Perfect! Welcome to Supporters Fund, Ask An Angel. I’m your host Jeffery Potvin and today, let’s welcome Kathryn Wortsman. How are you today?
Kathryn: I’m great! Thank you so much Jeffery for having me on your show.
Jeffery: I love it! Very excited to have you. There’s lots of great details but, oh my god, you have such an amazing profile. You’ve done so many things. You’re like banker of the year, you’ve done a lot of great things. So your background from M&A, all the way through. You’ve been in the top five banks, I think it’s an incredible background we have and instead of me, obviously, jumping in and telling everybody about your background, I’d love to have you share a little bit about where you’ve come from, all the great things you’ve done, and one thing about you that nobody would know.
Kathryn: Okay, I’m so, you know, I’m a big sharer. So that would, I’ll have to think about it as I’m talking about my background. So I’ll try and just do the highlight reel. I started my career as an investment banker, in the 90s at RBC Dominion Securities. I was part of the team that took the first Canadian Internet Company Public. It was super exciting and literally, I had to kind of negotiate with the Ontario Securities Commission to say, “Yes, the internet is a real thing and it’s a real market,” and it was hilarious, you know, looking back because I was 20 something. I was the analyst and who was I to be talking to the OSC, but literally everybody else around the room that all look the same, with the same, you know, suit and tie weren’t really in-tune with what was happening, and so much to the extent that when we talked about some deals we were doing. So one or two senior bankers, you know, understood the internet and then when I was asked to talk at the partners meeting at RBC about these particular deals and what was happening in my bonus review that year, I was, with the word, you know, I was kind of given a slap on the wrist saying, “You know, don’t, you know we’re really not interested in hearing about ‘woohoo’. You know we’re, you know, oil and gas, communications.” That’s like, obviously, that was Yahoo. So you know what, it was so obvious to me, obviously at the time as a young person and what’s fat, why bring that up and highlight that is that impact investing, which I’ll get to later, to me it’s very obvious, right? All investments are going to have some level of impact, impact peace to them in the future. There is no, you know, the generation that’s coming into wealth today, is going to demand it and so as a company, you really have to think about, “Okay, what good am I going to do? I’ll make the money but what good am I going to do for the people on the planet?” And so that’s kind of what I, it’s obvious to me and I’ll, I want to highlight that. So I started as a banker. The company was venture capital backed in the 90s. I said, “What’s venture capital?”, and so when I learned about what that was, I got very excited about moving over to that side and working with companies as they grow. So I did exactly that. I joined CIBC, also in the 90s, and then started working on early stage and late stage, and then from there, I pursued my MBA at Columbia Business School in New York, and really that opened my eyes to, you know, all the opportunities from early stage to late stage, private equity, etc. Did a couple different things while I was still in the US. Met life strategic venture capital, and bear a bearish turn sponsored fund, doing early, early stage tech investments across the US that was really interesting and really, where I cut my teeth on, you know, how to do early stage. So we’ll talk about that later. I learned from some really bright people and then made my way back to Toronto, and really just continued on doing private equity, slash venture capital with different boutiques here, and (inaudible 3:57) capital as well. But one thing that I picked up in New York, and I brought back to Toronto was social venture partners. So throughout my career, you know, I really enjoyed, kind of volunteering and giving back. It was always a bit of a bug for me. It’s social, I’m a social person but I also like just, you know, helping, doing something good and social venture partners really piqued my interest because it’s a model where it acts like venture capital, but instead of investing, you just give away your money. So you give away money to local charities, but act like a venture capitalist. So you help with governance, and capacity building, and marketing, and sales, (inaudible 4:38) and you hold these nonprofits accountable, and so it was really fun. I built the Chapter in Toronto. We got up to 40 partners, which means that you donate a certain amount of money per year and we invested about half a million dollars across seven different charities. And so I was kind of private equity by day and venture philanthropist by night, and that worked well for about six years until I’m married and then had kids, and I had to, you know, drop the extracurricular but something was really missing. I didn’t, you know, going back to just the day job wasn’t cutting it for me, and so I came across impact investing in 2015. So 2015, that’s now six years ago, and if for me, it’s again, like I’ll go back to it just was obvious. Of course, of course. You know, why wouldn’t you want a two for one, right? Like doesn’t everyone want a two-for-one? Why only just settle for financial returns alone when you can get more? And so I walked up and down bay street and used my connections to talk to all types of financial institutions and said, you know, and I tried to go easy and say, “Let’s start with ESG. You know, you need an ESG person on your diligence team. You want to sign up for UNPRI. This is going to help you attract international investors, it’ll help de-risk your portfolio,” on and on, and I got hilarious responses which was basically, “No, no one cares about it. Like we care but not enough to for a salary, right?” Meanwhile, five years later, you’re hearing headline after headline. ‘We’ve promoted ESG so and so, right?’ So you know, a little bit of future, I could say, I saw the future a little bit but it was already happening in the, in Europe and the US. just Canada was a little behind. And so that was 2015 but Mars Discovery District in Toronto had a group called the Center for Impact Investing. So I knocked on their door and I said, “Let me do something with you. I’ll do consulting. I don’t care. I just want to like get in,” and they said, “Well actually, we’re going to start a fund, Richard Branson’s Family Foundation is giving us a million dollars, and we need to raise. We need to raise money on top of that, and we need help.” So I said, “Okay, I’ll do it,” and then off I went. So I structured the fund, I set the strategy, I rebranded it, and off we went, and we invested. So we launched in 2016, we invested in 10 early stage impact venture companies, and with the thesis of: ‘you can do good and do well with the same dollar’, and we’re like literally, like we think we can do it. We think we can do it. Crossing our fingers because people say like what was your deal flow look like? Who are you going to co-invest with? Like, you know, really, are you going to make money off these things? You know, how are you going to balance, you know, the strategy of making money and doing good? And I was thinking, “Okay, we’ll figure it out,” and so you know, we kept iterating on what we look for as we saw success and failures in the portfolio, and so we can talk more about that today. So then, and based on the success of that first fund we’ve launched, our second fund in 2020 of all years, we launched second fund. We have a target of 30 million and we’re closing December of 2021. So about six more months to get in, we have, we’re at about 20 million. So we’re still fundraising if anyone wants to reach out to me directly, please feel free. And so with fund two, we’ve already invested in six companies and we have a target of about 22. I’ll stop there.
