"It's our job to go find founders before they're ready to raise money so that when they're ready to raise, we're there"
Matan Hazanov on entrepreneurs and Venture Capitalists.
Matan Hazanov, VP for Verstra Ventures, joins (JP) Jeffery Potvin to talk about entrepreneurs and Venture Capitalists. In this episode, they discussed some of the VC fallacies, how startups can pitch to VCs, and the difference between VCs and angel investors.
Matan shares Vestra Ventures’ investment process, what stands out during due diligence, and the characteristics that they look for in a business.
Experienced venture capital professional and entrepreneur looking to invest in early stage software companies and help take their business to the next level.
The full #OPNAskAnAngel talk
Very good, very good. All right well just like we like to do we’re gonna jump right into things so welcome to our podcast Ask an angel and today, we’re with Matan and Matan just to jump right into it, love you to share a little bit about yourself, your background kind of where you are today where you’re going and then one thing about you that
no one would know
oh gosh. so a little bit about me. I’m an entrepreneur and I come from a family of entrepreneurs, small business owners and the like. And I’ve always been around you know people trying to build businesses so it’s kind of obvious for me to go into a career of venture capital if I was ever ever able to pull it off it seemed like a dream career for me so i kind of built myself towards that goal very early on. Started a couple businesses when i was younger, always got involved in family businesses whenever i could, i actually worked for my from my family business since i was like 14 until i graduated from university and uh my first job my first real job after i graduated and came back from a year of traveling and let’s call it spiritual investigations, i landed an internship at a boutique toronto venture capital firm, unpaid internship. um did that for about four months and was fortunate enough to be hired full-time. and did that for several years before quitting to start my own startup. Did that for a couple years and joined Verstra Ventures about a little over two years ago now. Verstra is a pretty unique venture capital group. We’re very small, very very young, about three years old or the venture capital initiative of a much larger publicly traded company called Constellation Software. And constellation is by by many metrics one of canada’s largest tech companies publicly traded. Their business models to go around the world buying up uh software businesses. So over the last few years they’ve considered deploying capital in different ways and one of those ways has been venture capital which is now verstra ventures or one of the ways is now verstra ventures.
i love it. that’s awesome and i and i believe um in what you got the your partner at uh Verstra Ventures and the gentleman’s name is going to is it Carl
Yeah i think i met Carl a couple years ago. So amazing, very small world and one thing about you that no one would know.
Oh gosh. I keep the sabbath. I mean a lot of people know that but I guess in the professional world very few people know that. But I keep the Sabbath you know Sunday sorry Friday sundown i’m i’m out i’m not touching anything. Until Saturday uh Saturday night. And uh it’s quite great.
Actually that’s amazing. I think i might do that. I think it’s a great way to get yourself out of the mix and decompress and get back into the swing of things back on Saturday night or Sunday
Yeah. I actually saw a few years ago or maybe 10 years ago and something like that there was a movement in the US called a day of unplugged where they said just for like two hours or something in the evening on friday or saturday or something completely secular thing had nothing to do with religion, just stop using your phone. And people that adopted this saw a tremendous improvement in a lot of things including you know their ability to focus with friends and family and re-energize.
Well the re-energize and and focus is huge. I used to and still do when i would travel i would always say that i need to climb a mountain in order to get myself off of the phone so i can disconnect and actually participate in something where i can’t be connected to which is the same as my background and why i was actually climbing a mountain. But over the years i just love climbing but it does it helps you refocus re-energize so all great things. And my last travels was in israel and i got to experience i guess it would have been 18 months ago, i get to experience the sabbath because again you’re used to sunday’s kind of in north america that you don’t really do anything which is now more now than ever but before every day the week was busy. So being in israel for a couple of months was pretty amazing. So i got to see that the startup community and learn about just a different way of lifestyle which is shutting things down, and not being so active and i think that’s pretty amazing.
Yeah. What took you to israel? Was it was it the startup scene?
Specifically every year i actually take four to six weeks and i travel. So i grab a backpack and i just bounced through countries. And this year i was in the middle east so i was in egypt, israel and jordan and at a couple spots in between. But through that while i was going around i certainly want i go and see startup scenes everywhere. So i’ve been in the startup scene all over the world, so i got to see some amazing startups and one of our major centers is actually Israel. so we get a lot of deal flow from Israel. A massive, massive, amazing startup scene.
That’s great, it’s great i hope you enjoyed your time there, it sounds like you did
Oh totally. To me, Israel in certain pockets is like Toronto was probably 15 years ago. in a massive rebuild everything’s kind of going through this new design new architecture new look which is kind of what toronto went through so connor toronto’s on that middle ground of that change i guess but very similar in that uh that instance. So in tel aviv that is. The other cities aren’t really going through that type of change but tel aviv certainly is and it’s pretty much the epicenter of israel, right?
Yeah, yeah certainly the commercial center. I mean if you go to i spent about a year living in the old city of jerusalem, I think they have like zoning bylaws that you can only build buildings with a certain stone it’s probably not going to change for a long time but it’s a whole it’s amazing you can go to like tel aviv which is a completely different culture than jerusalem and really the same country and they live in harmony it’s pretty it’s prettyamazing.
oh agree. Jerusalem was very orthodox. Very more calm, less crazy buildings less anything just everything is very well nicely built. Really impressive. And then tel aviv is active. Totally different scenes everybody’s having fun, people walking around, playing guitars like it literally is completely different but it’s uh they’re both amazing for culture.
