Learning about Venture Capital (Nicolas El Baze from Partech Ventures)

Learning about Venture Capital (Nicolas El Baze from Partech Ventures) INTRODUCTIONMartin: Hi, today we are in San Francisco at Partech International with Nicolas. Nicolas, who are you and what do you do?Nicolas: Im a venture capitalist. We are fund that invests in the startups, early stage startups, in technology across the Atlantic, so Paris, Berlin, San Francisco.Martin: Can you name some of them? Maybe some of our readers know them.Nicolas: Well, we can go back in history and go back to Business Objects, a long time ago, we can go more recently, if we want a touch on a Berlin companies, for example Brands4Friends was an investment of ours, more recently La Fourchette in France and Spain, you may have heard of, it was acquired by TripAdvisor. Probably another 150, soMartin: What is your background? And why did you become a VC?Nicolas: As an increasing number of people who come into this business in the Valley and increasingly in Europe too, I came from an entrepreneurial and operating background. So, I was on the entrepreneur side for 15+ years, clos e to 20 years. I started a bunch of companies, most of them failed, a few of them was successful, Partech was an investor in a couple of the companies that I co-founded and as I exited those companies, I was offered the opportunity to come around the table and with a team that I came to trust over the years, and I did that. And its been a lot of fun.Martin: Why didnt you start just another company after youve started several others, but becoming a partner here at Partech?Nicolas: Thats a question I ask myself for a long time. I probably went for a period of easily 2-3 years going back and forth on that. Eventually, its a lifestyle decision, its a very personal decision at some point. In my case, I had young kids, I had some success with my startups before, I wanted to continue to be doing really exciting things and building companies, but I also wanted to kind of find the balance with my personal life and spend more time with my children, so. In the venture business I like to say th at we work a lot, sometimes at least as the entrepreneurs, not quite, but we have a lot of flexibility in how we manage our time. We dont manage people per se. We get involved with companies, with entrepreneurs, with management teams, but we dont have the operating imperative that you have when you run a company. Which is much more demanding in terms of your schedule, and mostly less flexible. So, that was the drive for me. In addition on the positive side, also, the opportunity to work on lots of exciting things vs. just a few, and thats pretty exciting.Martin: And you can diversify your portfolio, so to speak? Just because you focus not only on one ideaNicolas: For me, that wasnt much of criterion. I mean, clearly, theres a portfolio aspect to what we do and you diversify your risk. You also lose in terms of adrenaline. So, youre kind of an advisor, you have to play a buffering role with the entrepreneurs and so, by definition, you dont experience the highs, you only experience th e lows with the same intensity. So thats, that may be a plus or a minus, depending on the person or where you are in your life, butMartin: And what are the major tasks that you are doing and how are they distributed over a week, a month, or a year?Nicolas: At a high level, I would say we probably, people like me probably spend half of our time working with the companies that were involved with, invested in, and the other half looking at stuff: meeting with new companies, meeting entrepreneurs, meeting with people in our network, learning about our environment, being on the lookout. At a high level. Now, in terms of what we do, with the portfolio companies, which was the other part of your question, it really is kind of an on demand role. We, I like to be kind of on demand, on call with the entrepreneurs that we work with. So, in terms of what that means, that can vary in time, and also varies very much with the needs of the company, and also the background of the entrepreneurs. Thei r experience is really what I mean there. Some of the entrepreneurs we invest in are extremely experienced, more so than I am, so what I bring to the table is not so much operating know-how, because they know better, its a different perspective, and maybe kind of a step back strategically on what they do, or maybe related to the Transatlantic connections that we can bring. So, at more of the strategic level.Martin: So, youre more trying to challenge those perspectives of entrepreneur and, on the other hand, trying to help them get in touch with other people that might help them grow this business?Nicolas: I think its a lot of those two things. I think when the reason entrepreneurs want a venture capitalist, or should want venture capitalist on their board, is to bring the perspective they dont have, its to challenge them by definition. Not necessarily to argue, but challenge constructively. And so, the way you should build the board as an entrepreneur is by bringing together people who bring different expertise, different backgrounds. But, whatever that is different than yours. So, thats how it works well. And now, theres specific value that we at Partech can bring because of our global presence, global meaning today mostly