LFP182 – What It Takes To Succeed In Early-Stage Investment w/Yusuf Ozdalga Partner, QED Investors

What kind of value-add most helps founders and their companies? Or if you prefer what sun, what rain and what compost makes founders trees fruit better and faster? It’s a vital topic for the economy. QED Investors is a leading VC firm focused on investing in early stage – hence their knowledge of growing seedlings […]

What kind of value-add most helps founders and their companies? Or if you prefer what sun, what rain and what compost makes founders trees fruit better and faster? It’s a vital topic for the economy. QED Investors is a leading VC firm focused on investing in early stage – hence their knowledge of growing seedlings – in the U.S., U.K. and Latin America. They have made around 140 investments including an astonishing hit-rate of some 19 eventual unicorns. Notable investments include Credit Karma, ClearScore and SoFi.

Yusuf leads QED’s investments in the UK & Europe with a focus on payments, lending, financial infrastructure and Proptech.

As we have heard before *all* VCs claim to add-value yet – surprise, surprise – surveys show that founders/CEOs say that for most VCs all the value arrived when the cheque was cashed. As we shall hear in this show QED has found it essential to actually add-value in order to get good returns from the trickiest of all investments – the early stage startup. Those interested in this topic might like to compare this with the prior episode LFP181: Angels and Angel Investing Masterclass w/Richard Hargreaves, 50 years of Professional Unlisted Investing.

Topics discussed include:

having a fascinating mix of ancestries being Swedish-Turkish, having lived in six countries and having fluency in three languages
Ancient Anatolia and the records from Kanesh/Kultepe where we know more about business 4,000 years ago than in any place until 1,000 AD – all business elements we recognise today exist with two sole exceptions (limited liability & companies (they used more sane structures :-D))
Hammurabi’s control of interest rates a little after the above – lending goes back several millennia as does equity investment
Jiu Jitsu – winning a medal in a Dubai competition and parallels with startups
Yusuf’s career and what led him to early-stage investment
the seminal importance of Capital One – the first Fintech by some measures – their founders also formed QED and hence understood the need to add-value to founders and the kinds of added-value that were most helpful
“focusing on founders” as key to early stage
investing in fewer investments but spending much more time with each as another key
over time the number of “unknown unknowns” reduce and hence one’s performance improves
the need not just to be Board-centric as many VCs are if you really want to add value you need to spend time with the founders outside Board meetings
about two-thirds of investments make it into a decent exit – a huge result compared to VC industry averages
“No one Founder has the ten things you need to take a Company from Zero to One”
“The great Founders realise they don’t have it all themselves”
choosing co-founders
the importance of intellectual honesty in this process
the necessity of identifying which of the ten elements you don’t have and thus getting them
the value of having been an operator in an industry to add real expertise
the rarity of real intellectual honesty
the importance of open, honest, direct communication in both directions
the importance of a huge and thorough funnel process to “pick winners”:

Yusuf has done 8 investments in the last four years which necessitated speaking seriously to something like 500-1000 companies (:-O) in total and in any given year considering ~10 companies for serious investment – and then picking 2

QED measure a Net Promoter Score from Founders for each partner
they publish the overall score but not the internal per-partner measures
Yusuf will still help the ~8 companies per annum that he considers in depth but doesn’t invest in
how one emotionally manages the challenges of  a business model where, in essence you go fishing every day of a year but only land a fish twice a year
what Yusuf enjoys about the business model
Yusuf’s view and experience of the whole growth spectrum from Day1 to listing
the parallel with a child growing up and the different needs at each stage
different expertise needs to be brought to the table at each stage – added-value needed changes over time
the QED-belay program to help Founders at the Foundational Stage
QED’s future plans and expansion into South Asia
how one manages globalisation with the necessity of localisation given that generally one needs to get a correct balance of the two to be successful in business

And much much more

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