Jeffery: Amazing! Did you think of one thing that no one will know about you?
Kathryn: Oh yeah, I share so much. I don’t know, no one knows. I don’t know, I don’t know, if no one knows it, I don’t really want to say it here. I don’t know, I don’t know. Maybe come back to me at the end. I mean the, I, I’m really you know, I’m super passionate about impact and, between Toronto, between New York and Toronto. I decided to make the move back to Toronto in kind of fall winter 2004, I think, or 2003, sorry. 2003. And I realized, if I make, if I move back to Toronto in December, January I’m going to hightail it back to New York because who wants to be in Toronto December, January, right? It’s freezing and so I thought, that’s not a good move and so my brother actually suggested that I’d take a break, and I’d always wanted to be a ski bum but I felt like I missed my, I missed it in the undergrad, and so I went. And I went and I was a ski bum for six months between New York and Toronto, and a place called Telluride Colorado which is a tiny little town but they have a foundation. The Telluride Foundation and the board of the Telluride Foundation are people like John Malone and the head of the Telluride Foundation is the former US Team Olympic coach that coached Bode Miller and some other greats, and so I knocked on their door, and I said, Film Major is the, or Paul Major is the the head of the Telluride Foundation. I knocked on Paul’s door and I said, “Hi, I’m coming to you from wall street. Let me help you be more strategic and wall street up your counter reports, and then you can present, you know, and get what you want out of your board who’s all wall street tips.” And he, and I said, “I’ll do it for minimum wage because I need a Visa. I need a Visa to live here,” and so he said, “Okay,” and so that’s what I did, and then I taught skiing on the side to get all the perks and yeah. And with Telluride, it was really cool because we kind of shifted the idea of, you know, giving money to everybody in the community to giving money to just a few initiatives that really returned, you know, outsized impact. So being much more strategic with longer term goals around housing and education, and so yeah. Okay I’ll say that. There you go.
Jeffery: I love it, that’s awesome! It’s you, you did some, you do good, and you did well. Whatever that line would be somewhere in there but it sounds awesome! A nice little break, you got to participate do something you love and you got to give away time and help.
Jeffery: I love it, and you made an impact. You were enabling others, for others to have success.
Kathryn: Thank you.
Jeffery: Yeah it’s my new line. I’ve been, I pulled that off of one of our interviews, and I thought, “It was awesome enabling the success of others”, brilliant.
Kathryn: Yeah. Really I do get very excited about that.
Jeffery: Oh, I like it. So if we go back and what one thing that I love about the background and all the things that you’ve done, especially, through the banking side of things is that, I find that there’s a lot of synergies between people that are in banking and early stage investing. It’s almost like the same with on the lawyer side. Lawyers work well in early stage investing. Those two buckets spend so much time working with early stage companies. I might not say they’re the best, but they do spend a lot of time in it but especially on the banking side, there’s just such a real knowledge gain, working for the big five banks when it comes to understanding financials and then taking that leap into investing, and what I love about that is that, you almost wish that more people we should almost stand outside of (inaudible 12:30) and RBC, and all the banks, and just try to convince people that they should be investing early stage companies and line them up with a little table in a booth and educate them on why they should get into this because they actually understand numbers, they understand how businesses are facilitated, and banks do spend a lot of time with entrepreneurs, and helping them set up a business where they get a lot of learning in 10, 5, 20 years of that experience brings a lot of impact to young entrepreneurs that don’t understand this, and it seems to be a big trouble space. But also, I find that if you take what you’ve accomplished in some of the other interviews you’ve done, especially, with women that are investing, they all come from the banking sector so which I also sent all but a good majority which I think is, again, huge because the learning that they’re taking and diving in, they’re being quite successful on their investments because they’re learning through the numbers. They understand how the business modeling works and boom, they take off. So how much of your current success do you say came from the years of going in and out of banks, and M&A, and all of those things that you learned that you feel is really driven to the success you’ve had today?
Kathryn: Well, I’ll frame it a little differently, but you’re right. It definitely lends to success. So working in institutions and ideally, a few institutions, you get to know what good looks like, that’s it. You get to know what good looks like when we took companies public at RBC. They were good, right? And so, you know, at the time you know, I was told that they were good. It’s like, well, they have a big market opportunity, the sales have been growing fast, you know, it’s like, okay, and then you start to, you know, that gets ingrained to you. Like what, you know, does this company mean check those five boxes? What are those five boxes? What, you know, how are they checking those boxes? So you get to know what good looks like and then the other piece is, the investment committees at these banks or I remember at RBC, it was new names that MetLife, it was investing I mean, at CNBC, and MetLife it was investment committee but when the institutional rigor around diligence and then presenting to, I remember at CIBC, it was a CIBC oppenheimer investment committee. It was 10 older gentlemen around the table that I would have to present to you, I mean it was scary, and so you know, my decks, all my decks were in a row, and you don’t get that at a startup shop, at a boutique investment bank. You don’t get it at small groups, right? So it’s just a different level of rigor. So when I came out of that and started working for smaller companies, I applied that same rigor and professionalized, literally professionalized the processes and then was, and then I had that eye to, you know, what does good look like. And so, it’s not only important to understand, you know, what is good look like on the investment side but then when you invest in the company, you help coach them and say, “Look, you need to help. You know, your revenues have to be this or your marketing lines have to say this. You know, you have to be able to attract the customers.” So this happens, right? And so it’s that institutional experience. So that now, when I walk into a bank I know what they’re looking for, I write their memos for them. You know, and they love me for it. They’re like, “Oh this is good, no questions,” right? And so that’s, I think really the value and I spent a little time in MEZ, where we did some like quasi commercial banking stuff and that’s super helpful as our companies acquire, you know, get commercial banking. So I understand covenants and all that stuff, right? Which most early stage VCs probably don’t, and yeah. So that’s I think, that is really valuable and I do say when I speak to young people also, I say, you know, that institutional experience but it could be like a PWC. It could be a deloitte where you’re seeing lots and lots of deal flow, when again, if I compare it to smaller boutiques, the deal flow’s not, you know, strong.
