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Many VCs hope to onboard a family office or two as LPs in their funds. But what goes on behind the scenes when a family office chooses an investment is rarely visible to the hopeful VC. Our latest DiffuseTap session gave us a peek at the inner workings of family offices, thanks to veterans Peter Braxton, Director at Envoi LLC, and Andrew Bluestein, Co-Founder and Managing Partner of Bluestein Ventures.

DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high calibre startup players) and part purposeful (you’ll DiffuseTap new ideas).

Managing Risk, While Managing the Family

Peter Braxton leads business development for Envoi, a multifamily office with 33 families and a $5 billion balance sheet. In a feat to capture outsized returns and diversify their portfolios, some families under Envoi’s management seek to deploy capital in the venture capital asset class. Given Peter’s expertise in making decisions for some of the wealthiest families in the country, an obvious question emerged from the audience: Would Peter ever involve his own immediate family in the business?

“My older brother, he’s a neurosurgeon in Colorado. He’s the only neurosurgeon in Eagle and Summit County, Colorado. He’s one of the smartest people I’ve ever met. He’s got an MD from Penn and an MBA from the Tepper School of Business.  I would never go into business with my brother.

“He’s incredibly risk-averse. I am not. We have different liquidity requirements, active vs. passive investment styles; different risk tolerances. All that would cause is a recipe for a “food fight;” — heated arguments over Thanksgiving Dinner, where my mom would serve as referee. The families I deal with and represent are in business with each other simply by being born. Being in business with your sibling or parent is imposed/obligated, and that brings in a different family dynamic.”

This sentiment is as true for Peter’s personal life as it is for dealing with the families invested in Envoi. An overly risk-averse mentality does not work in your favour when investing in venture capital, according to Peter. The single job of a family office is to manage risk and manage information. Though in the case of venture capital, the risk-reward structure is on the opposite end of most family office’s wealth preservation strategies: The higher the risk, the greater the reward. A family needs to come to terms with who and which generation they are investing for, before making such commitments.

To merge the two disparate worlds of family offices and VC funds into a productive union, an extensive part of “getting to know the family” is needed from the get-go. Especially knowing where the family is in their “cycle of wealth;” risk appetite is key. Peter explains:

“Identifying long-term goals early on is key to a successful partnership. To be able to take on some type of illiquidity risk or illiquidity premium that they’re seeking through a venture, either through direct deal or via fund, is something that needs to really be carefully thought out in a family office.”

VC Investments, Worth the Risk?

Our second speaker Andrew Bluestein co-runs his family investment vehicles alongside his dad. When they started their family office in 2014, the first question they had to ask themselves was “What are our long term goals and objectives?”

“We were on Gen Two, my kids are Gen Three, and we’re trying to build a multi-generational business. We had to look at where we are at our balance sheet, and how we wanted to allocate our investments to different asset classes. Also, we had to evaluate what risks we wanted to take, and how we could maximize our risk-adjusted returns. That was our goal. We had to decide how much risk we want to take, and then do as good a job as we can to get the returns off that while managing risk.”

Seven years on, Andrew decided to go into a higher risk asset class and start their own VC fund, focused on the food industry. He immediately noticed a difference in how taking risks was incentivised. Andrew explained:

“As a fund, your incentives are really based on two things: How much return you generate on invested capital, and how much invested capital you have. Therefore, a central question we had to ask is ‘How much are we investing today,’ and ‘Should we raise future funds?’”

With this in mind, Andrew and his family decided to work with a fixed capital amount where they wouldn’t have to knock on investors’ doors to access more capital. This meant that they had to shift their focus towards maximizing returns for the capital they had on hand.

“It’s a slightly different perspective because every single investment needs to stand on its own, and there are some efforts that we don’t have to go through. I think that sometimes that leads to different dynamics when thinking about what I’m trying to do with the asset class.”

With both family dynamics and asset class complexities at play, running a family office that invests in venture capital can be challenging. That said, if you have a tight handle on your risk appetite, a clear view of what goals you want to achieve with your investment strategy and the right people to help you execute, the interplay of family offices and venture capital can be immensely lucrative.

Meet the Speakers

Peter Braxton leads the Chicago office of Envoi LLC, a management-owned private family office that thrives on serving on behalf of ultra high net worth individuals and families, delivering comprehensive wealth counsel for taxable investors, and representing families to brokerage firms, investment managers, trust companies, and private banks.

Andrew Bluestein is the Co-Founder and Managing Partner of Bluestein Ventures, a Chicago-based family-owned VC firm investing in game-changing early-stage ventures across the food industry, spanning the entire value chain including both B2C and B2B.

