I have been investing in startups since 2005. I traded my own money on the trading floor from 1988-2012 at CME. So, I was used to some risks but startup investing is a lot different. There is no liquidity so when you make an investment in a business there is no easy way out.
A startup we invested in, Vauban, was just purchased by Carta.
That’s one way out and a good way out.
One of the key principles of early-stage startup investing is you have to meet with, get to know, and vet the founders of the business. It’s part of what is called, “due diligence”.
When you invest, you have to look at objective data and you have to trust your gut. In this age of big data, I think investors look at reams and reams of data. They either never develop their “gut feel”, or they have been told by behavioral economists that “gut feel” is consistently wrong.
You can look at all the data you want to. But, I think the more data you look at the less objective you become. You become very subjective with the hypothesis you are trying to prove and you organize and look at data to prove it rather than disprove it.
In-person meetings were great because we are human and relationships are important. It also gave investors a better feel.
A lot of investors saw that go out the window during Covid. All of a sudden, they couldn’t meet with founders in person. They resorted to videoconference apps to do meetings. I saw countless blog posts about it but our fund had done it twice pre-Covid. Once with Vauban, and once with an Irish company called Pipit. You might click the link to see what Pipit is up to.
Due diligence on founders during Covid was hard. We had no network to really vouch for Vauban. We couldn’t really interview their past superiors to get a sense of who they were and how they worked. All we knew was they started a business in 2013 together that failed and some other data points. Our diligence was all about phone calls and talking.
With Pipit, I had a successful investor friend whom I trusted and co-invested with in the past who loved the company, the founder, and was writing a check. It was different than Vauban.
Our fund invested in Vauban back in June of 2019. I just looked at our deal memo to remember the date. This was pre-Covid. To give you a sense of risk and scale, our fund was $10.75MM in size and wrote checks of $500k-$750k in the first institutional round of financing for early-stage B2B fintech startups. We started investing in November of 2016. Our investment period is over now. But, every startup we invested in is either in business or has been acquired. That’s a fantastic track record for a fund that invested as early as ours.
When we wrote our memo, it was full of references to Carta as a potential competitor since they were in an adjacent space.
Vauban was based in London. Remy and Ulric grew up in France. I was in Chicago. My partner Kenny had met them briefly in London when he was there. His wife is from over there so he happened to be in the right place at the right time.
A lot of people say you have to have “luck” when you invest. That feels like sandpaper to me because the great investors in both markets and startups I know work hard, and have a ton of discipline. Luck happens and has little to do with sustainable success. But, Kenny being in London and deciding to do some office hours at a local startup hub was the “lucky” part of this investment. So, it was actually working and putting yourself in a position to be lucky.
I had two or three phone calls with them, and the first one went not so well. I remember exactly where I was walking down Monroe Street in Chicago by Dearborn. Subsequent calls and some digging into the market by us changed my perception. “Strong opinions loosely held” is a good motto when you invest.
We wrote the check and lead the round. At the time, it was two founders living together in the same apartment and Vauban was doing less than $10k per month in top-line revenue.
So basically, we relied on one short meeting Kenny had in person, and lawyers.
In the back of my mind, I am reminded of a conversation I had with Sam Guren. He told me “Venture doesn’t scale”. Anytime a VC firm prior to Covid had tried to do lots of investments in countries all over the world, they failed. Firms are embracing “scale” now and we will see how it works out. For us, it worked out with Vauban and Pipit is still in the batter’s box.
Covid hit broadly in March of 2020. I was going to go over to actually meet them in person that summer when the Cubs played the Cardinals in London but it was not to be.
Some twists and turns down the road.
A person I knew from Fred Wilson’s blog, Shana Carp, wound up moving to London and getting a job with them! Ironically, I met Aaron Klein through the same process and had a successful exit with Riskalyze. Thanks Fred!
Fred’s firm, Union Square Ventures, was the first check into Carta back in around 2012 I think and when he blogged about it I thought, “I would have written that check, what a great idea.” When I learned Carta was talking to Vauban, it made sense.
In the early days of Vauban, they had no structured sales process yet their top-line revenue grew every month. That told you they were onto something.
Covid happened, but Vauban never let up. It might have helped their business a little. They hired great people. They even raised a round of capital during Covid and were able to get some really great European VC firms involved.
I still have never met any of them in person. This entire process for me has been 100% virtual. We met the people from Carta and it was all virtual. But, I am really happy for Remy and Ulric. I am happy for Arik who joined the team and really helped.
Carta has been building a very good business and with Vauban, I think they will continue to build a very big and long-lasting sustainable business. It’s not a “flash in the pan” trendy business. It’s a core business.
I tried to persuade Hyde Park Angels to use Carta when I was there and when we started our firm at West Loop Ventures one of the first things we did was get on their platform. I never did persuade HPA to use them, unfortunately, because what Carta does really is a value add to the investor.
I will be watching passively from the sidelines now. It will be fun to see how the two firms meld to build a gigantic business.
As a Carta alum, I am glad to see them doing so well. I will have to read up on Vauban and they are partnering with some top notch people.