Europe and the US. And obviously, we try to bring that value to the table as well, whenever thats relevant. In some cases, that was the other part of my answer, we also deal with a rather very young entrepreneurs, who havent done a lot of things before. So, in that case, the contribution could be a little different. It could be much more operational, it could be advising on budgeting or signing an office lease, or a bank lease, it can be very practical things, as well, were happy to bring that to the table whenever we can.Martin: Ok, great. If the entrepreneur or the business model is performing well, and the business is growing, entrepreneur is happy and the VC is happy. How do you manage when the company youve invested in is going almost bust or likelihood is down? What do you do?Nicolas: Its not different. I like to say that one of the ways I measure whether I am a good board member is if the entrepreneur feels comfortable and free to call me whenever something bad happens, and call me in the real time. Because, ultimately we want to be and we should be on the same side of the table, once weve invested. Were all fighting for maximizing the value of the.., of shareholder value. And so, when something unexpected and bad happens, whether loss of a major customer or partner or people related issues, we should be working on resolving them together. So, I think the key for me is, and should be I think for entrepreneurs, it certainly was for me when I was on that side of the table, is: you want to be able very comfortable discussing issues of the business, whether theyre positive or negative and working through them. Because ultimately, when, if the conclusion at some point at the company is Its not working or Its not wor king as expected or not to the scale that we all wanted, the conclusions that we come to should be the same, whether youre the entrepreneur or the investor. If it makes sense to sell the company vs. growing it independently, that should be a rational decision based on what we all observed from the business. Or, if it makes sense to shut down the company, we dont like when it happens, but it happens. So, it shouldnt be a conflict, its like when youre raising children you want them to come to you as a parent, when something bad is happening or they got in trouble, so you can help resolve, address it, its no different.PARTECH VENTURESMartin: Lets talk about Partech International. Can you give us brief overview of what Partech International looks like, in terms of maybe, structuring, assets under management, or what type of industries or company sizes are you investing in?Nicolas: Sure. So, first, from the branding point of view, we rebranded Partech Ventures, just wanted to clarify tha t for a second. Same thing, both names are out there, but the formal name is Partech Ventures. So, we invest in early stage companies, at different stages of the early stage, meaning seed and after seed. But, the main criteria being we need to see high growth potential. We do this in an international context, and the structure we have is very unique. I think its unique in the industry in the sense that we are between our presence in Berlin, Paris and San Francisco today. We are a single team, single fund structure, we make decisions together, we look at things together, there is no distinction whether you talk to my partner in Paris or me, we will eventually work together on the deal. And if the company, and we think thats huge value add and the differentiator. Not just because we work very well together, which we do, but we look at, when we assess an opportunity, we assess it from this global perspective, we look at the competition from a global perspective, and we look at the upsi de from a global perspective. When we work with a company and get involved, its very fluid if at some point the company needs to move from one side of the Atlantic to the other, and in what form it does that, because there isnt formula that works for everybody, so thats a big differentiator for us. In terms of sectors, its information technologies is the driver. We do things at the, in multiple ends of the spectrum of that, meaning we will invest in innovative consumer services, e-commerce or mobile or whatever that might be, as well as core innovation in infrastructure, whether its around data, the data center, virtualization, cloud, and anything in between. Now, I dont want to make it sound like well invest in just about anything, the key criteria for us are: there has to be technology as either the core enabler or the core reason for the investment. And also we, the number one criteria is the team, the entrepreneurs and the team they build around them. So, we always start from th at: yes, there has to be technology enabler; yes, there has to be a big market; yes, the business model has to make sense. But all of these things that I just named vary over time. Technology may be superior at one point, but then you have competitors, you always have competitors. The market changes, the business model may evolve. But the one thing that doesnt, or shouldnt, or hopefully doesnt change and the one thing that, the constant that we like to base our investment thesis around is the team that we invest in. And so, thats why if you look at our portfolio, you will see, or you look at my personal portfolio, for example, to speak