About Your Host

Diffuse is a fund ecosystem that incubates and runs select funds. From investment thesis to fundraising and deal flow management, we cover our GPs end to end. If you want to spin up your own fund, get in touch with us at contact@diffuse.vc. We would love to see how we can help.

Special purpose acquisition companies, or simply SPACs, have been around since the 1990s, but didn’t gain traction until 2010, when going public via this route became a fast track to listing success.

Today, SPACs have become more popular and even a formidable rival to the typical route of initial public offerings (IPOs). In fact, this year, we’ve seen more than 50 new SPACs in the U.S. alone raising some $40 billion, following a record high in SPAC IPO capital raising in 2019.

In our last DiffuseTap session, our guest Jeff Gary, Director and CFO of Fusion Acquisition Corp., shed light on this phenomenon. DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high calibre startup players) and part purposeful (you’ll DiffuseTap new ideas). If you want to make new friends and connect with experienced professionals from our VC ecosystem, email us at contact@diffuse.vc.

 

Why SPACs Rival Traditional IPOs

A SPAC is an empty shell company formed with one target in mind: To raise capital through an IPO, in order to acquire an already existing private company.

Also known as “blank-check companies”, SPACs, as Jeff explained, allow a private company to go public “more quickly, more efficiently, with less cost, and more certainty” than the  traditional IPO process. But perhaps one of the biggest distinctions of SPACs is, unlike an IPO or private equity, the seller will roll out a significant amount of their equity and retain majority control. In other words, the current owners and management team remain in place and participate in the future upside of the public stock price.

According to Jeff, there are several advantages to going public with SPACs as compared to going through the traditional IPO route:

1. Private companies can retain as much ownership as they want. This allows the company to retain their momentum without hindrance and to pursue any long term goals that were already put in motion.
2. SPAC deals cost less. IPO fees are more expensive, and this becomes an important factor for companies looking to go public when a set dollar figure is yet to be established, therefore minimizing losses out of any potential risk.
3. There is more valuation certainty since you negotiate with only one party and the SPAC and company agree on valuation and deal structure in advance of going public. This significantly simplifies the effort of publicly listing as compared to a traditional IPO route.

“With a SPAC, in negotiating the valuation which you determine up front at the time of the public announcement, you’re only negotiating with one party. In a traditional IPO, it’s like herding cats. You have BlackRock and Franklin coming in, trying to muscle their way in, but you’re trying to herd 100 ambassadors together, to get 100 people to decide to invest in your IPO and at what price. So it’s much more efficient from the investor and certainty standpoint with a SPAC.”

 

How to SPAC in 3 Steps

“In a SPAC deal, there are really three separate steps to the life of a SPAC.. First, you need to raise what’s called risk capital. Second, you do the IPO. Then finally, you announce a deal.”  

Just three months ago, Fusion raised $350 million on IPO, and now they are looking to merge with a fintech or a financial service company with a valuation of $1 billion to upwards of $10 billion. Jeff shares insights into the SPAC process:

1. Pay Risk Capital

The first step for a SPAC to buy a company is to pay the risk capital. That is you pay upfront for the underwriting commission and legal expenses.

“For instance, if a SPAC plans to pursue a $300 million IPO, they will need to raise 2% to pay the commission at $6 million, plus another $2 million to pay for legal expenses. Later on, the SPAC, risk capital investors, and management get a 20% share of that $300 million company. So in essence, they get $6 million in shares, plus warrants to buy stock at a 15% premium.”

If no deal gets done, then all of those shares are revoked. Therefore, the SPAC team is incentivized to getting a good deal done.

2. Go Through the IPO

After raising the initial risk capital, a SPAC goes through the IPO process to raise its initial   capital with the goal to merge with a private company. The IPO investors normally pay $10 per share and that capital then goes into a trust which cannot be touched until a merger with a target company is approved by the IPO shareholders.

For example, Fusion raised $350 million three months ago via IPO. Once they sent that money to trust, it could not be touched until Fusion presented a merger candidate to its shareholders and they approved it. The typical SPAC deal structure is for investors to buy a “unit” or a share of common stock, and also get an option to buy half a share of common stock at a 15% premium. The warrant provides additional upside as an incentive which will trade separately.

“It’s usually within 18 to 24 months of maturity if we do not get a deal done. If no merger gets done, then that $350 million is returned, and investors get their $10 a share back plus any interest income. They keep their warrant which they can sell on the market.  This way, there’s very little downside from the IPO investor’s standpoint.”

3. Announce the Deal

After raising enough capital and engaging with a prospect company, the SPAC announces the deal. This includes publicly disclosing the terms and the dollar amount of the transaction.

How about shareholders? They are offered an option to veto or opt out of the deal and get their money back. Shareholders get to vote on two things: (1) Do they want to stay in the deal? (2) Do they approve of the deal?