So i don’t know i hear i i remember the first time i went after i moved. I was born in israel
and went a couple back a couple times with family when i was younger. But the first time i went as like a, let’s call it cognizant adult, i was 18 so not really an adult but legally an adult i remember going to the beaches in tel aviv and it was such a culture shock. You see people with like rifles and bikinis like you have people — it’s an amazing scene
yeah that is. I noticed that a lot too taking buses and trains and and it is uh a little bit different to see that. Philippines has the same. Everybody walks around with army well army fatigue and AKs and like a lot of different views but uh very similar i guess. But at the same time it’s still it feels pretty safe, pretty normal, pretty exciting people are very active getting out there. And like i said i met with so many startups and it was the energy and the ideas it kind of felt like israel’s startup scene is like NASA. Everybody is working on some real deep high-tech adventure compared to most of the places i’ve been. So i’m gonna guess due to some of the military and due to other aspects but a lot of stuff was really cool. Like building a land rover, not every startups getting into that or even thinking about it. So there was some really cool tech that was coming out of it so it was exciting to be there. Cool so one of the areas i kind of want to steer back to and i think you touched on a little bit about your entrepreneurial background kind of when you were younger working in the family business and then driving into your own um entrepreneurial experiences and then the vc world, but one thing that i found fascinating is that one you have a crossover. So you have been an entrepreneur, you’ve worked in the entrepreneurial space and you’ve been a vc, and you’ve basically been a vc i’d probably say longer than you’ve been an entrepreneur and what i love about this because most people that jump into this space they were either all in on entrepreneurship or they were all in on vc. And very few have that crossroad so there’s a lot of learnings that you can bring into both aspects so maybe you can touch on a little bit of when you started off on the vc side, what really got you into the vc world, what was that reason you chose to go in that direction and was it because of the schooling the finance that you wanted to be in this space but what was that kind of driver because i think it’s really fascinating there’s a lot of people out there today young people that are going in this it’s like one of the fastest spaces right now for university students to graduate and go into vc programs because they want to learn about this what was that driving force for you 10 years ago to get you into the VC world?
The reason i got into the venture world let’s say there’s a few reasons i’d say at the outset. You know you’re an entrepreneur, you think okay i like being involved in a single company but wouldn’t it be much better to be involved in 10 companies at the same time. You know so i would say that would be the very mature perspective that i once had that you know i always wanted to be involved in many things at the same time. Just my entrepreneurial nature. You get bored after you know six months doing the same thing, you want to kind of always be involved in something new. I’d say as i’ve developed more experience there’s two main reasons that i’m in the VC game. One is it’s an amazing career to be able to — it’s your job, it’s my job to essentially meet the next billion, the next founders of let’s call it plus 100 million or billion dollar companies that’s my job. So i have to find incredible people before other people find them. It’s an amazing thing like it’s i’m forced to kind of find amazing people and partner with them and give them money to build their vision. I don’t think you get that with almost anything else like what other career can, you can you have that experience dealing with such with such people. i
think on the the other front of it aside from my interest in building companies is more abstract you know. I’ve learned about malthusian economics, i’m not going to get into it here but essentially there’s without technology and without investing and developing technology there’s kind of a limit to what human beings can can achieve. You know if we have our populations growing exponentially but our resources growing arithmetically and capping at a certain point the only way to continue to allow human beings to flourish is with the continuous development of technology and so long as we do that we can have more people people can live much better lives healthier lives can have access to food, have much higher quality of living and i think a lot of the progress humanity has made over the last couple hundred years was due to technological development and at some point there was someone investing in that. And more in a philosophical sense i want to be part of that i want to be part of you know i don’t want to be cliche but actually you know i’m not going to say i want to be part of that. i was going to say because i saw silicon valley before making the world a better place it’s like one of these cliches that investors say so i’m going to avoid.
That well, that’s good and what i liked about what you shared there is that this wasn’t something that you just tripped on or decided that you know what tomorrow i’m gonna be a vc. It sounds like you’ve been planning this for a long time, you saw what it was to take, what it took to do this and you started to work your career, your education to be able to step into this and make this something you wanted to do as a lifetime and for a lifetime and i commend you for that. My brain thinks the exact same way so i’m excited that we both kind of have that same vision and direction. I always tell people that i don’t want the biggest yacht in the ocean i want to have a million small boats because those boats can keep building themselves up and growing and moving and that to me is more exciting. The fleet and being able to work with a lot of great people you learn a lot more and if we all have ADHD well this is one way to solve that. you’re always going to be able to bounce around and continue to help and and make that work and grow. So kind of as you’ve been i guess working your way through this environment there’s some we’ll call it VC fallacies for startups and i’ll always hear this and i’d love to learn more about how you see this working and kind of what that process looks like for early stage companies. So i’m a new company, i’m looking for funding, and i’m out pitching vcs. So can you kind of break through what you see is the right way to do this and when should be a vc be involved and how does that process work for you guys.