Jeffery: But even if you take back the story that you originally talked about too, which was bringing the first internet company to public, you probably had to build a proposal. You probably had to go through all the analysis to go into that room of the 10 people and say, “Hey, here’s what I’ve put together and and have them kind of try and beat you up on it,” but being able to rip through a business a model, do the modeling, and then go back to that proposal, it’s like going to working for any big company and saying, “I need 100 million dollars to build this new line of business.” You’re going to have to prove it inside and out, and you’re going in and doing the same thing at a high series E level and taking that all the way back down now to a series A or even a seed round. You’re taking that scrutiny that you had to go through at different levels and bringing that down, and putting it into a nice form factor that others can understand because I’m sure it’s quite complicated what you had to do there versus what you’re doing in front of someone that’s just a seed investor. And I think that carries a huge amount of weight in order to prove a value or a market and you’re probably layering way above what that CEO is even capable of doing at the time or even thinking of.
Kathryn: Well, that’s the hardest part when we “coach”, coach founders, you know, we can’t tell them what to do. We don’t want to tell them what to do but when we try to say, you know, these are best practices or this will help increase your value and impact, you know, they sometimes need to learn the lessons themselves. But you’re right, you’re right.
Jeffery: There’s, that’s a tough lessons, right? You can share as much as you need and think to guide but at the end of the day, sometimes we all have this feeling that, ‘Oh, you’re not right. You can’t understand my space. My space is different,’ and you want to challenge it, and then, you’re like, ‘No, your space is the same as that space, and that one and that one.’ And they’re like, ‘ No, no. I’m way different,’ so I can understand the pushback you may get sometimes, but again, I think the details and the financial acumen really change the way a direction of a business can take once they do understand that level of detail that’s needed to scale up or even start to build a company.
Kathryn: I do believe the level of diligence we do. It does lead to outperformance. I know, you know, there’s different models in venture capital where people do a little bit of diligence and then they, you know, angel investors will spread a lot of money across our little money across a lot of companies. We are taking more concentrated bets because we spend, we do the diligence and de-risk it, we try to de-risk it up front but then we lose, you know, some of that diversity, right? So support but yeah. So that’s trend that kind of institutional background and diligence has translated to more concentrated that’s in the seed stage.
Jeffery: And when you were going through, and putting this analysis, and building up, and learning about what makes a good company. Now you go into the M&A side because you did a little bit of that as well. So does that also kind of shift a lot of that because one, M&A has always been my end passion. I think if I look at the way I’ve invested in the things I’ve done over the years, I look at M&A as kind of my ‘Aha! Can’t wait to get there!’ kind of moment just because I feel that there is an underserved market in the M&A side of really being able to take some of these new age companies in the last 10 years and taking them and doing roll-ups and everything else. Like they do happen, of course, but I just see that there’s such a bigger opportunity but there’s a lot of fear because people don’t know how to get in and under the hood. So if you’ve taken both of those angles, how much of that shifts back into that analysis you’re doing as well because you’re able to project, ’Hey, wait this actually could be a good take out. We could line them up for a take out so we should be investing. Let’s heavily invest and direct them this way and let’s start talking to these people over here because this is gonna be a good angle for them’ and you’re already selling before you’ve even invested.
Kathryn: Yes, so we do that. So we try to have conversations with potential acquirers early and set them up, line them up as strategic partners or joint ventures or customers. For sure M&A looks so sexy once it hits the headlines but behind the scenes, it is you, like really you need a psychology degree. I don’t have one but I wish I did and there’s so much ego fragility there. You know, CEOs either buying another company is an ego. There’s an ego there and then letting selling your company. There’s an ego there too, right? So lots of managing of egos and then if you have more than one founder that’s making that decision, usually there’s differences of opinions, and then you have to line up all the other investors and the board to all move in the same direction. And everyone likes to hem and ha! A lot especially Canadians have difficulty saying, “Let’s do it” or “Let’s not do it. Let’s be tough on, you know, we only accept this price and this impacts you know alignment or not,” you know, people. People have, you know, it’s more in Canada people are and too nice isn’t the right word but they’re too soft, and so if you’re going to make an M&A happen, you need 25 things to line up before that happens and that can take months and back and forth and I’m talking probably more on the earlier stage deals in the later stage. So I did do some M&A work when I was at MetLife, and literally it’s like the two CEOs go out for dinner and they decide between themselves like who gets to be CEO of the big, you know, merge company and what happens to the other one. Like it’s that and then they go back and say, “Okay you guys, the rest of you 25 anchors, you figure it out,” but like there’s all like, it’s not when you read about it in the hair- in the newspaper, you read, “Oh, they’re gonna add 25, 000 customers and bring on these new asset lines.” It’s different behind the scenes, so that’s just a sneak peek but yeah, and I think what’s great about my institutional background is that when it comes to an M&A opportunity at the board level. I do have that experience to take it to the finish line.
Jeffery: And help you move a little bit quicker through that the minutia, and you’re right. It’s a long drawn-out process, lots of emotion. We’ve had a few failed just because of emotion and you’re right, it’s almost like you need to bring a shrink in first just to have everything line up and then start having the real business conversation after everybody’s level-headed. So it’s fascinating but again, if you can envision that and I think a lot of the time when talking to investors is that they all have this, ‘how do I envision where this company is going to go? Which is, I have to scale it but I also have to sell it’ and a lot of the times founders aren’t looking at selling it but they’re also not looking at scaling. They’re just looking at survival mode. So that becomes a big coaching game throughout that process and I think a lot of the times, it takes people like yourselves and organizations again, like what you’re doing that you’re coaching along the way and that’s a seven year process, that could be longer, this isn’t just a one and gun help them out this week and then we’ll see you guys in seven years. There’s a lot of steps and a lot of people interacting throughout that whole time to get them to that end goal.
Kathryn: Right. That’s right.