“It’s a free call option to get a look at a deal, know the transaction, and decide if they want to participate or if they want their cash back. Basically, if they choose to redeem their shares at $10, or if the deal doesn’t get approved based on votes, then they get their money back. So again, they have no downside in the transaction.”

 

The Verdict: SPAC > IPO

The goal of a SPAC is to buy a great company at a discount to public comps, resulting in the stock appreciating, citing the recent deals that went down with DraftKings, Nikola, and Virgin Galactic. A unit for DraftKings, for instance, sold at $10 at its IPO and near that level until they announced the deal. A unit now trades at $54.

“Shareholders get a free call option to be able to invest. You can also buy a SPAC in fintech services, in industrials, in technology, or whichever sector. This allows them to build a portfolio and invest in public stocks early on of great companies, and the outcomes can be very rewarding.”

Investors would do well to dip their toes in the SPAC pool as an alternative.  Also for private companies this is a more efficient way of going public with higher valuation and deal certainty. As Jeff expertly illustrated in our DiffuseTap session, when investing in a SPAC, there is simply no downside.

 

Meet the Speaker

Jeff Gary is an independent board director, audit committee chair, investor, and entrepreneur with over 30 years of experience. This includes being a team leader and Senior Portfolio Manager at BlackRock, AIG and Avenue Capital.  Currently, he is a Board Director and CFO of Fusion Acquisition Corp., a publicly listed SPAC listed on the NYSE. Fusion is a blank-check company formed to unlock shareholder value, by identifying an acquisition target in the fintech or asset and wealth management sectors with a value of $1 billion $10 billion.  He is also a Board member or Advisor to three Fintech companies and on the Board of National Holdings (NASDAQ: NHLD).

About Your Host

Diffuse is a fund ecosystem that incubates and runs select funds. From investment thesis to fundraising and deal flow management, we cover our GPs end to end. If you want to spin up your own fund, get in touch with us at contact@diffuse.vc. We would love to see how we can help.

No question, many VCs like to get involved in the everyday business of their portfolio companies. But is there such a thing as being “too involved”?

In our recent DiffuseTap session, we asked Brian Deutsch, Founder of XV Venture Capital, and Venu Raghavan, Vice President of Strategy & Development at Wasson Enterprise (WE), the multi million-dollar question: What is the right amount of hands-on to accelerate a startup’s success?

DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high calibre startup players) and part purposeful (you’ll DiffuseTap new ideas). If you want to make new friends and connect with experienced professionals from our VC ecosystem, email us at contact@diffuse.vc.

Defining hands-on

Venu Raghavan took the hot seat first. According to Venu, hands-on means finding hidden areas within their portfolio companies that they can add value to. This is achievable by maintaining a close working relationship with the startup and keeping an open dialogue at all times.

“I think with the companies that we’re true partners on, we’re very in-the-know in terms of the inner workings of the company. I believe you have the ability to add value beyond the times you’re sitting at a board meeting every three months. Having an intimate relationship with the founders of those companies allows us to really understand their current pain points and areas for constructive feedback, and areas which we can help.”

Wasson Enterprise’s approach

As an example, Venu talked about WE’s portfolio company Cooler Screens, which develops digital doors for fridges and freezers in the retail setting. In just three years, Cooler Screens has raised over $100 million and made their way to a fast Series C.

“The way Wasson Enterprise helped with this rapid acceleration, Venu said, is they leveraged their strong network and experience in the retail and advertising space. With their network, WE helped Cooler Screens roll out nationwide in Walgreens stores, GetGo, Kroger, and other mass retailers.

“We’ve progressed quickly through our ability to pick up the phone call with top people at some of these retailers where we can accelerate commercial conversations, and they help our funding conversation. So, hands-on to us means being able to make introductions where we can be strategic, and being able to plug in on a functional area where we can be strategic.”

Boots on the ground

Brian Deutsch’s experience at XV Venture Capital is a little more “boots on the ground”. Wherever his companies are – even if that means flying to Germany to help broker an investment, going to trade shows to unpack boxes, or being on calls even if he’s on mute – that’s where he needs to be.

What that allows XV to do as the primary and sometimes only funding source is to anticipate funding needs prematurely, even before founders ask for it. Then again, this also means that they are forced to focus on a handful of companies and limit their portfolio to those that count.

“Contrary to popular sentiments among the investment community, founders don’t love asking for money. They only like to when they think that they have a strong chance of getting it, or when they badly need it. What we like to do is be there in that interim space to say, ‘hey, look, this is something that we would get behind and fund,’ and we don’t need the founders to come ask for it. The only way for us to know those opportunities is if we’re there on a daily basis. So for us, that’s truly what it means.”