Yeah so there’s a lot of mistakes i will say founders make when they go out to raise money. And it’s expected especially if they’re it’s the first time doing it , you know early stage companies are first-time founders. You expect a lot of these mistakes and most people like me give a lot of grace, you know a lot of goodwill is is given out because we expect that these mistakes are being made. Let me start with this. There’s a big misconception in the in the amongst founders that VCs are like taking risks. i don’t think that’s true, i’m not that kind of person most of the people i know that make investments in this space aren’t. They don’t look at risk in the in the sense we’re just going to gamble our investors money on this company that’s not the way it works. Every investment we make, we want, we expect it to be successful and we want it to be successful and we’re doing everything we can to mitigate the risk as much as possible. I would say the better understanding is we have a risk-adjusted way of looking at investments right and i think founders need to understand that. If they’re if the founders comes to us and they’re not willing to put their grandmother’s life savings into their business there’s a problem. i’m not saying they should do that, i’m saying that they should be willing to do that because they’re so confident that they’ve tied down all their risks that they’ve thought through what they’re doing, they’re going to treat their investors money in a sacred way. Like it’s not just some nameless fund. These are people’s money that you’re you’re taking and you’re a steward of their capital now. And that’s the way i look at it, i always look at any investment we do as if it’s my personal money, my life savings or the life savings of people i really care about. And that gets you thinking in in really strong terms of all the practical things you want to make sure the business has so i would recommend any founder when you go out and raise money before you do that go through that process. Pretend like you’re asking your grandmother to put money in your business and all their life savings and see what you come up with. That’s the first thing. There’s many things like that like. You know i can give you a few more like be prepared. A lot of founders we meet are not quite prepared to to go through the process and that could take on a few forms one they don’t have a data room set up with high quality information on their business. Their pitch has not been refined. Sometimes in terms of content design delivery they haven’t thought through a lot of the issues like competition or market size or if they’ve thought it through there’s a lot of holes in it. Which you know groups like yours or other accelerators or incubators or consultants could really help with but that that’s something we’ve noticed a lot that you know the early stage you go and the less experienced the founder there’s just a lot of gaps in how they approach investors. One thing they should know is that if the material isn’t there, it’s hard for us to make a decision the goal should be to make it as easy as possible for us to make a decision because we get inundated with opportunities. And i you know, it’s a bit of a bias, but companies with higher quality data, we tend to spend more time on because it’s just easier right.
And is there and maybe we’ll take one little step back beforehand and maybe you can explain what a vc is and what a vc actually stands for because i think there’s some confusion with what an angel investor is what a vc is there’s even ways to get social funding now, so maybe you can explain a little bit of that roadmap and that’ll kind of put into the context my next question
Sure it’s a great question. What is a vc versus an angel versus other ways to raise money. I would say a vc is any institutional investor or any investor that accepts money on behalf of other people in a formal way to make investments in early stage companies. That could take on a couple of forms. there’s corporate venture capital, so venture firms that receive money from a corporation not necessarily it could be through a fund or could be off their balance sheet, could be in a couple ways. And then there’s your typical you know venture capital group that goes out into the world, raises money they collect all that money in the fund and from that fund they make investments in startups and the way they’re compensated essentially is how much money they make for their investors. And if they don’t make money for their investors i guess they’re not making much money, they’re just making whatever their salaries are. I would say the difference between a venture capital firm and an angel investor is that an angel investor is investing on their own behalf, so they’re not raising money from others they’re not collecting a fund it’s more they’re just raising for their own account. I’d say that’s the main difference and and typically because of that angel investors focus on earlier stage investments because the check sizes are usually much smaller so they can only invest at the early stages.
That’s a great example and i’m glad you uh clarified that because it makes a big difference to an early stage founder on where and how they should be approaching this.
So let’s take you guys as an example you’ve kind of defined what types of mistakes are made, so the founder can kind of correct those now when they do approach you when is the right time should they be coming after they’ve already received investment pre-revenue post revenue is there a time that you like to focus on and say not just me but vcs in general and then of course on you guys
Right so there’s a couple of things to say when to explain when a company wants to go raise funds. the first thing is it’s always good to build relationships So there’s no there’s no timeline that’s good when you need to start building relationships with potential investors, whether they’re investors potentially for today or for around in the future, the mistake i think a lot of founders make is that they don’t approach the right people or they don’t approach them in the right way so you should be reaching out to investors that are likely to invest in your company or that fit their mandate. Like we invest in b2b,
b2b startups, b2b software startups, if a company that’s selling a consumer app comes to us we’re happy to speak with them, we’re happy to offer them advice but we’re not going to be investors. Not now, not later, doesn’t matter how successful they are, so when a founder is going out and raising money they should at least look at our website and see what we invest in right so they save their own time. They don’t have to waste time on us right uh but in terms of when they should go out and start developing relationships there’s there’s no there’s no real timeline i think. For us, it is my philosophy and some of the people I know in the space, it’s our job to go find founders before they’re ready to raise money so that when they’re ready to raise, we’re there. We’ve seen how they develop at least over a year and that’s usually the best way to make investments. But i would say it’s more of an acute question they need to raise money when should they start you should leave yourself six months from from start to finish i would say that that would be a good if everything is lined up, you have all your information ready, you’re hitting the pavement meeting people it would take about six months from an initial meeting to really close a deal. maybe sooner if you’re lucky but…
i like that and and to iterate that it’s you know i think a lot of startups may because this is new to them they’re not always focused on the relationship side so 100 percent work on that relationship side. Put together the right data room. Put together the right information. Ensure that you’ve done a lot of the work so that it’s more visible and easier to decompress that as as a VC taking it in and they can maneuver through the environment quicker, faster to learn about you but again you’re building a relationship so it’s kind of like a drip campaign, you want to give them a little bit, feed it in, get them interested and build that up. And then i liked what you said about the right people because that also ties into that relationship side is that it’s not really valuable to you to create a relationship with the wrong person that’s not going to be able to do much or help you so you might as well actually start right at the beginning and go after the person that is investing in the space that you’re in they get it they understand the competitors a little bit easier so whatever that de-risking mode is but i like the fact that you’re kind of steering them really early on to say hey you know what build a relationship, go out and find the right people. It takes six months to close a deal but maybe it might take you longer but that’s fine because they might not come in for the first two years anyways because you got to build that up so i think that’s all super valuable insights and to kind of keep on that same context is one of the other things that is really important to what you talked about which was the due diligence and the deep dive information. Can you give us an idea and again this is purely from a vc perspective and the fact that you spent your time in this environment and school and into this you’re like massive professional in this area versus an angel investor who has some ideas of what they’re looking for it’s early but they always say there’s not a lot of data i’m going to kind of take the reverse of that and say there’s a ton of data and from a vc perspective what things do you look for and list off 5 10 whatever you think fits best but what do you really got to see and what things can you push a startup to say you know what don’t even bother coming to me if i don’t see this and i’m going to be harsh but what are those things that really stand out to make a difference?