from personal basis, you will see things in core infrastructure, but also in more consumer or business-to-business kinds of services. And the reason for that is, in each case theres a team that I subscribed to, that I want to support, because thats the real reason.Martin: What advice would you give an entrepreneur who has just started, like 6 months, 12 months into the game? On what type of function he should very much focus in his business?Nicolas: Well, Id give them almost the same advice I gave ourselves as investors is: the same care, we exercise at picking the people we invest in, they should exercise in people, in picking the people they bring together. That is true in terms of the people they bring together on the investor side, but its also true in terms of the people they bring together as their core team to start the business, so their co-founder, of course, but the core initial team members are crucial. So, one thing I often see has not being paid enough attention to by entrepreneurs is exactly, is dedicating enough time and resources in the early part of their business life, in assembling that team. People tend to get very enthusiastic about their product, their service, their website, their technology, whatever that is, and just focus on executing and wanting to promote that, which is a good thing, of course they sh ould. But its also really important in the beginning to ensure the viability of your business, the fundability of your business and the competitive advantage of your business to assemble the team. So, as a young CEO and founder you should probably spend half of your time on the people side, and half of the time on the actual business. Im maybe exaggerating in some cases, but not by much, and I think thats often on the place. That would be the main advice Id give.Martin: And with people you mean recruiting, retaining, motivating, or is it only recruiting?Nicolas: You know, I almost dont want to use the word recruiting, because recruiting is an activity you tend to do a little later. What youre looking for in the very early stage, and Im addressing your question from a really early stage point of view, is really assembling a team, and the word teammate is important. You dont want to have employees, you want to have people who subscribe to your vision, who will work to pursue the visio n in a disproportionate way, while theyre compensated in the near term, who will work with you and overcoming obstacles and those are not employees, those are co-founders almost. Even if they come a little later. Thats what I mean by that. Recruiting is, its not easy, but its more technical. When the company is more mature, yes, youre doing a lot of recruiting, and you also want to recruit the right kind of people, but the founder doesnt have to be quite as involved except at the executive level.ADVICE TO ENTREPRENEURS FROM NICOLAS EL BAZE In San Francisco, we talked with venture capitalist from Partech Ventures, Nicolas El Baze, about the investment due diligence process and how to raise venture capital. Furthermore, Nicolas shares his learnings and advice for young entrepreneurs.The transcript of the interview is provided below.INTRODUCTIONMartin: Hi, today we are in San Francisco at Partech International with Nicolas. Nicolas, who are you and what do you do?Nicolas: Im a venture capitalist. We are fund that invests in the startups, early stage startups, in technology across the Atlantic, so Paris, Berlin, San Francisco.Martin: Can you name some of them? Maybe some of our readers know them.Nicolas: Well, we can go back in history and go back to Business Objects, a long time ago, we can go more recently, if we want a touch on a Berlin companies, for example Brands4Friends was an investment of ours, more recently La Fourchette in France and Spain, you may have heard of, it was acquired by TripAdvisor. Probably another 150, soMartin: What is your background? And why did you become a VC?Nicolas: As an increasing number of people who come into this business in the Valley and increasingly in Europe too, I came from an entrepreneurial and operating background. So, I was on the entrepreneur side for 15+ years, close to 20 years. I started a bunch of companies, most of them failed, a few of them was successful, Partech was an investor in a couple of the companies that I co-founded and as I exited those companies, I was offered the opportunity to come around the table and with a team that I came to trust over the years, and I did that. And its been a lot of fun.Martin: Why didnt you start just another company after youve started several others, but becoming a partner here at Partech?Nicolas: Thats a question I ask myself for a long time. I probably went for a period of easily 2-3 years going back and forth on that. Eventually, its a lifestyle decision, its a very personal decision at some point. In my ca se, I had young kids, I had some success with my startups before, I wanted to continue to be doing really exciting things and building companies, but I also wanted to kind of find the balance with my personal life and spend more time with my children, so. In the venture business I like to say that we work a lot, sometimes at least as the entrepreneurs, not quite, but we have a lot of flexibility in how we manage our time. We dont manage people per se. We get involved with companies, with