Under-coachability vs. over-coachability

Some companies like to be coached; others, not so much. The question is, how much advice does a VC have to give without actually running the company? Brain and Venu had different answers.

For Venu, having an open dialogue is the key to balancing under- or over-coachability. By being “in-the-know” with what’s currently going on in the company, they know exactly when to step in and share their two cents on an important decision, and then discuss it with the board.

“We want to be a partner, but we don’t want to give unsolicited advice. Therefore, having intimate knowledge within the inner workings of our portfolio company at any given point in time and providing advice based on our experiences is key. I think open dialogue leads to more open dialogue, and information leads to balancing that coachability factor.”

Meanwhile, Brian doesn’t think too much about over- or under-coachability; instead, he looks at domain expertise and knowing when it’s best to give advice. If they have more experience in a particular domain than a company’s founders, that’s when they do coaching. However, if the opposite is apparent, then it’s best to leave it up to them.

“If you are the expert in your domain, which if I’ve given you money you probably are, you should be in no need of hand-holding. But when it comes to ancillary parts of running a business, if you’ve never done it before, you should probably be more open-minded. The question we like to ask ourselves is ‘is this an area where we know more about? Do we have more credibility?’ That’s typically how we bifurcate the amount of effort we give and the amount of responsiveness we expect to receive.”

As Brian put it, “there is no typical VC”; every VC may have a different approach. But one thing they all share in common is that they like to be hands-on, especially before shelling out any money. For first-time entrepreneurs still trying to find their way, VC expertise is a godsend and there’s no such thing as too much good advice.

 

Meet the Speakers

Venu Raghavan is VP of Strategy and Development at Wasson Enterprise, a Chicago-based single family office committed to creating a meaningful legacy by building businesses that have a lasting positive impact. Brian Deutsch is the Founder of XV Venture Capital, a Glenview-based investor/ advisor that focuses on seed-stage investments across industries and geographies in the United States.

Meet the Host

Diffuse is a fund ecosystem that incubates and runs select funds. From investment thesis to fundraising and deal flow management, we cover our GPs end to end. If you want to spin up your own fund, get in touch with us at contact@diffuse.vc. We would love to see how we can help.

In response to the ever-increasing demand for early stage capital, there has been a spike in the number of Micro-VCs (with $25-$100MM in AUM) and Emerging Managers who’ve raised fewer than three funds. This increase of active Emerging Managers can make it difficult for them to know how to stand out and get LPs on board with their team story, investment thesis, and overall fund strategy.

If you’re an Emerging Manager raising your fund, how do you make sure you don’t get overlooked?

In our recent DiffuseTap session, we had the chance to talk with two Directors at First Republic Bank, Shira Mazor and Madelaine Czufin, who focus on banking in the VC and startup ecosystem and work with all stages of fund managers and their portfolio companies. Shira and Madelaine talked about the growing competition for active fund managers raising capital and how they are supporting these new managers.

DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high caliber startup players) and part purposeful (you’ll DiffuseTap new ideas). If you want to make new friends and connect with experienced professionals from our VC ecosystem, email us at contact@diffuse.vc.

 

Setting Yourself Apart

Many Emerging Managers want to make sure their stories stand out to LPs, but they don’t always know what the prospective LP is really looking for. According to Shira, a key factor for LPs is the track record of the founding General Partners.

“I know that sounds impossible: how can you have a track record if you’re an Emerging Manager? But LPs really look for that, either if it’s in the form of an SPV track record or something that comes from experience as a direct investor. Also, it’s important to highlight each GPs areas of expertise and how they relate that to their investment thesis and the companies they will support. Often you may be asked ‘What career have you built for yourself? Are you an expert in the specific industry and are you well-networked in it? Can you defend your thesis?’ Initially, those are the things that make Emerging Managers stand out.”

Because Emerging Managers by definition are only starting their initial funds, most don’t have a large track record of exits to account for. Rather, GPs can highlight other progress of their other investments, such as follow-on rounds or new investors on the cap table, which are all good points of reference, especially earlier on in the fund lifecycle.

 

Importance of Diversity

A good track record is one way to stand out, but there are other factors worth considering. Madelaine stressed that, now more than ever, LPs are looking at different metrics around diversity as a key area in the diligence process.

“LPs are increasingly becoming more proactive in looking at diversity metrics in their diligence process. It is important for the fund’s leading team to reflect a value in diversity, encompassing diversity of thought and lived experience along with different areas of expertise. This makes a lot of sense given the data shows that more diverse teams, from junior to executive levels, produce better results and are more sustainable long term.”

 

Your Time is Your Value

As an early fund manager, it is also important to balance your allocation of time. Shira highlighted the importance of utilizing your different service providers, in order to ensure that you are getting the full support you need as you grow and scale your firm.

