Ducorp XTM: Seed-Stage VC
Ducorp XTM is a seed-stage VC firm focused on the technology sector in emerging markets. We have an edgy identity and a modern way of doing things. Find out more below.
1.0 Our DX-I Fund
There are different models for operating private equity funds.
Some have traditional structures and are focused on specific sectors. Others are more aggressive and have a higher risk appetite. And, some models are exotic or experimental in their approach, etc. (see reference 1 for a great analysis of 26 different models).
Fund managers have different philosophies and modus operandi; no ‘one size fits all.’ However, the fundamentals are the same; i.e., to invest capital in return for value, typically as preferred returns or multiples on investment.
DX-I is our first private equity fund with a 2020 vintage year. Supported by Ducorp Ltd, a family investment co., as its sole investor (called a limited partner or LP), and Ducorp XTM, LLC, and XTM LTD, together as fund managers (referred to as a general partner or a GP). This structure forms our current venture capital infrastructure. We anticipate deploying future funds under the same model or with other LPs/GPs.
DX-I, an evergreen fund (i.e., of indeterminate duration), is focused on seed-stage, pre-revenue businesses within six verticals in the technology sector.
It has currently committed capital to:
(i) a scalable tool facilitating the delivery of VC platform services (i.e., those services that are ancillary to the investment management activity and designed to help ventures grow; see reference 2 for a well-crafted discussion on such services); and
(ii) investments in start-ups via a standardized investment wrapper.
2.0 Why Seed-Stage?
Our specialization reflects the interest, beliefs, and values of our people.
First, let’s situate a seed-stage (pre-revenue) investment focus within the investment profile of wealth portfolios.
It’s no surprise that this type of investment is high risk and an aggressive activity fueled by funds an investor can afford to lose (typically, about 2–5% of net worth, depending on risk-appetite). These investments are much smaller than growth stage VC ticket sizes, and the expectations are somewhat binary: for each venture, loss [see reference 3] or very high returns and multiples of capital invested. An example of this type of investment in 2013 was bitcoin.
In this environment, very specialized skills are needed to weed out unsuitable deal flow and support ventures post-investment. A good analogy is that the needs of a baby are different from those of an adult. Thus, where an experience is on a “maturity” scale determines the personalities, strategies, and accompaniment required from an investment manager to achieve success.
By their nature, very-early stage companies require substantial hands-on support (i.e., VC platform services) and a solid bond between VC and the venture. While this is common sense, it also presents significant challenges for VCs to be involved this early in a business’s life. This role is, thus, typically the playground of angel investors, incubators and accelerators.
Indeed, for less effort, VCs prefer ventures with more maturity where the application of traditional finance works better for risk-assessment. After all, what informed decision can you make from the extrapolation or analysis of a financial model from zero?
As with everything, there are exceptions to this generalization — e.g., ventures that have harnessed network effect; in these cases, traction and the story being told may be more critical than financials.
It’s also simple mathematics. It is more attractive to make a 3x multiple over one $100MM investment than 10x over ten $50k investment!
The dynamics of seed-stage investments are also tough to manage.
For e.g., managers must discard an enormous amount of “garbage” proposals and stay clear of “investors” who do not understand the risk-reward trade-off and the high-risk nature of seed-stage investments.
They must work with founders to focus on first developing a commercial enterprise before thinking of future funding. Building one business is very hard, building several at the same time is…
Another challenge is creating a structure for reporting and managing investments that are imbued with early-stage chaos.
For these reasons, seed-stage VCs are an unusual breed. Yet, we feel comfortable in that space. Our focus on building a highly scalable VC platform service tool and investment infrastructure that is designed to allow us to make a large number of small investments on seed-stage ventures with dependable success ratios. We’re building all of our products with radical transparency.
Our ultimate goal is to build a good track record so investors can trust us with a portion of their high-risk investment focus. The fact that we have skin in the game with Ducorp Ltd demonstrates that we’re not willing to peddle medicine that we haven’t tried ourselves first.
3.0 Our History
In 2019, we set up a management team in Mauritius with the view of deploying funds from DX-I through an investment wrapper (business incubator) whose initial target was Mauritian ventures. We chose Mauritius because of emotional reasons (our people were born there), its ease of doing business and the makeup of its demographic (highly multicultural).
We took time to try things, build an identity, acquired office space, created the financial and legal infrastructure to deploy our first fund, recruit personnel, scout for startups, entrepreneurs, etc. We documented our initial journey, which now forms part of the XTM+ channel (under the name playlists of “The early days of the Ducorp XTM project”).
As Mauritius is a small country (relatively speaking), we did not find projects with a good fit initially; we were unknown in the market and looked on as a bit of an oddity due to our unapologetic and transparent way of doing things.
We decided to force the issue and get noticed by entrepreneurs by creating a temporary venture studio [see reference 3] that internally developed the foundations for a VC platform service technology along with other commercial concepts.