Jeffery: And you find that now, as you’ve created your own entity and you’re building this up and making these investments on the impact side, and I loved what you were talking about how people are like, “Impact? No, this is ridiculous. Who wants that? Who wants the internet,” and I find that that’s the best sign that you could actually get from somebody is as soon as I hear that, my energy jumps. I’m like, “All right, this is beautiful! You guys all hate me, this is what I’m doing, the right things.” So I’m sure that drove you even faster than you were already being driven because you just think and I don’t know if I’m allowed to say this, but ah! These people are stupid. They don’t get it and you’re just like, “Now I’m going after this.” So kudos for doing that and how much in this impacts died when you were gunning it and you built out that first portfolio and you talked about the portfolio being a good amount of companies. Now you’ve taken that learning, you’ve started to shrink down and say, “Let’s focus. Let’s put more money in.” How did that learning come about? What was, I guess you could say, win-loss, but it, was it really about that or was it management, and was it opportunities of continuing to reinvest and support better? What kind of triggered those reasons for shifting and fund two?
Kathryn: Yeah, so fund one was primarily just me. So I was the, I was a, I called myself fun director but really managing partner and then Mars provided me with some talent kind of rotating talent throughout the five years while I was there and there was kind of an older ratio that I was brought up in. So I’ve been 25 years or so on private equity venture capital and the ratio was one principal or partner to 10 companies, right? Because of the 10 companies, some are going to be high intensity, some you don’t have to worry about, and some are just going to fail. You just walk away and so 10 was kind of the magic number. So 1 to 10. So I’m one person, I said 10 companies. So that was it and so we adjusted the check size accordingly and we had a rough, you know, I got some advice in Canada and early stage VC. They said, “You know, invest half the money and reserve half the money.” And what we, and we thought maybe 60 to 70 percent would get follow-ons, but actually so many of our, and we’re probably closer to 50 are getting follow-ons. Even if some of the other companies are successful without a following which is hard. So like which is hard to imagine but some of our companies are growing quickly and they’re getting a lot of non-dilutive capital. So a lot of government or grant money or even strategic customer money because of the impact side. So it’s kind of a little twist on traditional. Our success isn’t solely measured on, ‘oh, are all of our companies have raised a series a,’ so how? But the interesting thing is, if you look at traditional VC, if a portfolio of 10, you’ll see kind of two winners. You know three losers and then the five that you know either, you know, give you back your money sort of thing. So kind of this very skewed result and what we’re seeing in our portfolio from fund one, five years in is that our winners. We have more winners but the multiple on the win is likely lower than a traditional. Like uber ritual, right? So we’re not going to get that 50 times multiple but we’re gonna not instead of two wins, we might get five wins but the multiple might be four to ten and so in the end, the money is the same. The returns are the same but this is skew’s a bit different. But in the end, we’re actually creating more companies that are providing different, you know, impact and maybe it takes them longer to grow to, you know, an uber scale. We’ll see, that we’ll see but in terms of the financial returns, we’re seeing that and the 1 to 10 is working out, so far pretty well. So with fund 2, I’m bringing on another partner and so we’re moving to 20 companies. And so again, we’re keeping the ratio. Now we still have eight active companies from fund one and we have, but we now have a full-time principal, an associate analyst, so we do spread it a rent, we spread it across. So it worked out but that’s really how we get around the portfolio allocation and the math, and then we’re doing of the 22 companies, we’re doing, we’re spending about a third of the money on first investment and then two-thirds of the money on follow-on, and the best returns out of fund one are the ones where we actually triple down. So we’re, I have, I really like, you know, we spend a lot of time on diligence. We know what good looks like. We know if it’s tracking in the right direction and as it’s kind of like the internal opportunities fund. Like we’ll just keep going into that winner to skew the returns and impact.
Jeffery: I love it. So to take that back a little bit, so you’re diving in. You’re doing a lot of due diligence, you’re expanding your team, you’re getting past the one to ten, you’re going 10 to 20, you’re still utilizing the same methodologies, you’re realizing that your investment side is not skewed for one in 10 big winners. But for mid-ground or mid-level winners that are still bringing the same output which is phenomenal! That actually reduces your stress, I’m sure your risk because now, you can actually say, “Hey, look we’re doing well. Four good companies is way better than having one rocket ship and nine companies fail. Like we feel like we’re doing something wrong, if you have that many fail, why do this?”
Kathryn: Yeah, you know what, you know Jeffery, thank you for raising that. And I should, I need to, I need to promote ourselves a little bit more. So amplify capital I have like I need to keep mentioning that name amplified capital. So in 2020, early 2021, we had our first exit from fund one company called Inkblot Therapy and we returned half the fund with just that one exit. The IRR was 170% I think, and what that did for us was a couple things: one, it validated impact investing in Canada. So you can do well and do good with the same dollar, number one and it validated, you know, myself and amplify, right? So now we can say, “Look, this isn’t just a theory. We’re doing it. We’ve done it. We have the track record,” and so yeah. Just to kind of belabor the point, you know, five years in, we can say, “You know, we know what we’re doing and we’ve done it.”
Jeffery: I love it and impact investing is, I think as you mentioned going forward, this is going to be a pretty big stage going into the bigger realm of things. There’s been lots of impact funds that are launching around the world. I think this year there was more money diverted into impact funds than there ever has been before. I think in the 10 previous years all combined to this year was the most money. So all together, so that’s pretty powerful. So people are seeing that and a lot of industries are getting beat up on investing because impact investing is taking over. People don’t want to invest in oil and gas. They think it’s dirty now. So there is a lot of changes that are going on and I kind of want to get your thoughts on: there was a kind of a CEO letter that came out. I think it was two years ago and I wanted to know what your thoughts were on Mr. Fink’s posting of this letter and how much you think that that has drawn attention to this space, and is it really making a difference for the impact investor or has it just been this entire COVID that’s really changed and shifted the way people are impact investing now?
