Skåne Startups had the pleasure to have an Investor Fireside Chat with Leon Ge Dongliang, Principal & Head of Asia at Partech, who introduced us to his work at a global investment firm and gave great advice to entrepreneurs who are raising venture capital.
Leon characterizes himself as the living and walking example of globalization. He grew up in the 80s in China and saw the entire wave of industrialization and entrepreneurship in the country from small to big scales. Leon has studied Environmental Science and was a full-time agritech and foodtech investor based in Singapore and investing in Greater China and East Asia.
He joined Partech back in the summer of 2019, for which he wears two “hats”. The first hat is his role as a Principal at the Venture Fund, a $400 million fund that invests across the globe in Series A and Series B stages. When asked about fundraising, he advised founders:
If you raise a Seed round at a very high valuation, the potential harm could be quite tremendous. In essence, for your next round, and the future round of investments, unless all this crazy valuation continues, you might run a risk of not being able to raise, or at least, not at a proper valuation, because if your traction and your promises are not being delivered, or are being delivered slower than you have promised, then you might also have a down round. You might have a depreciation valuation, and everybody will be hurt.
And the second one is as a Head of Asia initiatives, for which he is spending about 30 to 40% of his time to support Partech’s funds, portfolio companies and entrepreneurs, for anything that is Asia related. His work has contributed to making more than 20 investments in Asia for Partech.
Partech’s portfolio includes Nordic companies, for which Leon is responsible. NA-KD is one of their Swedish companies, a fast-fashion company trying to work a lot on the sustainability part. Partech is also an investor in the Swedish company Resolution Games.
The discussion was hosted by Joel Larsson, General Partner at Pale Blue DotVenture Capital firm, Martin Backlund, Business Developer at Invest in Skåne, Zhenni Liang, Managing Director of Skåne Startups.
The following startups joined the pitching session:
Introduction to Partech
Q: Leon, you joined Partech, a global VC investment firm that has offices worldwide, and your team invests between $200,000 to $50 million in all major sectors. Would you please tell us a bit more about Partech?
We have been around for a while. We're not a fund that spends most of its time doing marketing and promoting ourselves, but as a matter of fact, Partech has been around for a long time. It traces back the history to 1982, so it's almost 40 years now.
We're actually one of the earliest VC funds that were founded with European roots. The office traces back to San Francisco because back then, there was not really a VC ecosystem here in Europe, so the office was mainly in San Francisco. Over time, we had many LP supports from Europe because the founding partners root back in Europe.
So today, we manage about $2 billion across a number of different funds. We invest across all the stages, from Seed to Venture to Growth. We also invest in all continents, except for Antarctica, for obvious reasons. And we are doing about 50-60% in Europe, and the rest of it spread quite evenly across the US, Asia, and also Africa. As a matter of fact, Partech Africa fund is probably the most active venture fund backing entrepreneurs in Africa.
We also invest pretty much across all the sectors. I would only mention that most founders and investment teams don't come from a biotech background. We leave that mostly to our biotech professional colleagues in other funds, but otherwise, we're pretty much full fledge sector agnostic.
Q: Partech is so wide; you have so many different offices and so many different ticket sizes. If you're an entrepreneur trying to figure out who to talk to, how do you find the right person within Partech?
We are extremely collaborative. For example, just less than a month ago, I co-initiated investments with a partner in a Seed Fund, even though I seat technically within the Venture Fund in Singapore and then Indonesia.
It's a big fund, but we all sit in the same room, literally, because the floor is open. Most of us are going to the office from time to time. So if you find anybody, grab the person from Partech, and s/he will find your answer. So now I am the person for you, and you can ask me anything!
Partech’s Investment focus
Q: There are so many different funds under Partech's management, such as Partech Entrepreneur Fund, International Ventures and Growth Capitals. Can you tell us a little bit about the difference between the funds and their investment strategies?
From the very beginning, the fundamental thesis is that depending on the stage, there are very different ways of interacting with founders, and very different ways to bring value to them. When you make an investment at the seed stage, the founders have very limited to present, compared to a company at the Series C stage, where you're going to crunch a lot of numbers. There are also very distinct matters when it comes to investment decision making. So we decided to better leverage different skill sets from different colleagues.
That's why we have Partech Entrepreneur, which is our Seed Fund, and it's anywhere between $200K to a million or $2 million. That's the seed stage, in which you have something to present, but you're in the early days.
Then we have Partech International, which is part of the Venture Fund and invests in Series A, Series B. This is the stage when you have something much more advanced than the Seed stage. You're not necessarily an international company, but you see early signs that you might start to grow really nicely, and that's the time you want to bring in some international investor.
And then, at last, we have Partech Growth, which is when you reach Series C, Series D. These are the companies doing extremely well. Your growth might not be 100, 200% a year, but you need somebody to boost you.
For example, all our Partech Growth Partners are, or were, CEOs or general managers of multi-billion-dollar businesses. So that's the moment you want to bring a partner that has, metaphorically speaking, muscular arms, who knows how to pilot such a huge "animal", so to speak.
So that's why we have three investment strategies. So, we have three neighboring teams with very different manners when it comes to engaging with the entrepreneurs. And lastly, we have Partech Africa, which is more geography-specific, but the investments are across all the stages.
Q: Regarding your role as an active investor, do you have a few examples of what you have helped your portfolio companies achieve, besides the monetary side?