“It is important to have the right person, whether it is your bank, law firm, fund admin, etc. who can support you. You should leverage those connections and opportunities as much as possible.”

In closing, Madelaine emphasized that a key attribute of their team is the hands-on approach they take.

“We support you beyond just banking by offering other services helping you expand your networks, providing access to tools for your portfolio, giving you support as you go through the fundraise process, and share other products so you can do what you do best: make great investments in companies for strong returns for your LPs!”

 

Meet the Speakers

Shira Mazor and Madelaine Czufin are Directors at First Republic Bank. They support their clients through all stages of growth for their fund or business. With more than 60 offices on the West Coast and in the Northeast, First Republic Bank offers a complete range of lending, deposit, investment, trust, and brokerage services. To learn more, feel free to email at smazor@firstrepublic.com and mczufin@firstrepublic.com.

No matter who you are, how much experience you have, or what you sell, fundraising has always been tricky. Throw in a global pandemic to the mix and you’ve got quite the feat.

Where movement is restricted and conversations are limited to phone calls and Zoom meetings, fundraising during COVID can be harder than it has to be. Nonetheless, entrepreneurs have learned to adapt to the current environment and learn new tricks of their own.

Regiment Investment Bank Founder Mike Cavanaugh and Crowdchayne Founder Frank Cid sat with us on our latest DiffuseTap to share their insights about fundraising today and how they learned to adapt to the new normal.

DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high caliber startup players) and part purposeful (you’ll DiffuseTap new ideas). If you want to make new friends and connect with experienced professionals from our VC ecosystem, email us at contact@diffuse.vc.

The hardest part of capital raising today

Capital raising requires you to build a strong relationship with potential investors. Traditionally, building that connection demands conversations you simply could not have over the phone. Because of COVID, however, everything about that has changed, and Mike says that is the most difficult thing to adapt to.

“Capital raising is all about trust. In the past, your ability to build trust boils down to proximity and frequency – how close you can get to somebody and how often you see them. Right now, the toughest thing in capital raising is building trust with new people. It’s harder to meet new people in this COVID lockdown.” 

One of the points Mike also raised is “deal fatigue”. He explained that deal fatigue occurs if you offer too many deals to the same group of people – they get tired of hearing from you. To avoid deal fatigue, you have to constantly build new networks and relationships.

This is where things like Zoom conferences, LinkedIn, and other online platforms become a crucial part of fundraising rather than supplemental. According to Frank, ever since the lockdown began he has become more in-tune with technology and online networking – something he didn’t put the effort in before.

“Conferences and meetings like DiffuseTap have been huge for us. When COVID started, I should say I was not very comfortable with the electronic side of things in our business. I’m more of an old-school, pen-and-paper guy. But because of the lockdown situation, I learned how to go out into the digital world and create new relationships, and I don’t think the potential in that will end after COVID.”

Are conversion rates plummeting in the current environment?

At the beginning of the pandemic, it was almost impossible to convince people to invest. According to Mike, there was barely any conversion happening during the first few months of COVID.

“The conversion rate from March to July? Zero. There wasn’t anything moving. I stopped calling in March and April because I knew there were ‘super nos’ coming. After a point, I felt like I didn’t need to hear it… I already knew their answer.”  

However, Mike says that results began to pick up as investors themselves have adapted to the environment. After the realization that we were going to be stuck here for a while, Mike says, life began to move forward. What’s important for fund managers is that they have to have a laser-sharp target on their leads.

“I think it really boils down to targeting the people you talk to. They say that in capital raising, if you call 100 random people, only three will know what you’re talking about and have the cash to invest, so you’ll convert about three out of 100. For the most part, that has held true outside of that March to July period where nobody was investing in anything. And remarkably, over the past couple of months it’s been pretty consistent.”

Capital raising opportunities during COVID

The pandemic also comes with new opportunities in the way that more or less, fund managers are forced to think outside of the box. One of those opportunities is investing in international markets.

Because of the increased awareness that people can build strong connections with others in any part of the world today, the pandemic has opened new gates for a lot of fund managers, Frank says.

“Just recently I saw Stripe bought a company in Nigeria for $300 million, and the first thing that went into my mind is ‘man, I got to start looking at companies in Nigeria.’ The world is getting more global, and if investors don’t start looking at that, especially US high net worth investors who are stuck in their own world, they’re going to miss out.”

For better or for worse, the pandemic has brought a lot of interesting things to the table. One, you can build strong connections around the world from your office, and two, there is no point in trying to fight change. The most important skill anyone can learn, capital raising or not, is the power to adapt.

 

Meet the Speakers

Mike Cavanaugh is an industry veteran with over 20 years of experience in the fintech industry. In 2019, Mike founded Regiment, a digital bank that provides investors and entrepreneurs a platform to find each other through compliant marketplace technology.