Some of these projects were: Shoppers Club (bulk-shipping), Satoshi’s Lounge (an online-exclusive club), Designer For XTM (merchandising), EAM VC (Micro-African financing), Obrica (contractor-sourcing software), XTM Mirror (marketing agency), XTM platform (marketing technology communications platform), FindRate (web presence services for micro-businesses), Hustlemania (blockchain wallet), XTM+ media channel, etc.
Soon after that, we attracted the right calibre of entrepreneurs. We then put our weight behind the business concepts worth pursuing, morphed some with others, and binned the rest.
In January 2020, we ended our venture studio activities as it had served its purpose. We solidified two business units against which DX-I would be deployed: (1) Investment related activities through XTM HQ and XTM Technologies, and (2) VC platform services (the XTM Agency, X-1 Productions, also termed collectively as the XTM Agency ecosystem).
4.0 The XTM Platform
Our marquis investment is in the VC platform services internet software that is a task and team management tool at the intersection of the MarTech (Marketing Technology) and FinTech (Financial Technology) sectors. This expansive software is actively being built as it’s being used, much like a house being habitable but continuously adding new rooms to complete the blueprint. Today it counts dozens of clients (including our ventures), has a codebase of over 100,000 lines, and more than 1,500 comments across two web applications and two mobile platforms (note that the platform is still in stealth, invite-only mode but will soon be released publicly).
It’s a unique product with some features inspired by Freelancer Enterprise, Slack, and Trello. It allows clients to obtain and manage a (predominantly remote) marketing-related department in a radically transparent manner at the click of a button (See note about the future roadmap in reference 5).
The XTM Platform is licensed to the XTM Agency, a managed services provider which project manages marketing-related tasks by allocating project managers who liaise between contractors that supply the work and clients (including our ventures). This helps our ventures acquire the necessary resources to commercialize their products at scale while providing us with the required management oversight to help them in real-time.
Not unlike other software platforms, The XTM Platform also includes add-on products, such as Hustlemania, a blockchain wallet repurposed into a virtual focus group, and a marketing research tool. Another add-on is FindRate, a site that helps micro businesses establish an online presence quickly and cheaply.
To note, XTM+, the XTM Agency’s window to the world, is a media channel showcasing the work produced within The XTM Agency’s ecosystem.
5.0 XTM HQ
Ducorp XTM created a seed-stage delivery infrastructure through which it standardizes its investments. This investment wrapper, known as XTM HQ, was built as a business incubator addressing the technology sector in 6 verticals. Specific focus or variations of the wrapper takes place within investment units, called a “tribe.”
For example, Tribe 1 was focused on Mauritian startups. We intend for Tribe 2 to focus on African startups. So far, DX-I has committed to 6 Ventures (including 5 in Tribe 1 within the XTM HQ framework).
For historical significance, characteristics of Tribe 1 ventures are that they:-
(a) have the agility to grow internationally;
(b) must be compatible and collaborate to create added value (i.e., not in competition);
(c) be prepared to divest a minimum of 25% equity; and
(d) use the VC platform services offered by the XTM Agency.
To note that Tribe 1 investments are now closed (i.e., we’re not accepting any further ventures).
More at www.xtmhq.com.
We are passionate about the work we do to solidify our position as a good manager of seed-stage investments using radical transparency and to enable innovative technology startups and entrepreneurs in emerging markets deliver loved products to fans.
Endnotes
Fund #1, DX-I
Size of Fund: [Undisclosed]
Cumulative distributions: [Undisclosed]
Net Asset Value: [Undisclosed]
Maximum Investment per Venture: MUR1,400,000.00
To date paid in capital: [Undisclosed]
Capital Calls To Date [a]: [Undisclosed]
References
[1]https://medium.com/startup-grind/the-most-innovative-venture-capital-firms-baba2d5a7b38
[3] We count living dead ventures as a loss (these are businesses that neither makes money nor loses, don’t progress much or that are losing at such a slow rate that it would take years before eventual death).
[4] A venture studio incubates ventures owned by the studio from concept to spin off as commercial enterprises.
[5] The future roadmap for the XTM Platform is to allow angel/seed investors (predominantly, from the USA/Europe) to invest in emerging market (for e.g., Africa/South America/Parts of Asia) seed-stage ventures, without transferring capital to those regions, and have through the platform, complete visibility over how the funds are being used (all the way to the operational discussions taking place on tasks ordered — i.e., at an operational level between operational teams and service providers). The advantages of the platform are the opening up of new markets (that can provide technology ventures at lower costs) where the upside is labour arbitrage. This addresses two main roadblocks for international investment benefits, (1) sending capital to potentially risky jurisdictions, (2) divestments, and (3) not having visibility over the progress of those companies. The XTM Platform aims to address or remove those barriers.
Ducorp XTM 2020.