Kathryn: No. I think Larry Fink’s letter, you know, he, the first one in 2019 was pretty, you know, it felt a bit out there because COVID hadn’t hit and and people were thinking, ‘really, you know, you’re interested in more than just financial return,’ so that was, you know, it was such a welcome for the impact investment industry, and I really liked it to be honest. And he basically made a call, he said, “Look, do something more than money. Make a social or environmental impact and then we’ll talk about you being a client,” and so you know he said in 2020, his letter was really focused around climate and sustainability which is great, and but you, we need, the industry needs people like Larry Fink to make these statements, right? We need Warren Buffett to make the statement. We need, you know, Bill Gates to make the statements. We need Elon Musk to make the statements, and you know, in a lot of respects, they are, which is great. The challenge we have in impact investing right now is, we have funds and really no disrespect to funds like KKR and Blackrock, but you know, they have such a cultural ethos on financial return. It’s very difficult to believe that they have the team, and culture, and experience, and motivation, to build an impact fund that truly is impact focused. So a lot of funds are, you know, launching impact funds because it’s the, you know, it’s the trend of the moment. Like you said, and unfortunately, for high net worth or large family offices, they’ll say, “Oh, I trust KKR. I’ll just put my money into their impact fund,” and so it doesn’t give, you know, it doesn’t allow the flow of funds to funds, like Amplify, that, you know, have were or less of a brand name household brand name. We’re not on the shelf at TD, at CIBC, and so we don’t get that airspace into the high net worth family office that they’re so connected with and so that, you know, we’ll see how those funds evolve and how they start bringing in talent. And you know, how they measure success on those impact funds, and because I think it’s really important for amplify capital and other impact funds across Canada, and the US that are seed stage or series a, or even series b who have been, you know, really honing the skills of impact investing over the last five years to grow because you can have the best intentions. You know, just like a traditional private equity fund, you have the best intentions but if you don’t have the experience, you know it’s going to take you five years to figure that out.
Jeffery: And I think from where you’ve come from and being in that experience space, I think you’re right. There’s a lot of people that are just leveraging what they’ve already done and then throwing this impact side and saying, “Hey, we’re the flavor of the month. We’re hitting it up right now.” It’s tough to amplify what you guys are doing because you’re actually coming in from creating your own, right? At that stage, you’re kind of that new market entrant that came in to show there’s a market and everybody else just layered it on, but they already had the market. So you’re kind of fighting that double battle which is the unfortunate part, but you were, I guess, kudos. You were the first in the market in that sense to kind of prove that there was something there. You’re proving it. You know, your journey might be 10 years long before you get on the shelves at CIBC, like you mentioned, but it’ll be more impactful when you do get there versus being able to turn it on and have a million people believe in giving you billions of dollars. So I think your journey just becomes a little bit longer but we just is successful, if not better. So I’ll keep amplifying for you guys and pushing it out, but I think you’re doing an amazing job already, so..
Kathryn: Thanks Jeffery. That’s great!
Jeffery: So now you’ve kind of got this impact. You guys are doing some great things, you’re bringing on, growing this talent, and growing up in the second fund. What does the future look like for you guys? Do you look at a side fund? You look at other avenues to go in and generate new value in this impact world? How does your mind look at where your business goes to? Because you’ve been shifting a lot now, so what does it look like in 10 years for you?
Kathryn: In 10 years, like I think I’m kind of five years ahead when, as I think about the next couple funds. Yeah, I see us raising another fund in 2023 probably in the 50 million range and probably opening up another office, likely in Canada. We’re starting to see that, you know, we’re quite unique even in the US. So we know there are other funds that look like us in the US but there’s not that many, and there’s a lot of great companies coming to market that fit our profile, and so we might do more in the US and open up the US office in the future. And so as we grow the team, then we can grow the fund, you know, back to that ratio, right? And what I really like, you know, back to your first point, you know, enabling the success of others. I get really excited about building talent for future impact funds and so I almost want, you know, if the KKR equivalent in Canada, whatever that is, you know, launching the, you know, the billion dollar impact fund in Canada, I want them to poach my team, right? And only when I’m ready to kind of let them go, right? But I want to be able, you know, with our diligence rigor our impact experience on, you know, what we look for pre and how we help our companies, post on the impact side which really we think adds a lot of value. We want to propagate that across Canada and build really strong impact talent here in Canada, so that, you know, a resume comes across this, “Oh, you worked at Amplify? Great! Yeah, hired.” So that gets me really excited because then I feel that the sector will grow authentically and will get the returns and impact that I think investors expect, and I don’t want them to be disappointed by, you know, the recent newcomers that come in and say, “Oh, yeah. This is a great impact investment.” So..
Jeffery: I love it! No, that’s a great goal to have, and I think if the more people that you can educate, build new analysts in, they can understand impact. They’ll carry that through, that learning into all of the new VC firms, angel groups, or whatever, they end up going into, and that’s worth sharing. I think that’s a huge opportunity. Shift the culture and shift the way people invest because I think right now, assets are the number one thing in the world right now. They’re kind of going on fire. You can probably turn that lamp and say it was made by this person, and sell it for a billion dollars on a NFP or some crazy thing, but everything is an asset. Everything has a value. So and people are realizing that but people don’t actually understand how to do the work and how to understand what are the metrics behind it, and the more people you can educate in the space, the better off the businesses will be in the future.
Kathryn: And so yeah, I get excited about training impact talent. We also look at doing more education. So we’ve done one educational webinar, The Difference Between ESG and Impact, we had over 500 people sign up and about 150 attend. So that the demand for knowledge in this space is almost overwhelming and so we want to do more of that. That’s what I’d like to do which again, you know, really making sure we do impact investing right.
Jeffery: I love it! Educate, teach, build, grow, get more people involved. Can’t get any better than that. What does the future verticals look like and where does the impact happen the most? Is it, are you going into these oil and gas series and say, “Well because you’re changing and this is where you’re going to go, we’re going to invest in here,” but I guess that could be one, but what is the main verticals that you’re seeing that the startups are really driving into that are really making a difference that you see as being something for investors or startups to start really focusing on the next two to three years?