Frank Cid has had his hand in a number of fintech firms over the last 25 years. Earlier this year, he founded CrowdChayne, a digital banking platform that provides turnkey equity crowdfunding services for startups and existing businesses looking to raise capital.

Despite the huge market in Insurtech, several factors make it difficult for startups to get their ideas across. Factors such as complex regulation bear down such a huge weight that gaining traction seems to be harder to do in Insurtech than in any other space. It begs the question – is there still room for innovation in Insurtech?

We were given a chance to dive into this topic during our latest DiffuseTap session with key investment decision-makers in two major insurance companies: J. Brian Anderson, principal and senior director at Nationwide Insurance’s Corporate Venture Capital arm, and Andrew Pitz, investment director at Transamerica Ventures.

DiffuseTap is a weekly virtual event hosted by Diffuse that is part networking (you’ll meet at least a half dozen high caliber startup players) and part purposeful (you’ll DiffuseTap new ideas). If you want to make new friends and connect with experienced professionals from our VC ecosystem, email us at contact@diffuse.vc.

What Makes Insurtech Hard to ‘Breach’

To create an industry-disruptive, “Netflix-like” product in Insurtech is a long shot, Andrew says. According to him, startups have to go through a lot more processes and put more effort into creating a successful product in the insurance industry compared to most other spaces. Four main factors make innovation difficult in Insurtech:

“First, there’s complex regulation that needs to be navigated if you want to create a better model in insurance. And then there are high capital reserves, which are required for large books of business, especially in life insurance. 

“But also, incumbents have sticky customer relationships and big in-force books, worth billions of dollars. These four things have all insulated insurance from the forces of disruptive innovation, if you will, where it’s more difficult for a startup to break in than perhaps other industries.”  

Leather-Bound Tomes in Insurance

Brian reinforces that the reason for this difficulty is because insurance companies have regulations that have been in place long before the technology we have today. Some of these regulations do not translate to modern technology.

“Many insurance companies were established hundreds of years ago, long before the invention let alone the advent of computers. I’ve been to Nationwide’s archives where you see how they recorded policies in the 1920s, and when I say it’s a leather-bound tome of policyholder’s credits, debits, and claims, I’m not joking. It’s all handwritten. We’ve come a long way.”  

What Insurance Companies Look for When Investing

When asked about what they were looking for when investing, Brian said there are three basic categories of companies to invest in: enterprise horizontal companies, insurance and financial services enabling companies, and companies that are a hedge to current lines of business.

Firstly, strategic investments mean investing in companies that generally help the core operations of the enterprise. These investments are not insurance or financial services-related per se but are investments where there is industry focus nonetheless.

The second category is more specific to a line of business. These types of companies are geared towards helping distribution or specific to an industry oriented vertical. And then lastly, Brian says they also look at investments that hedge to their current business model. According to Brian:

“These are strategic investments where we want to invest  in a company that is capitalizing on a potential megatrend that could disrupt an entire industry vertical we’re in.”

On the other hand, Andrew says that when making investments towards their core lines of business, he tends to gravitate towards those that create ‘real value’ for their policyholders, although he also focuses on those companies who can improve core business operations. Customer value, he explains, is measured by how it improves and/or lengthens their clients’ lives.

When defining customer value, there are two strong reasons to invest: companies that improve the lives of your policyholders not only allow you to create a holistic offering that enhances the customer relationship by giving them something impactful and meaningful,  but also helping to improve customer outcomes ensures you remain profitable on blocks of business like term life. Andrew explains:

“But at the end of the day, the customer-focused part of our investment thesis really boils down to improving and adding value to our policyholder’s lives.”

 

Meet the Speakers

J. Brian Anderson is principal and founding member of Nationwide Ventures’ CVC team since 2016. He was also a management associate to Nationwide’s Financial Leadership Rotation Program. Before joining Nationwide, he invested in a variety of successful early stage startups ranging from pre-seed to Series A.

Andrew Pitz is investment director of Transamerica Ventures, the global venture arm of Dutch-based insurer Aegon and US subsidiary Transamerica. Transamerica Ventures makes investments in InsurTech, FinTech, enterprise software, and digital health startups in the U.S. and around the world. He leads the company’s North America arm, spearheading investments in PolicyGenius, Digital Currency Group, Everplans, SmartAsset, Hixme, Genus.ai, Limelight Health, and CompStak.

While many U.S. companies (especially larger businesses) believe that outsourcing helps them generate profit, cut down costs, and improve cash flow, some say outsourcing can negatively affect the work being done. This poses two questions in the VC world: What can GPs delegate in their fund management workflow? What can absolutely not be outsourced?

