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 – 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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