Kathryn: Well, we’ve originally picked Cleantech, health, and education as our three verticals because we saw real strong, really strong expertise in networks in Canada in those areas. They also match nicely with three of the SDGs. So number three – good health, number four – quality education, and number 13 – climate action. And so we’ve learned quite a bit in those three and there’s more overlap than you might think. So what’s really interesting, for example, across all three is, they all go through, you know, a quasi pilot clinical trial where they have to prove outcomes and proving outcomes so is the child learning is the person getting better, and does this technology, clean technology work at our plant? And so there’s, it’s really we get into funding kind of just after that technology validation or clinical validation or chemistry validation, and we bring on, we help bring on strategic or other investors at that time. So we really like those verticals. We under, we now have built out networks in those verticals. They’re each, you know, multi-trillion dollar opportunities. They’re all three are urgent which became, you know, even more obvious in 2020. They’re all, you know, counter-strike, like they’re all inelastic. No one’s gonna say, “Oh, we don’t need health anymore, healthcare anymore,” right? So, and so we really like those verticals. You know, some investors have pushed us to say, “You know, covering three is actually a lot,” and it is but it gives us the flexibility to be picky also and to maintain our investment pace which is nice. So within each of those verticals, we kind of, we look at kind of a macro opportunity, which is and this applies more to health and education: how do we bring, how does this product or service, you know, we’re looking for businesses that democratize access and quality education and health. So for example, if you were to get a very, you know, a terminal disease tomorrow, your aunt might say to you Jeffery, “You have to go see Dr. Smith down at Mount Sinai. I got, I’m gonna get you an appointment tomorrow.” Well, why should you get, you know, access to Dr. Smith at Mount Sinai and the person in a remote community can’t get that access, right? So you now have a much better chance of success than someone else who’s in a remote community that’s not around the corner from a teaching hospital. So you can see how with machine learning and artificial intelligence, you take the best of Dr. Smith and then also clinical, you know, clinical data. You can start disseminating best information anywhere in the world and then learning from that, you know, at a global scale super exciting, right? So we looked at a company that can help, you know, with radiation precision. For example, so you know sometimes you have to hurt the kidney to get to the liver, you know, like there’s like all these things that happen, but how does, how do you again like democratize access to this best in class health and then clearly it became obvious? How undemocratic and unequal access in education was 2020, right? We knew this before. So the other thing is like, you know, impact investors. Were kind of like a little ahead of the curve, I think in looking at big opportunities and so similar, so we look for opportunities where we can help a lot of people, improve quality of life dramatically, and so those are the best investments. And then it layers on to: well, who benefits? So if it’s just you Jeffery benefiting, you know, if something happens to you, then the customer relationship is gone. But in health, you benefit, your family benefits, likely the hospital’s benefiting from a cost efficiency basis, and guess what? The government’s benefiting because they fund the hospital that treats you faster, better. So you’re not coming back to the hospital and they have to spend more money, and you’re, you can get back to work faster. So they’re going to make more GDP from your tax dollars because you went back to work a year earlier than had you not been treated properly in the first place, right? So there’s multiple people that are incented to make this product work and we see that in education too. You’ve got teacher, parents, principal, government, a student, right? And so when you have, when we get into these markets, they are so incredibly sticky. So yes, people say, “Oh, very bureaucratic long sales cycle.” Yes, but once you figure that out, you get in. They are so sticky, as long as you continue to provide outcomes, positive outcomes. So an ROI in financial terms, you’re not going anywhere and so we get super, obviously, it’s so like my bid, my background in economics and business, like comes out because I get really excited about efficient business models and then you layer in the impact and it’s just like gold.
Jeffery: I like the part of the stickiness and how it spreads. So it’s kind of that spider web effect. It just keeps growing and you only had to impact one person for it to continue to spread which continues to bring layers of value now, tomorrow, and next year, which is again, brings back to GDP, creates jobs, creates more value. So I love that. It’s a great analogy and I, how you structure that, and it’s a good way to think of your business when you are trying to scale. It’s, what’s the impact I can make on one person and can that one person spread it? So that way my business will grow faster and create me, lock myself into a longevity of opportunity.
Kathryn: Yeah, yeah. Exactly, I mean, I’ve always been in that scale. You know, even, you know, my early volunteer days, I was like, “You know, I’m not. I’m just serving soup at a soup kitchen.” This, how do I scale this, right? And so Social Picture Partners became more scalable, but this is the ultimate scale which is exciting.
Jeffery: I love it, while you’re doing amazing things. We’re gonna shift a little bit now into just before we get into the rapid fire questions. I’m going to just look for, I’m looking for a story that you have and all of the adventures that you’ve done working with all these different startups, is there and, of course, on the impact side, has there been an entrepreneur where you just thought she or he just totally blew the lid off everything? You had no idea this was going to happen. You thought it wasn’t going to come through. They pulled the trigger, things happened, and now today, they’re, “I could be a rocket ship”, or they could be just leveling out or they overcame stress and were successful. Just looking for that heart, well, heartfelt story that really shows you what it takes to be an entrepreneur because I think from where we sit, we have a different view into a startup than what a startup has to go through, and I think people love, kind of understanding and hearing those great stories.
Kathryn: Okay, great! So I’ll share one that I don’t think I’ve shared on the podcast. I use this one a lot, but not publicly yet. So Kurt Van Wallem from Hydra Store. Hydro Store was our second investment we made in 2016 and the opportunity came to us through the Mars Clean tech practice, and hydra store is long-term, sorry, long duration, large capacity energy storage. So you probably think, most people think energy storage. They think of batteries. Well batteries don’t work for grid scale storage and if we’re going to get entire cities off the grid. We need that large scale long-term energy storage and what Hydro Store does, essentially is, it compresses air and pushes it either underwater or underground. So in a Cavern, for example, and then when it’s needed a lever is turned, the air comes up simply, you know, anti-gravity and that air gets pushed onto a turbine, and turbine converts it to energy onto the grid. So relatively simple but it does take quite a bit of capital equipment and as a VC early stage, VC we’re kind of allergic to capital equipment and so, but we were really, you know, we saw the massive market potential. We saw the very aligned co-investors and one in particular was very deep pocketed. So we’re like, “Okay, we don’t have the deep pockets but they do, so we know how this is gonna go,” and that’s good that they’re there. And I asked Kurt Van Wallen, I said, “Why did you start this business or why did you join this company really early?” And Kurt said to me, “Kathryn, I want to be able to tell my son, I did everything I could to save his planet,” and it is that statement in addition to, you know, right time, right tech, you know, right team that is propelling Hydro Store to success, and Kurt has done everything. He, in his power to solve the problem, the problem of long duration storage, he’s not looking to make the best technology. He’s not looking to be CEO of a billion dollar company. Although, he will be but like that wasn’t his goal. His goal is to solve the problem: “Okay, we have a massive problem. We can’t get off the grid unless we can use solar energy and wind power when it’s not windy and not sun shining, sun and shine.” And so with that, he hires a team that might be more experienced than him. He promotes people above him, he listens to his board. He, you know, he’s not, he doesn’t have the ego to be like, “I have to be the smartest person in the room.” He, you know, that mission brings on the right online strategic partners. He is persistent and tenacious in raising capital, going after customers, you know, promoting Hydro Store across the world, and that as a result, the company has, you know, had that hockey stick experience. They, the last round they raised was at 100 million valuation. We invested an 11 million valuation, and we have invested in Hydro Stores six times since we invested, and so we, you know, that but that story, you know, we look for in every entrepreneur and we ask that simple question: “You know, why’d you start this business?” And you’d be surprised at some of the answers that we get that don’t align with, you know, that story but when we hear a story similar to that where there’s a personal, you know, mission to solve something that affects more than him or her, themselves, like they want to solve something that is social or environmentally important to the world. That’s the ticket.