During our latest DiffuseTap session, we had the chance to tackle these two long-standing questions with Abilash Jaikumar, co-founder and managing director of TresVista, a leading support services firm for financial services companies.

Doing the Heavy Lifting

The goal of outsourcing is to leave the heavy lifting to other people so that you as a fund manager, can focus on the heady parts of running a business. When asked how much of the leg-work work is shouldered by TresVista, Abi says it’s most of it.

“I would say we can support them on the bottom 80% of the work, which is where the volume of activity is. The top 20% is where the value is: the thinking, the strategy, etc. But that’s where our clients step in to take over.” 

With regards to that 80%, Abi says a lot of those processes include the investor relations side. Getting data in order, producing the private placement memorandums (PPMs), marketing materials, and most of the other day-to-day tasks. The same goes for emerging managers, which make up a third of TresVista’s clients.

Another important part of TresVista’s work is in high-priority deal execution for emerging managers, where Abi’s team lightens the client’s load end to end.

“Most of the time, we’re coming in for a very specific purpose. And usually, for emerging managers, it’s deals. You can appreciate that spending on marketing is important, but maybe marketing has a longer payout, and you say ‘I’m going to live without that,’ but the deal needs to be executed. And so, we often come in there first and help clients with that purpose.”  

Knowing What You’re Good at is Key

Just having a support team for your day-to-day work isn’t enough. If you’re thinking about offloading tasks, Abi says, knowing your core expertise and being precise about where exactly to supplement yourself is crucial.

“When you think about core competencies for a VC, it can be one of a couple of things. You could be a machine at raising capital, for instance. If you know that’s true about yourself, then you can focus your energy on fundraising and figure out how you can supplement that through outsourcing and advisors — the rest of the value chain.” 

Having a clear picture of your own competencies and shortcomings helps you craft a team to support your ideas and help you execute your plans.

“For example, if I’m a data scientist, then I know I can ramp the revenue growth by using data. If I’m an excellent marketing professional, I’m going to focus on companies that can benefit from brilliant marketing. If I know how to source better and I have a huge network, then I know I can get in deal flow. I just need to supplement that with people who can help do the diligence and raise the capital.” 

What Can GPs Delegate and What Should They Not?

Abi says not everything can be outsourced. Neither should all VCs and fund managers do it. Several factors come to play when outsourcing, and the tricky part is knowing in what cases you need to get your hands dirty. One thing you absolutely cannot outsource, Abi says, is relationships.

“You should never outsource the relationships, whether it’s with investors, with deal generators, with management teams, or others. Because for me, relationships are really a big part of the core competency of what a VC firm does.”

The other thing you cannot fully offload, according to Abi, is due diligence. Leverage others to do research and analysis, but the fund manager must stay involved through the process and translate the answers arrived from the diligence process into the ultimate investment decision themselves.

“You don’t want to leave diligence entirely to other people. It’s a tricky one because if you hire a large consulting firm, for instance, you’re basically outsourcing diligence to a certain extent already. But you also want to supervise the process, make sure everything’s in check, so you don’t run into problems later on.”  

Niche VCs face another challenge Abi notes, “If what you’re investing in is very niche and very technical, maybe it’s not outsourceable, and you have to be the one to do that because that’s your secret sauce.”

Why do most GPs not think of delegating their tasks externally? They have not realized that a fund is just another form of a small or growing business.

“When you launch an asset management business, you’re an entrepreneur. And just like any other entrepreneur, it means you have to wear many, many hats. And often what ends up happening is the main thing that you want to do, which is invest and advise, gets pushed off.” 

This is where task delegation comes in handy. Of course, getting specialized help is no easy feat. Hence companies like TresVista and Diffuse exist to step into the areas where the GP’s core competency doesn’t quite reach. In the end the fund that generates the most alpha wins. Optimizing for focus on the GPs part makes all the difference.

 

Meet the Speaker

Abilash Jaikumar co-founded TresVista in 2006 as a relatively small business providing high-end financial services, research, and data analytics support for asset managers, investment banks, research firms, and corporates around the world. Due to the strong demand for TresVista’s dedicated per-client teams, the Mumbai-based company has since expanded its global reach, opening offices in New York and London in 2017.

Since shows like Shark Tank started airing, capital raising and investing have proven to be viable forms of entertainment. Since the time of launch they have not only gained mainstream popularity but risen to pop culture heights of their rivaling the Idol shows that inspired their inception. Show business aside, the true value delivered by these shows is propelling obscure yet impactful startups into the limelight, catching the eye of eager investors who helped them grow to make a mark in their industries.

During our latest DiffuseTap virtual event, we had the opportunity to discuss this intersection between TV and impact investing with the co-founders of Tech Talk Media, CEO and Executive Producer Jonny Caplan, and Chief Commercial Officer Ronald Hans.