entrepreneurs, with management teams, but we dont have the operating imperative that you have when you run a company. Which is much more demanding in terms of your schedule, and mostly less flexible. So, that was the drive for me. In addition on the positive side, also, the opportunity to work on lots of exciting things vs. just a few, and thats pretty exciting.Martin: And you can diversify your portfolio, so to speak? Just because you focus not only on one ideaNicolas: For me, that wasnt much of cr iterion. I mean, clearly, theres a portfolio aspect to what we do and you diversify your risk. You also lose in terms of adrenaline. So, youre kind of an advisor, you have to play a buffering role with the entrepreneurs and so, by definition, you dont experience the highs, you only experience the lows with the same intensity. So thats, that may be a plus or a minus, depending on the person or where you are in your life, butMartin: And what are the major tasks that you are doing and how are they distributed over a week, a month, or a year?Nicolas: At a high level, I would say we probably, people like me probably spend half of our time working with the companies that were involved with, invested in, and the other half looking at stuff: meeting with new companies, meeting entrepreneurs, meeting with people in our network, learning about our environment, being on the lookout. At a high level. Now, in terms of what we do, with the portfolio companies, which was the other part of your que stion, it really is kind of an on demand role. We, I like to be kind of on demand, on call with the entrepreneurs that we work with. So, in terms of what that means, that can vary in time, and also varies very much with the needs of the company, and also the background of the entrepreneurs. Their experience is really what I mean there. Some of the entrepreneurs we invest in are extremely experienced, more so than I am, so what I bring to the table is not so much operating know-how, because they know better, its a different perspective, and maybe kind of a step back strategically on what they do, or maybe related to the Transatlantic connections that we can bring. So, at more of the strategic level.Martin: So, youre more trying to challenge those perspectives of entrepreneur and, on the other hand, trying to help them get in touch with other people that might help them grow this business?Nicolas: I think its a lot of those two things. I think when the reason entrepreneurs want a vent ure capitalist, or should want venture capitalist on their board, is to bring the perspective they dont have, its to challenge them by definition. Not necessarily to argue, but challenge constructively. And so, the way you should build the board as an entrepreneur is by bringing together people who bring different expertise, different backgrounds. But, whatever that is different than yours. So, thats how it works well. And now, theres specific value that we at Partech can bring because of our global presence, global meaning today mostly Europe and the US. And obviously, we try to bring that value to the table as well, whenever thats relevant. In some cases, that was the other part of my answer, we also deal with a rather very young entrepreneurs, who havent done a lot of things before. So, in that case, the contribution could be a little different. It could be much more operational, it could be advising on budgeting or signing an office lease, or a bank lease, it can be very practic al things, as well, were happy to bring that to the table whenever we can.Martin: Ok, great. If the entrepreneur or the business model is performing well, and the business is growing, entrepreneur is happy and the VC is happy. How do you manage when the company youve invested in is going almost bust or likelihood is down? What do you do?Nicolas: Its not different. I like to say that one of the ways I measure whether I am a good board member is if the entrepreneur feels comfortable and free to call me whenever something bad happens, and call me in the real time. Because, ultimately we want to be and we should be on the same side of the table, once weve invested. Were all fighting for maximizing the value of the.., of shareholder value. And so, when something unexpected and bad happens, whether loss of a major customer or partner or people related issues, we should be working on resolving them together. So, I think the key for me is, and should be I think for entrepreneurs, it certain ly was for me when I was on that side of the table, is: you want to be able very comfortable discussing issues of the business, whether theyre positive or negative and working through them. Because ultimately, when, if the conclusion at some point at the company is Its not working or Its not working as expected or not to the scale that we all wanted, the conclusions that we come to should be the same, whether youre the entrepreneur or the investor. If it makes sense to sell the company vs. growing it independently, that should be a rational decision based on what we all observed from the business. Or, if it makes sense to shut down the company, we dont like when it happens, but it happens. So, it shouldnt be a conflict, its like when youre raising children you want them to come to you as a parent, when something bad is happening or they got in trouble, so you can help