It’s a great question because due diligence is such a subjective thing but i think there are some through lines that i’ve experienced myself working with different people, different firms and you know co-investing with others. I would say a few things. One there needs to be confidence in the team. And this has multiple call it multiple points we’re investing in a team especially in the early stages most people are investing only in the team. And we need to have confidence that you’re going to deliver, you’re honest, and transparent. You’re treating us with — you’re treating the capital in a respectful way so again i can go into more detail what i mean specifically by these. But we need to have confidence in the team sometimes that includes having reference checks. It includes you know getting information in a timely way and in a clear way. One thing i really is a red flag for us is when there’s when we feel like information is being obscured when the the founders not being forthcoming with questions. I remember on a couple of calls i i
would ask you what’s your what’s your revenues today, and the founder goes into a five-minute dissertation on you know how their projections are true and i would have to ask again okay but what’s your what’s your revenues today 24 and then they would answer something completely different. Right. Why they think that customers really like their product say okay but what are your revenues today right so so that’s the team and then because most investors aren’t going to be an expert in the in the technology and
that that would include us we we’re experts in building and selling software but we don’t go into detail in technical due diligence it’s not what we do. So what we need what we need to establish is that your product works, customers like it and you can deliver.
You can deliver on sales you can deliver on your contracts etc. and that usually comes in the form of some traction and customer references so we’d like to see let’s call it a few hundred thousand dollars in recurring revenues from yourvmain target market at least so that we can establis that you can do all those things the product works they’ll your customers like it and that you can deliver. Aside from that there’s typical um standard standard due diligence stuff like looking at competition looking at the market size which is important and we want to have a deal that makes sense as well. so the deal process and negotiating a term sheet is very important as well.
i like that and there’s one thing that well there’s a couple things that really stand out about what you just shared and one of them is you can deliver. Can you dive into that one because it’s really dear to my heart but what do you mean by you can deliver?
So this can take many forms. When I say can an entrepreneur deliver, there’s a few ways that kind of takes hold in reality one is you know can you deliver sales. You got a contract signed number one to get a contract and you go out there and sell. And two you deliver the contract you need to deliver what you said you’re going to do and those aren’t trivially trivial things. Sometimes we have founders coming to us and say well we need the funding to go get sales right and that’s just in most cases not a very good answer right you have to show some grit, some determination, some creativity in getting those sales in a cost effective way. Another way of delivering is are you — i’ll give you an example like we’ve dealt with entrepreneurs um you know we’ve talked to them over a year before we make an investment. Let’s say and we’re getting updates regularly right. So we see over time how they what their projections were what they said they were going to accomplish and then we see what happens in a year. So delivering is not just can you say what you’re going to do but what kind of goals are you setting out for yourself. Some entrepreneurs make very unrealistic expectations and projections and that’s also a red flag, no matter how justified they think it is. We prefer entrepreneurs that are very realistic about their goals, there’s those goals are based in reality and that even if they’re not hitting their goals, they’re getting close there’s a reason why they haven’t hit it. Not just that they’d assume they’re gonna get to a billion dollars in two months right there has to be something real behind what they set out and what they’ve achieved or the lack thereof.
So in that same context and those are great i like the idea i like the concept around you know proving going out to market, selling, documenting it, prove that you’re hitting your target market and i think one thing you you really hit the home run on this one was when you’re asking a question inside of a pitch in a debrief or anything you’re doing this goes to selling or anything you’re doing be direct. Just get to the point, help the person understand quickly, you don’t need to always be educating. It’s not about how much smarter can i be and sharing out more data but how can i be direct how can i uh move the needle forward and get people interested what i’m what i’m doing and that comes from simplicity, and being direct i guess um to say that word one more time because it is important. So you’re delivering, you’re being direct, you’re going to really support that team — how does an early stage company deliver a great team? If they’re early how does that come about like what should they do should they — i remember seeing this and hearing this in some of your other interviews is it you know and you mentioned it taking grandmother’s money and making sure that you’re driving this home it’s the perception of that but how should the startup look at building a team because you’re right it’s the most crucial part and how do you get those great people to support that founder or founders
You know that’s the billion-dollar question i would say you know how do you build a good team and then how do you project that it is a good team to the people you need to convince. It’s a tough question. Um, I think what you’ve done in the past is the first step. you have to establish that you know that there’s a reason that you’re the right person to win this space. if there’s no good narrative why you’re the right person to build this product and sell this product it’s hard to understand why we should bet on you. Right. So typically we look for people that have been successful in some startup before or have deep industry knowledge or have some other success or education or expertise that they are leveraging now into this business. And that’s typically the kind of like – -there’s a myth that people invest in people right out of college for the next facebook. That probably happens but not not that often. You know we’re investing in seasoned people that are building products because they have a deep understanding of their industry and their customer base right. And those people understand how to build those products because they’re living it right those are the types of people we like to see. And then there’s a good narrative around why they’re the right person to actually build this this company. So that’s the first thing is they’re stirred their past what they what they’ve accomplished before. But also it’s what they’re doing with this business today and i wouldn’t overlook how something like sales or capital efficiency you know how much money has taken them to get to where they are that’s a very important data point for us or how the kind of people they’re able to convince what kind of salaries they’re paying them what kind of options they’re giving them there there’s a lot of ways to kind of to assess from i wouldn’t call it an objective point of view but there’s a lot of data points that we collect in a subjective way to determine are these the right founders is this the right team and one of those i’ll give you a quick example if you have a founder that you know was able to convince a couple of people to join them as co-founders or they’ve been able to get very high quality talent with little money by selling them on the vision or offering them shares or something like that it screams um a sophisticated person that is able to establish a vision to people that are talented. and that’s what we want to see.