Meet Tech Talk Media

Tech Talk Media produces a unique documentary TV series that features under-the-radar entrepreneurs, innovators, and technology around the world. In October last year, TTM launched Season One TechTalk and sold it to Amazon Prime and Apple TV. The show now has audiences in 81 countries, streams to 500 million homes and won 10 international awards in 2020.

In Season One, TTM’s founders showcased 54 largely unheard of startups and featured them on the show. Since the show aired 14 months ago, these 54 startups have raised over $350 million in total.

TTM Co-founder and the show’s host, Jonny Caplan, says that although these startups have obviously worked very hard, it’s undeniable how this kind of television broadcast provides unprecedented media attention that accelerates each company’s growth tremendously.

“We saw how these ‘Shark Tank’ companies, or companies that have had some sort of television exposure, are given huge leverage. That kind of TV exposure, where a credible brand talks about a company in a positive way outside of a news or business report, is proven to yield much better results than if the marketing were to come directly from themselves.”

Is VC TV too dramatized?

Shows like Shark Tank and Dragon’s Den are arguably good TV shows and have been very successful. However, Jonny contends that sometimes that’s just what they are — good TV. But they’re not indicative of how the investment process works in reality.

“I think they have a good spin on entrepreneurship, but these shows are not really faithful to real entrepreneurs and real companies. There is a lot of drama in these shows, in the way founders tell their stories and make their pitches, for example, and also, these startups are chosen with entertainment as a top priority. To me, it’s just TV, it’s not really business.” 

Jonny says that what they set out to do with Tech Talk Media is to leverage the media traction of its predecessors, but also capture a realistic view of the featured tech startups, their business models and what kind of support, from investors and partners, would be meaningful to their success and societal impact.

“We are determined to set up a similar show that really focused on business and that was very realistic about real entrepreneurs. A show that would capture what’s really going on in the market.”  

Naturally photogenic companies

When asked how they chose companies to put on the show the TTM founders said they specifically look for startups with a certain “wow factor,” on top of being reputable companies. Jonny explained:

“Firstly, we look for tech companies that have a certain ‘wow factor.’ The flying cars, the robots that fly into burning buildings, the 3d holographic surgery… just things that would naturally be good for TV, things that are so incredible, we know people will instantly be interested in them.”

TechHeroes

Now that the TTM team is launching a brand new show called TechHeroes where they showcase impact-driven startups to an eager audience of viewers who can donate to support the startups on the show, aside from that initial “wow factor,” the companies selected are subjected to a thorough due diligence process ensure that the startups they’re putting on the show are reputable. This includes the tangible business milestone that the companies have achieved and the impact they can make on communities globally.

Ron explains the need for a new tech’s widespread impact:

“We really search for entrepreneurs and technologies that are wide reaching, pertinent, and tangible. Tech that people can really understand, whether it has affected them, someone in their family, or if they’re familiar with the region. Additionally, we look for some type of widespread benefit where people realize this is something that is largely beneficial to a very large group of people that may not include them, but they will respect it from that point of view.” 

TV or not, helping startups succeed takes patience and perseverance. That’s why the TechHeroes show allows its global audience to interact with and contribute to the companies that resonate with them, awards the winning startup a $1 million dollar cash prize, and in parallel Tech Talk Media invests in the highest potential teams via its $100 million impact investing fund.

If you want to learn more about Tech Talk Media’s Impact Investing Fund feel free to reach out to Diffuse, the platform powering the fund.

 

Meet the Speakers

Jonny Caplan and Ronald Hans co-founded Tech Talk Media, an award-winning US-based Media & Entertainment Company with locations worldwide. Since 2017, Tech Talk Media has created and produced original TV Productions on technology, innovation, entrepreneurship, sustainability, and major lifestyle shifts.

Hosted by writer & executive producer Jonny Caplan and Singer, The Voice finalist Jessy Katz, TTM’s flagship documentary series TechTalk features emerging entrepreneurs, start-ups, and technology from around the world in highly engaging episodes for a global audience.

Marko Koski of EnergySpin Talks About Clean Energy Trends and Exciting Investment Opportunities

DiffuseTap Virtual Event Series – January 13th, 2021

Last time on DiffuseTap, we invited Marko Koski, head of Operations at Finland-based global accelerator EnergySpin, as guest speaker. Marko talked to our CEO Kenny Estes and COO Ayla Kremb about 2021’s best clean energy investment opportunities, how accelerators enable emerging technologies, and where investors can get a foot in the door at any check size.

Click below to read the transcript and learn more about Marko and his groundbreaking work at EnergySpin.

If you want to make new friends from the Diffuse Fund Ecosystem, email contact@diffusefunds.com.