Jeffery: Love it! Great story and it sounds like they’re doing all the right things, playing the right cards, so a lot of learning you can do from that. You could build a nice case study around that just itself. Awesome! All right, we’re going to jump into the business questions now, well, the rapid fire questions. We’ll do business then personal.
Kathryn: Oh gosh, okay.
Jeffery: Ready to roll?
Jeffery: All right, pick one or the other: founder or co-founder?
Jeffery: Unicorn, or four-year ten times exit?
Kathryn: Four year, ten times exit.
Jeffery: Tech or CPG?
Jeffery: Brand or tech?
Kathryn: That’s a tough one. Maybe, I don’t know. It depends, it depends. I’ll go with brand. I’ll go with brand.
Jeffery: AI or blockchain?
Jeffery: First time founder or second or two or third time founder?
Kathryn: First time founder. All day, every day.
Jeffery: You might be the first person to say that.
Kathryn: I know.
Jeffery: I like it, first money in or series A?
Kathryn: First institutional money in, then seed.
Jeffery: Okay, Angel or VC?
Jeffery: Board seat or observer?
Kathryn: It depends. It depends, we do both.
Jeffery: Okay, safe or convertible note?
Kathryn: I’ll take a convertible note.
Jeffery: Lead or follow?
Kathryn: We do both.
Jeffery: Equity or interest payments?
Jeffery: Favorite part of investing?
Kathryn: Good people.
Jeffery: Number of companies invested per year?
Kathryn: We’re at six, so far. Six.
Jeffery: Preferred, any preferred terms?
Kathryn: Oh yeah, we have an impact side letter so measuring impact outcomes at least once a year aligned with the SDG that’s applicable to the company.
Jeffery: I like that, could anybody use your impact letter?
Kathryn: I could share it. I don’t know if I’m going to post it publicly quite yet, but I could. I should probably do that. That should be a blog post. We need it, we need someone full time to like do our blog posting, you know, stuff like that but yeah. That’s a good idea, yeah.
Jeffery: I’d like to read it because I could use this as a side letter because I want everybody to be more impactful too. Especially the companies we invest in are impactful enough but everybody can always be a little bit more, right?
Kathryn: Well, one of the things that’s on there is that they agree to take the b corp assessment and participate in that every year, so that helps with setting up best-in-class ESG policies.
Jeffery: Agreed. Yeah one of our companies that’s going public which is Flow, they’re a b core.
Kathryn: Is that the water company?
Jeffery: It is, yes.
Kathryn: Nice, congratulations!
Jeffery: We have the highest ranking in 84. So they’re very impactful. So they rank higher than an Amazon or a few others anyways, but it was very exciting. We, they had the announcement yesterday because they’re going public into next week. So awesome, yeah. Any verticals of focus? You mentioned that there’s three areas you focus on? I’ll let you reiterate.
Kathryn: Those clean, clean energy, education, and health.
Jeffery: I love it. I love it, all right. Now, we’re gonna jump into the personal side.
Jeffery: Book or movie?
Jeffery: Superman or Batman?
Jeffery: Pizza pop or ice cream bar?
Kathryn: Ice cream bar.
Jeffery: Five minutes with Bezos or Oprah?
Jeffery: Arsenal or Manchester United?
Kathryn: No answer. I’m not a soccer person, sorry.
Jeffery: I’m trying to find Arsenal fans. I haven’t found any yet. Bike or rollerblades?
Jeffery: Big mac or chicken mcnuggets?
Kathryn: I like both. Okay., I’ll go with the big mac.
Jeffery: Trophy or money?
Kathryn: That’s a good one, hmm. I do like recognition, the money, you know, keeps the lights on. Let’s go for money. Jokes can come later.
Jeffery: All right beer or wine?
Jeffery: Alarm clock or mobile phone?
Kathryn: Mobile phone.
Jeffery: Hotel or hostel?
Jeffery: Italy or England?
Jeffery: If with all the stuff going on with trump is he going to jail? Yes or no?
Kathryn: Yes, that’d be great. He won’t, he should. He’ll get, you know, he’ll get like convicted but he won’t actually go to jail, you know, he’ll get, he’ll have to pay some big fine. But he won’t actually go to jail but he’ll get something. He’ll get convicted of something and so he’ll- they’ll have- my husband’s a criminal lawyer. It was actually really funny. So my husband he likes to tell me, you know, some of these criminal stories he was telling me about a murder case that he’s working on, and he was saying, “You know and the post-mortem is..”. Anyway, I looked at the post-mortem documents and I’m like holy – like normally we talk post-mortem, you know, on a business deal. You’re actually talking about it when someone died, so yeah.
Jeffery: Somehow he’s the trickery works. I don’t get it either but..
Kathryn: Yeah so I don’t think he’ll go to jail. I think he will get convicted and have to, you know, he’ll have a, he’ll be banned from something kind of like Milken. You know, he’s convicted, fined, banned from doing, you know, certain hedge fund stuff. Same thing, you know, hopefully trump won’t be able to go back into politics, hold the public office.