i love that that’s uh that’s a great way of doing it it is uh looking at the path of the backgrounds of the co-founders and and of other people that are currently on the team that you can see and be thinking to yourself wow that person just came from their MBA working as a business analyst probably making a hundred thousand they’ve taken a pay cut to be here this is impressive. What did they do that i’m not seeing. So it gives you a reason to dig in and i think that’s very valuable and i think a lot of founders probably don’t look at it that way but in the world of hustle and trying to come up with the best program there are people out there that want to follow your dream and follow your vision because they see that as being a problem that they want to solve and be part of.
And be part of that bigger vision even if it’s earlier on when it is more of that hustle and grind to get uh get clients.
Exactly, exactly and that’s why capital efficiency is an important metric for us. What what does the founder accomplish or founders accomplish with little money or with with the money that they’ve received? Can they build a nice, good team? can they go ahead and get sales? can they build a good product? You can do that in a in a way that’s not spending millions and millions or tens of millions that’s a great data point that that screams that tells us that you’re a good founder, you’re a good you’re someone we want to invest in and do business with.
i like that that’s uh that’s fantastic. Okay now to kind of take it a little bit step further into this and they’ve now they’ve engaged you they’ve got everything working and you’re getting into this real deep due diligence how much of your background as an entrepreneur comes into the effect now? How much of that balance between okay i can understand that mistake versus i got to take my vc hat off now and maybe on the vc side you got to be really really tough and stringent on the process of the policies, how much of that entrepreneur hat comes in and you kind of can see where they’re coming from and you have that emotional quotient that you’re filling for the entrepreneur how much balance you see between the two and your background coming into this when you’re analyzing a company?
That’s a fantastic question. In terms of how much my entrepreneurial experience plays into our due diligence if I was being honest I would say probably 10 percent. You know i don’t think there’s a number out there but there’s a reason for that i think that where it adds value is perhaps my BS meter you know. I think i have a much a little bit more of a refined BS meter because i’ve done some of the things that they’re trying to do and not that i’ve done it particularly successfully or at the scale that they’re looking to do it in. So i’m not going to overplay that but the fact that i’ve been involved in many companies before as an investor or personally i just — when something doesn’t smell right. i can generally pick it out not always but i’ve done it before i’ve been able to say early on in the process and been proven right a couple of times where say this doesn’t make sense, there’s something missing here. They’re either being not they’re not being transparent or honest or there’s a bigger problem and uh you know i’ve been right a couple of times when when it comes to that. And i think that that’s the combination of my experience as an entrepreneur and and the fact that i’ve you know invested in several companies in the
And that makes sense and i’m glad that there is a percentage that you use because if you were like no i’m 100% vc i don’t even wear the entrepreneur hat anymore it may be it’s tough to relate in that sense but it also can’t be 50% because then you’re not swinging in the right way where it’s just understanding the numbers and the factual data that’s proofing where this company is going. So i think that’s probably a fair balance for how you’re looking at us startup from an entrepreneurial eyes perspective but also from a VC and that’s interesting to to learn and understand because i’m sure a lot of vcs who have never been angels when you’re looking at it purely at 100% VC you don’t actually get to see what a market is you’re so kind of structured in this bubble that you may not get that outside experience and maybe you lose a few opportunities because you couldn’t see where they were coming from and that entrepreneur has actually you
know got something great here but you’re kind of stuck in this box. so you may lose great opportunities at the same time.
Righ,t right. Exactly. And it’s interesting because you know at the risk of saying something that I’ll get fired from you know i do think that a lot of what we do as a venture capitalist is just common sense. I don’t think there’s a particular skill set or education maybe on the finance side a little bit you can learn but you can learn that stuff pretty quickly if you’re you know try hard enough. This is common sense stuff you know. Again if you’re going to put in your own money you’re going to ask the same questions we ask. I guess it’s just a matter of seeing enough businesses and being involved enough deals that gives you that extra experience right. But i don’t think there’s anything we do as VCs that is so sophisticated or complicated.
Wholeheartedly agree i do think that there is an element of learning because you’re part of multiple companies you can really take that educational piece and i think that really brings a lot of value to a VC is that the more companies you work with, the more companies you invest in, board seats, advisor, observer roles, all of these things play into understanding different verticals, understanding different ways to compete, different ways to market and i think that really builds up the credibility not only on your side but as the firm. And it helps you better position yourself on when you are going
After opportunities you know one day we’ll go back and look at it and say how successful were our our choices and how well did we play and which ones did we miss on and how well did they grow and maybe there’s a fine balance to come back and say that you know we’re batting 50 percent and that’s pretty significant and that’s a great position to be as a VC.
