is to help these founders early on and over time as these companies mature, others realize there is value in these assets and buy them at a premium. It is not about finding assets that are over or under priced, but discovering assets that are not fully priced, and being able to build a case for what the price should be in the future based on risk/reward profiles.
Tell us about The Capsule, and where is it at now?
During the pandemic, while Sakib was juggling being a full-time investment banking analyst at J.P. Morgan and pursuing a master’s degree, he launched The Capsule — an online media outlet producing bite-sized content for students and professionals in South Asia.
Sakib noticed that the college students and younger folks back home in Bangladesh didn’t really read the news outside of limited pieces of information scrolling through social media. This makes the youth less informed, compared to college students in the United States that have access to lots of news media and newsletters that make it easier to digest information. Therefore, Sakib took it upon himself to launch his own newsletter to address this gap, and together with his team scaled the newsletter to 20K+ people. This project was extremely fulfilling for Sakib and gave him a way to connect with people back home. He received amazing feedback from readers, many of whom used the information to help further their careers and education.
Due to time constraints, The Capsule is currently on pause. Stay tuned, however, as Sakib is currently working on a book project!
As a Bangladeshi native, do you have any plans to take your investing knowledge/experience back there?
Bangladesh is very close to Sakib’s heart. While he has no plans to go back as of now, he sees a lot of potential to invest in the country — both in public and private markets. Crazy fact: Bangladesh has more than half the U.S. population (166 million+) packed into a country the size of Iowa! The population is very young and hungry to learn, with strong structural tailwinds making it an interesting consumer market to watch.
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Authored by Arteen Zahiri, Rumeer Keshwani, Elham Chowdhury, & Julian Ramcharan