Jeffery: And then Biden gives him a full-
Kathryn: Pardon, do you think so?
Jeffery: There was talks of it because of the uproar that he could create. So there was that discussion that he might have to do that to avoid the a billion people that are supporting him. Maybe, okay, last one on this is, is Trudeau doing an a or b effort?
Kathryn: You know what, I’ll give him a b plus. B plus, you know, it’s a really hard job. It’s a really hard job. It should almost be a cabinet, you know, position but someone has to make the decisions and it’s him. It’s just a really hard job and I’m not sure any one person is, you know, uniquely qualified for it and they’re going to bring their individual biases, right? And then there’s so much social media stuff to manage that they spend too much time managing, right? And not enough time, you know, focusing on the real work. So you know, I empathize with how hard the job is and how they’re trying to make the best decisions with the information that they have in front of them. I’m more critical frankly of ford right now. Really critical of him. So Trudeau, you know, I’ll give him a kind of a b plus for doing the best he can.
Jeffery: I like it. It’s a good grade. All right, last three questions.
Jeffery: Favorite sports team?
Kathryn: Ellie lakers.
Jeffery: All right, favorite movie and what character would you play in the movie?
Kathryn: Okay, so my latest favorite movie is Arrival. You know in the spaceship where the aliens come down and barely touch earth and the characters are basically a ling, a language expert who’s deciphering the language of the aliens. She’s you know, it’s all research and but she has to come, she has to talk to these aliens, as a, you know, with a lot of emotional empathy whereas, so she’s approaching the aliens with, you know, kind of a warm hug not literally but, you know, through her words and the men in the movie are all approaching the aliens with guns, right? And so you know, I of course identify with the female character, with her. But I love, I love the whole. I’ve watched it a few times. I love the whole premise that the aliens you know come down, they don’t touch earth they’re like an inch off the ground and they’re basically warning earth about what’s going to happen in the future, and if they, and as this woman learns the language of the aliens, she’s able to see the future and by seeing the future she’s able to change the human trajectory and save the planet essentially from disaster.
Jeffery: I like it. It’s yeah, it’s pretty, it’s pretty cool movie.
Kathryn: Have you seen it?
Jeffery: All right, nope. Gonna watch it tonight.
Kathryn: It’s on, I think it’s on Netflix right now. It is so, I really like it.
Jeffery: Done, I’ll do that. All right last question, what is your superpower?
Kathryn: Okay this is gonna sound, I don’t think ego, just like I’m so fabulous, you know. Like I’m like, I’m a superpower but I really do feel that I do have some insight into the future and I don’t, you know, I think it has something to do with just being very curious but also I feel now that I’m kind of approaching middle age, I feel like I might be losing it a little bit. So I’m trying to see, you know, who, you know, in my team who are younger if I can probe them to think about the future. So you know, seeing things before other people can see them and I, now you know in hindsight, I’ve done it a number of times and I almost say like there’s no, there are other people who have seen this, who see the future in the way that I do. So I’m not the only person but it’s not the majority, right? It’s like I wasn’t the first person to say, “Oh, impact investing is the future,” right? There were plenty of people before me but I really listened and I dug in and I, you know, I, it spoke to me in ways that didn’t speak to others and so, you know, I spoke to, you know, Onyx, for example, I said, “You need to bring on the head of ESG in 2015.” They said, “No,” but in 2021 they appointed ahead of ESG, right? And so it’s stuff like that and I really respect and like Onyx. So, no. You know, they’re, but they’re similar to many other large institutions. So yeah that’s my superpower.
Jeffery: Well, I think it’s fair to say that when you said that there’s many people doing this. I think to put that into context, many is like 300 people. The world’s filled with seven billion, so your many in the context of the world is very small so you’re doing again something that not many people are doing and being able to envision what’s going to happen in the future. I feel that when you are in the zone and you’re in what you’re doing you’re going to be able to predict those things and maybe there’s not too many people stepping into the zone. So glad that you’re in the zone because you’re able to build things that are cool and are working. So I don’t know what the saying would be but you could have a welcome mat that says ‘welcome to the zone’ because you’re there. So I don’t know if you can get too old to ever be in the zone. It’s focused, so keep crushing it. You’re doing great things but I want to thank you very much Kathryn for all your time today. You’re doing amazing things. You’re a rock star, keep it up! Big fan, thank you again, and the way we like to end our show is, we like to give you the last word so anything you want to share to startups, entrepreneurs, investors, I leave it to you but thank you for all your time.
Kathryn: Thank you, Jeffery. This was fantastic. So I’ll say to founders and startups, you know, think big, think impact, like how can your product or service help, you know, create something more than just a financial return that would be great? And then to investors, really think about, you know, how you want to invest your capital and if financial returns are enough for you and what your legacy is because your capital can do so much more government, unfortunately can’t do it alone, and I encourage you to be part of the solution to creating a better future for everybody.
Jeffery: Awesome, I love it.
Kathryn: Thanks, Jeffery.
Jeffery: Okay, that was awesome conversation with Kathryn, really loved again her whole background going through the banks, the M&A, learning how to actually understand where our business is going, where the future of that business can be, and then going in and building our own impact investment fund. So that is brilliant. They’re now on their second fund raising on that but just love the fact that she took all of these details that once that she learned and then implemented them today by really deep diving into these companies and figuring out what kind of impact they can make and then spreading that impact and how much they can make a change in one person’s life that spreads it to everybody else. What kind of companies are doing that and she gave some great examples of some companies that are really pushing the needle on that and again, creating stickiness. What is that stickiness and then diving into the elasticity and networking, and technical validation, and doing all their homework before they make an investment. These are all great things to look at from a startup perspective on what you need to do and then of course, on investment side, things that you need to look at when you’re an impact investor. So I love it. there’s great insights. Thank you again very much for sharing all of that today and outside of that, you guys have, thank you for joining us. If you’ve enjoyed the conversation, please subscribe to our YouTube channel or follow us on Spotify, Apple podcast, and/or Stitcher. You can also check us out at supportersfun.com or for startup events, visit opn.ninja. Thank you very much again Kathryn. Fantastic, everybody have a great day!