That’s exactly right dude. So if i were in a job interview for example, yeah, i was in a job interview for example i wouldn’t play up my education or something i would play up my experience because that’s at the end of the day what matters it’s the fact that i’ve been involved in dozens of deals and seen how how would how it goes when you think the best company you’re investing in goes to zero and the one of the ones you’re kind of worried about go to 100. you know it’s it’s that experience being in the trenches with the entrepreneurs seeing how things play out that’s what makes me a bit cynical today you know when someone gives me a projection i just you know i i kind of i know where it’s going you know never never does never are their projections true. They could sometimes in one in a hundred cases be better than the projections but they’re never, they’re never true you know. So if i were ever if i were to ever explain what makes let’s say Verstra good at what we do or why i i guess i’m still employed in the in the venture world it’s probably because of my experience not because of the education. The raw education on what how to do a financial model or something.
Yeah you for sure you were able to keep layering on top of that right you learn a base and then you just keep layering on and the faster you move and the more you take in the the better you’re going to be at picking winners and you know that might not be proven until maybe 20 years in this but you’ll prove a lot of great winners into that time period but you’re only refining your skill sets and your experience in getting better so i think that’s incredible and amazing to to learn about. So we’re going to kind of shift a little bit in a second here but i wanted to before i ask you this one more entrepreneurial heartfelt question i’ve got uh one kind of thing that is what maybe it’s five things or three things you can just ramble off that startup should look for and make sure that they do when they’re pitching a bit pitching a vc or an angel that they want to make sure they nail. Anything that you can come to think of mine that just says you know what they have to have this if they don’t don’t even pitch you’re gonna you’re gonna waste your time.
You mean in terms of the raw characteristics of the business or the pitch itself?
More of the raw business stuff the things that just kind of stand out that you want to see like you need to know what the burn rate is, you need to know how much money they’ve spent over the last however long you need to know the revenues i don’t answer all your questions but you know what i mean like that kind of idea right
You have to tell you have to be solving a problem that that’s the first thing. If you’re not solving a problem that’s acute that you can measure in some way what are you doing right. And i i think it you know goes over a lot of people’s heads most most founders that are have have a good product have thought that through but have a problem that you’re solving know the problem be able to explain it very well and be able to measure in some way. It’s it’s very not easy to do but be able to measure it in some way. The other thing is that you should probably know who you’re selling to. And this is tied to the problem but some people um some founders haven’t figured out what exactly their market is, who their target market is and what that looks like in terms of numbers, and everyone should forget who are you selling this to who’s your ideal customer. And third is that you you have to have a team that at least whether it’s co-founders or call it you know first hires whatever that may be a team that’s well-rounded so we shouldn’t have to ask the question okay you’re going to build this sophisticated technology but who on your team is going to do it? It should be obvious, it should be part of your page, it should you should have already thought of it it should be on your roadmap or should you already brought them in as co-founders or as hires.
i love it best number one answer make sure you’re solving a problem be able to measure it and then have an obvious team that’s going to be able to solve this problem so that you guys can get behind it so perfect. love that. All right so now we’re gonna kinda and these are all great answers i think very educational i think we’re gonna lots of people are gonna learn a lot about how a vc works in the mindset of a vc now in all the time that you’ve been doing this you’ve come across lots of different entrepreneurs and how they operate and function so i’m kind of looking for this heartfelt story where you just were blown away by what this entrepreneur had to do in order to survive, win, grow and crush it. and it doesn’t have to always be a crushed story but we like energy and and great stories but is there a story that just pops in your mind that really just shows what it takes to be an entrepreneur and um you know it’s just stuck by you and it made you kind of think you know that wow this is Impressive.
It’s an amazing question. And i want to give you know i’m going to give an answer that’s more recent because we’ve really our societies went through some trauma recently right. So that really at least the first months, Aarch and April last year, we’re kind of figuring out okay who are what’s going to happen with our portfolio, what’s going to happen with all the people working for the companies, you know we’re asking a lot of questions. And we were worried about one company in particular because they were in the hospitality space I’ll name them it’s called Hire Staff and there’s a young entrepreneur she’s very talented her name is Roper Stein. And i was the most worried about that company because the industry itself was going to zero and we just invested in the company and we weren’t sure what to do. and seeing how that company, its management team, its founder adapted to the situation has been incredible. I was quite, i was quite impressed. i mean the burn rate was kept low, she was able to pivot, she was able to hire staff during the time, she hasn’t didn’t actually have to fire push there was a couple of layoffs but overall uh those layoffs was probably going to happen anyways and we’ve actually increased head count over over the last year or so. And seeing how she’s uh really had this determination to get things done despite the challenges, cut her own salary, like she did whatever she had to do to make sure that the business survived,
that the company kept moving forward developing its product getting customers. I mean it was an incredible story and you know we’re still not out of the woods yet but uh considering what we’ve experienced i really want to share that story.
I love that. And you said something that really really stands out there and you she cut her own salary and what i love about that is that she did whatever she needed to do as being an entrepreneur and that’s the type of entrepreneur that gives me goosebumps. I literally have goosebumps because those are the people that see that this is their business, this is their — call it their baby but they’re doing whatever it takes to win and winning sometimes is having to cut your salary, put more time in work more efficiently, more hours, ask for help, reach out to more people, so i love that i think that’s a fantastic story. And it really does resonate that you know it takes a lot to be an entrepreneur this isn’t a cakewalk and people aren’t just splashing money all over the place it really is a grind and you got to do the right things to survive.