resolve, address it, its no different.PARTECH VENTURESMartin: Lets talk about Partech International. Can you give us brief overview of what Partech International looks like, in terms of maybe, structuring, assets under management, or what type of industries or company sizes are you investing in?Nicolas: Sure. So, first, from the branding point of view, we rebranded Partech Ventures, just wanted to clarify that for a second. Same thing, both names are out there, but the formal name is Partech Ventures. So, we invest in early stage companies, at different stages of the early stage, meaning seed and after seed. But, the main criteria being we need to see high growth potential. We do this in an international context, and the structure we have is very unique. I think its unique in the industry in the sense that we are between our presence in Berlin, Paris and San Francisco today. We are a single team, single fund structure, we make decisions together, we look at things together, there is no distinction whether you talk to my partner in Paris or me, we will eventually work together on the deal. And if the company, and we think thats huge value add and the differentiator. Not just because we work very well together, which we do, but we look at, when we assess an opportunity, we assess it from this global perspective, we look at the competition from a global perspective, and we look at the upside from a global perspective. When we work with a company and get involved, its very fluid if at some point the company needs to move from one side of the Atlantic to the other, and in what form it does that, because there isnt formula that works for everybody, so thats a big differentiator for us. In terms of sectors, its information technologies is the driver. We do things at the, in multiple ends of the spectrum of that, meaning we will invest in innovative consumer services, e-commerce or mobile or whatever that might be, as well as core innovation in infrastructure, whether its around data, the data center, virtualization, cloud, and anything in between. Now, I dont want to make it sound like well invest in just about anything, the key criteria for us are: there has to be technology as either the core enabler or the core reason for the investment. And also we, the number one criteria is the team, the entrepreneurs and the team they build around them. So, we always start from that: yes, there has to be technology enabler; yes, there has to be a big market; yes, the business model has to make sense. But all of these things that I just named vary over time. Technology may be superior at one point, but then you have competitors, you always have competitors. The market changes, the business model may evolve. But the one thing that doesnt, or shouldnt, or hopefully doesnt change and the one thing that, the constant that we like to base our investment thesis around is the team that we invest in. And so, thats why if you look at our portfolio, you will see, or you look at my personal portfolio, for example, to speak from personal basis, you will see things in core infrastr ucture, but also in more consumer or business-to-business kinds of services. And the reason for that is, in each case theres a team that I subscribed to, that I want to support, because thats the real reason.Martin: What advice would you give an entrepreneur who has just started, like 6 months, 12 months into the game? On what type of function he should very much focus in his business?Nicolas: Well, Id give them almost the same advice I gave ourselves as investors is: the same care, we exercise at picking the people we invest in, they should exercise in people, in picking the people they bring together. That is true in terms of the people they bring together on the investor side, but its also true in terms of the people they bring together as their core team to start the business, so their co-founder, of course, but the core initial team members are crucial. So, one thing I often see has not being paid enough attention to by entrepreneurs is exactly, is dedicating enough time and re sources in the early part of their business life, in assembling that team. People tend to get very enthusiastic about their product, their service, their website, their technology, whatever that is, and just focus on executing and wanting to promote that, which is a good thing, of course they should. But its also really important in the beginning to ensure the viability of your business, the fundability of your business and the competitive advantage of your business to assemble the team. So, as a young CEO and founder you should probably spend half of your time on the people side, and half of the time on the actual business. Im maybe exaggerating in some cases, but not by much, and I think thats often on the place. That would be the main advice Id give.Martin: And with people you mean recruiting, retaining, motivating, or is it only recruiting?Nicolas: You know, I almost dont want to use the word recruiting, because recruiting is an activity you tend to do a little later. What youre looking for in the very early stage, and Im addressing your question from a really early stage point of view, is really assembling a team, and the word teammate is important. You dont want to have employees, you want to have people who subscribe to your vision, who will work to