100% and one of the ways i kind of felt that she would be this kind of entrepreneur was that she was very careful in how she spent the money she’s raised in the past. Not that they raised a lot of money in the past but they were very careful with their budget and how they approached sales and product development and all those other things. so that you know in a crisis situation that they’re going to respect pure capital. That they’re going to treat it right, and they’re going to do whatever they can to ensure that the business has the best chance of doing well.
I love it. Fantastic story and i’m glad to hear Hires’ doing well i actually had it on my list because i wanted to ask the question but i’ve never actually in a podcast interview been able to get myself to ask about a company that is being invested into but because of uh um i guess all the things i know about the company and thought it was pretty awesome company i just wanted to know and i’m glad you brought that up so fantastic. So we’re going to kind of jump right into these rapid-fire questions and if you’re ready we’ll jump right into them yeah.
All right. First question, number one how did you get started investing in startups?
Through my father’s business. I got involved during the summer at university one summer in university in his business. And we acquired, he acquired, his first company and i was deeply involved in that process and it was one of the most exhilarating experiences of my life. Learning how to make investments and integrating companies and you know all the challenges that come along with that.
That’s amazing! Nobody gets that kind of experience man you’re getting M&A work while in a university — that’s brilliant.
I was very fortunate that one yeah
Very cool. That’s awesome very exciting. What’s your favorite part of investing?
The people. We meet some of the most incredible people
Great answer. How many companies do you invest in per year?
four to six
Love it. Any verticals you like to focus on?
I particularly like proptech. That’s my own bias. But we like any company that is vertically focused. That’s our specialty we only invest in b2b software companies that are focused on — that are zealots when it comes to their industry that’s the way i like to put it. They’re so zealous when it comes to getting that particular customer base
i love prop tech. i’ve got proptech for you. we’re going to talk about that offline but i’m a huge fan of proptech myself, big fan. love it. We talked about some of these before but just to put some more emphasis on them on the due diligence requirements is there anything that you look for and how long does it take you to do your due diligence before making an investment?
So we look for all the things. We turn the business upside down as much as we can. We want to address all the questions that we think are appropriate from product, to team, to tech, to competition, market — we go pretty detailed you know because uh when we go to our investment community they ask the tough questions and if we’re not prepared we get a no and that’s months of work gone down the drain and it takes us about is about a month to do proper due diligence. I would say from a to z
Okay perfect. Outside of your uh your regular due diligence materials like outside of team and things like that is there any legalities that you look for and paperwork in that sense uh do you want to make sure that the founder owns 90 of the company like are there are certain details around that that you really look for because it makes a difference when you guys are making an investment?
Would say that uh there are certain things like we do want the the founding team to have enough skin in the game. But other than that i don’t think there’s much. We don’t have too many standards. We want to make sure that you know the corporation is clean and everything is done properly but aside from that i’m pretty pretty laid back.
Okay. I like the skin in the game part. Does make a big difference. Do guys lead rounds?
Perfect. Do you reinvest and what percent?
We definitely want to reinvest in the companies that are doing well. We haven’t had the chance to– well some of our companies are going to probably raise a series a later this year or early next year and we look forward to doing that if we can we’re definitely interested and we have the capital to do it.
Percentage.. we’re not you know from in our point of view a good investment is a good investment in $10 or 10 million so whatever amount makes sense at the time
Okay. Any terms that you prefer? prep shares, common shares are you fans of safes?
So we’ll do almost anything except safe. i’ll say i’ll never say never and that we would never do it but it kind of makes the safe structure doesn’t make too much sense to me. It’s neither debt nor equity and it doesn’t offer too much protections for the investor. But otherwise we’re happy to do any deal that makes sense and it’s somewhat of a negotiation we obviously have some standards we want to see. But we’re we just want to make a deal that’s fair, market and that works for both sides.
Perfect. And last question do you take board seats?
Yes. Actually it’s one of the it’s not like we would never do a deal without a board seat but it’s one of the requirements our investment committee wants us to have before they approve a deal. Can it be can there be a situation later on if we’re doing a small part of a much larger round it’s possible that we won’t require it but you know because of who our parent company is we can bring a lot of value to the table and we want to see that the other side considers us as bringing value. it may not be that we bring value to them and that’s just that that could be true but if that’s the case then we probably shouldn’t be investing. So if the company doesn’t see us adding value and we can’t justify that we’re adding value beyond the capital uh enough at least to get a board seat then it’s probably not a good partnership anyways.
Perfect. Awesome. All right well those pretty much sum up our rapid fire questions, we’re uh we’re gonna jump right into the personal questions. So yes all right first question what’s your favorite sports team?
Oh gosh it was the raptors up until a couple years ago. I said i have to let’s say after they
won the championship it was around it was raptors and then last year just stopped watching the game soo…
Yeah the COVID really kind of changed the whole sports viewing feel right.
You think it would be the opposite like more people will watch sports but i actually noticed the opposite but….
Yeah, yeah I kind of did the same. My attention span for it kind of just dwindled down i’m gonna have to figure out how to pick it back up but
i just watched the highlights, five minutes. you know i get the same value out of watching the highlights and watching the entire game
Well hopefully that’s not what it turns out to be. That basketball is a five-minute game now and we’re like no that’s good, that’s good, that’s all i need.