pursue the vision in a disproportionate way, while theyre compensated in the near term, who will work with you and overcoming obstacles and those are not employees, those are co-founders almost. Even if they come a little later. Thats what I mean by that. Recruiting is, its not easy, but its more technical. When the company is more mature, yes, youre doing a lot of recruiting, and you also want to recruit the right kind of people, but the founder doesnt have to be quite as involved except at the executive level.ADVICE TO ENTREPRENEURS FROM NICOLAS EL BAZEMartin: Imagine you have a son and your son comes to you and says Daddy, I would like to start a company, and hes 15-16 years old. What would you recommend? Nicolas: Go for it. I would give them the same advice I was given when I was young, is I think there is absolutely zero downside or risk in going for what you believe in when youre young. I think there is energy that you have, almost unreasonable mass you have that can bear a lot of fruit. So I would absolutely say go for it, and surround yourself with the right people.Martin: What happens if your son says But Daddy, what happens if it doesnt work out?Nicolas: Great. Youll hopefully learn from it. We like to invest, by the way, in entrepreneurs who failed before. I know from my own experience, I learned a lot more from the experiences that failed, that from the ones that succeeded, because when typically one thing succeeds, its because they went well, its obvious, but also means, it doesnt mean you didn’t have to overcome obstacles, but it means that you solved the problems as they went, as they happen. When you fail, typically, you couldn’t find the answer, and that means you e ncountered really, really strong obstacles, typically those bring a lot of lessons.Martin: Nicolas, you saw so many entrepreneurs and you worked together with them, as well. What have been the major learnings you learned from other entrepreneurs? Where you said Wow, this was some interesting lesson for me, I didn’t know this before, or this is a new perspective that this entrepreneur showed to me? And can you make vivid or so?Nicolas: Thats interesting question. I think what Ive learned, which I knew, but I keep learning over and over is that,.. First of all you have to remember that were not the entrepreneurs, they are, so they know their business typically way better than we do. Theyve thought about it, lived it, living it day to day. And they carry their vision. So, one thing Ive learned over and over is if you pick the right people, and typically you pick them because you trust them, you really have to trust them, because ultimately they know better. It doesnt mean you dont ha ve value to bring, or you cant influence things or you cant advise. But you ultimately need to, if you pick the right people, and that is really the key, once you made that call, you really have to go with them. And the enthusiasm, and thats another lesson, the enthusiasm, the persistence, the determination in pursuing the vision usually pays off. Almost doesnt matter what sector or what the activity is. The passion wins, because everybody, all your competitors will encounter difficulties and obstacles, so its whoever believes in it the most, whoever has the most faith, passion, energy, relentlessness is going to win.Martin: And how and when should an entrepreneur contact you or some other venture capitalist for raising money? If the objective of entrepreneur is raising money, when, how should he connect you?Nicolas: There is no rule for that. I think the key is setting the context correctly. What I mean is, I see entrepreneurs and Im very happy to see entrepreneurs all the time who arent really ready, they just want the informal advice. So, if somehow I get in touch with them or they get in touch with me through the network. Its ok to call a VC and say Im working in this space, I understand you may have an interest in that or So and so told me you might have some interesting input, thats fine. And were more, I know that its true to my partners, too, were open to see entrepreneurs in that context and just provide informal feedback. Were just as happy to see them when they have a very well framed pitch, very happy to do that as well. I think, to us, it makes sense for entrepreneurs, by the way, especially new entrepreneurs or young people, to use every opportunity they have, they can, to get to know investors, to gather advice. Because after the informal discussion they will better know, for example, what interests me or doesnt interest me. Or at what stage I would get involved with a company in a particular space vs. the different space. Because, for example, its a little easier to invest really, really, really early in a company that has very unique technology vs. say a consumer company thats all based on marketing where we may want to see a little more traction before we get involved. And that varies with the investors, so no rule. No rule, just we want to see enthusiasm and as long as the expectations are set correctly.Martin: Thank you very much for your time, Nicolas. And if you want to pitch next time to some of the investors, try to think about whether the market is big enough, whether you have some great technology that solves big enough problem and whether youre really passionate about your idea. Thank you very much.