Favorite movie and what character would you play in the movie
Oh goodness. I would have you know there’s i actually have a list of like my my favorite movie somewhere because i don’t know why that’s just something i did at some point. i have many favorite movies i’d say one of the ones that comes to mind right away is uh the Lord of the Rings trilogy. Maybe like a cliche but but i really love, love that trilogy it’s just so well made it holds up to today’s standards. i think the story is great. i think the novels are even better but the fact that it was adapted into these this amazing trilogy is um and in terms of that the character i would play um — i want to be Aragorn but i think i’d be the steward of Gondor probably. You know just like the guy that’s already there and just you know doesn’t want the king to come back but you know i’ll say i want to be Aragorn because he’s he’s pretty cool
Aragon i like it i’m actually watching that movie tonight i downloaded it yeah because i have to use uh uh i don’t have my netflix my um ps4 setup so i have to actually uh use my phone and the google box and i actually downloaded from apple so i’m really going to watch that tonight so fantastic movie. i completely agree with you.
You’ve not seen it before?
I’ve seen it before many times but i’m a fan so i guess i want to watch it again. You have to find a chunk of night where you got four hours because it’s a pretty long movie.
Are you watching the extended version?
okay great yeah that’s that’s the right way to do it
Yeah so because of that you got to really find a lot of time so but either way uh also a fan of that. All right last question what is your superpower
Oh goodness what is my superpower? It’s a fantastic question. I would say my superpower is the ability to to learn. I traditionally historically i don’t think I’ll give you a small example. I don’t think i would have considered myself an analytical person growing up but i for whatever reason because i knew it’s something i need to develop a skill i’ve trained myself to think like an analytical person i still don’t think i am. But i’ve trained myself over the years to think like one and always stop and ask myself how would an analytical person think of this situation and that’s kind of how i hope at least in certain situations that that it matters that that’s the way i i act but it’s an act it’s purely an act that i’ve developed over the years. So…
Wow, that’s a good skill to have. That’s how this brain works so i’m like that but you know what if when you have uh and build those skills that’s what it’s all about right so challenge yourself and keep learning and growing so fantastic. Well, Matan i want to say it’s been a
pleasure it’s been awesome i always say
i won’t take notes but i have to show it
this is my favorite part was
i write like crazy so you’re wondering
what’s the guy doing over there i’m
taking notes but
uh old school in that sense but i want
to thank you very much for your time
uh you shared a lot of very valuable
insights into the life and world of a vc
and kudos to you guys and the the
success and the great companies
you guys are working with uh like we
like to do in our our podcast is we
wanted you to share the last word
anything you want to say to startups or
to investors i turn it over to you
and thank you again for your time today
jeff uh thank you so much for having me
and hosting me
it’s always a pleasure to talk about
versa and what we do
um my my last word is like here’s my
i’ve learned early on for one reason
another i don’t know i was blessed
really to have a lot of good mentors and
people around me
uh that there’s something called
goodwill it’s an accounting term
that expresses value that’s not exactly
right there’s goodwill also that exists
people and almost every interaction you
have with another person
either creates more goodwill or creates
a deficit of goodwill
and you go around life meeting people
and doing business and
having relationships and in the
background somewhere in the
the netherworld exists this bounce of
good will that exists between you and
every single person you’ve interacted
and if your interaction with someone is
positive and you either do something for
them or they do something for you
or you have a you’re you smile at them
or you just
treat them nicely you increase that good
will and that is a real
that is a intangible and very valuable
thing to have
in life so much so that so much of
whatever i can be considered successful
um has come from and i can trace it i
can actually trace it to
the goodwill i’ve developed with people
over the years so if there’s one
message i want to give out to anybody
that’s watching this it’s
think about life as the constant
um the constant
development of goodwill with other
people meaning that
any interaction you have try to make it
a positive one
um even if someone’s giving to you let’s
say someone’s doing you a favor
just thanking them and writing them
let’s say even a handwritten thank you
that can actually create a restore some
of the balance of goodwill or at least
being more open to doing them a favor in
the future right but
every interaction or trying to find a
way to do them a favor
right uh always try to develop a
positive balance of goodwill not only
in a pragmatic sense it will benefit you
very much so in the future but because
it’ll make you
live a better life and uh if we start
thinking about our lives that way it’s
how do i just make sure that even if i’m
not i’m the taker so to speak in this
interaction how do i make sure that um
my balance of goodwill is at least
balanced or that i increase my balance
brilliant i love it and uh very well
i i think the world can all learn from
that and share a little bit more
and be a little bit more good will and
you know what you’re banking all the way
but you know keep giving it away and and
sometimes it does come back but
don’t look at that just look at what you
can give so i love it man well well said
um thank you again very much for your
time appreciate it
thank you thank you jeff well that was a
a great interview with matan i really
like the fact that
he comes from both sides you know uh
entrepreneur vc really enthralled and
dived right into this vc world wanted to
be there from when he was younger
and i guess the best part about this is
that he was able to share
a lot of um real key information which
you know how do we demystify when you
should go and speak with a vc
and he blatantly shared right away
anytime is good
go out create a relationship start that
it doesn’t mean you have to pitch them
today you can be pitching them in a year
but start getting those relationships
build that up build your team up find
ways to bring in the right people to
grow that business
which is again fantastic uh learn to
steward your capital
another great line he said that is
important you got to figure out how to
balance your business
and the best part of when he was talking
what she did as a founder to really
take control of her business and just by
cutting her own salary and doing the
allowed her to make the business
sustainable and that’s what it takes to
be an entrepreneur
so i love that it was a great
conversation great learning
and again uh thank you very much please
comment and we look forward to seeing
you at the next
event or podcast have a great day
Are you interested in meeting Matan, we will be happy to make an introduction!
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