This is a spot-on question, because we actually have a dedicated full time team at Partech to do that. So as we speak, I have my colleagues, Tanguy, Louis, and others, who are doing a lot of work to map out the potential collaborators and partners for some of the startups and make the introductions. In general, we offer three things.
First is the financial part, which is fundraising, finding ways to exit etc., second is hiring, and third business development. We have teams that are dedicated to each of this. We also have a dedicated digital platform. So as a portfolio company of Partech, you're able to log in and post, for example, all the hirings that are going on in your company, and is presented in real time on the Partech platform, and we distribute it in a very regular basis.
More specifically, to give you one example and show how the international VC brought value to two local entrepreneurs. We had a travel company, and the founders spent a lot of time trying to reach a Shanghai-based investment group that is focused on travel. They spent probably six months just trying to reach out. And obviously, they didn't think back then about the kind of network that Partech has. And it took us probably two weeks to reach the managing director of that business in Europe. And so we bridged them and they had a meeting in London, three weeks later. This is just one example.
I can give you another example which is public information. Loreal is one of our LPs and they are very active in innovation partnership with startups, and investing in startups. And because we're on a monthly touch base with most of our LPs and corporate partners, we know what they're looking for, and for example, we put them in touch with a Germany based market research company, AI-based with their digital innovation team. And I can't tell you more about the whole discussion, but it usually takes a lot of time for entrepreneurs to open doors. I'm not saying only Partech is doing that, but it is important because money is the very basic of what VCs can bring. It is everything else that you need to check.
Q: Nowadays, how many deals or percentage of deals are you doing through your own research, not through leads or companies approaching you, but by researching an area and finding some diamonds?
It depends on the funds you have. The later the stage you are, the fewer companies they are out there. At a venture and growth level, so from Series A, Series B level today, I can give you the numbers of my team. One quarter of all the deals we are processing today, the entrepreneurs that we're speaking to are inbound, and three quarters are outbound, so we reached out to the founders, or our investor friends introduced them. We do a lot of proactive outreach to the founders.
At the Seed stage, you have a lot of inbound just because of the sheer volume of the companies, and it's very hard to distinguish the good entrepreneurs from the kind of less mature projects just by reading the deck. So my Seed fund colleagues probably take many more calls than we do. It's the nature of the game.
Startup Valuations & Founders’ Mistakes
Q: Will you please walk us through how the Venture Fund team evaluates the startups?
I am sure that most of you have read about the basics of startups and VCs, and as entrepreneurs, you should read the book Venture Deals. It presents really nicely how to think about the deals, so I would not get into those "boring" stuff. I am going to talk about one element that I see kind of recurrently, especially at the early stage, and sometimes even at the Series A stage.
Entrepreneurs and founders are mostly very passionate people. They create something that they find very close to heart, they want to change something, and they want to build something. And so when they pitch to a VC, obviously, they want to tell that story, which is very often an authentic, genuine story.
So they say: "here's the problem I found, here's the solution I found, and we're going to change the world". One thing that I recurrently see, not always of course, but many founders don't do enough work to see that there are actually many other entrepreneurs who are trying to solve the same problem, sometimes in a different way.
So basically, you have three stakeholders. One is yourself, your startup, in which you're doing something very specific. Second, are the incumbents. Let's say you're building a new, sustainable D2C brand that is much more green. And then you have the incumbents, the ones that some entrepreneurs try to describe as evil or not doing enough for the environment and etc.
In between those two is the critical part. Especially when you are at the Seed and Series A stage, the homework you have done between the incumbents and yourself is particularly important. Some people call it a competitive landscape, I would not limit it to that. Some people just stay to "here are the incumbents, here's the problem".
Don't present your business as a magic button or silver bullet that the world has waited, and you have finally come, and we're going to save the world. More often than not, there are lots of other entrepreneurs, maybe less brilliant than you or just as brilliant, that they're also trying to solve the problem.
I'm not saying that when building a business, you should focus on your competitors. Once you start operating your business, my personal conviction is that you should focus on customers, you should focus on your product and service, and do something amazing that your customers talk about it.
But when you pitch to the VCs, when you take a step back out of your operational days, and think about your business and really think about the genuine value that you are trying to build with the company. Now, at that moment, it's important that you get a really good understanding of the landscape.
Who are the players? How exactly are you not reinventing another wheel? Sometimes it's fine. Sometimes you are just reinventing another wheel. That's fine. Because sometimes in some sectors, we need a lot of new reinvented wheels, and that's fine. But sometimes, maybe not. So it's important to be able to articulate that. It is quite important.
Q: What happens within Partech when you see one of those competitors' matrices or lists in a startup's pitch deck. Would you trust that? What happens on the inside within a VC fund? How do you verify it?
We usually take a very skeptical approach to that matrix. You are probably very familiar with those kinds of matrices; here's the X-axis, here's the Y-axis, and here are the other players and here's us, with a star on it! And for every single company, you can probably find two parameters that are advantageous to you, so they are going to be put there. So yes, it's a very dangerous way to take it as it is.
In many cases, there are two things that we do at Partech. We do a lot of homework ourselves. There's some primary research that we do, as most VCs do. We have a lot of subscriptions on all kinds of research tools that we leverage on understanding a certain industry.
And then, fortunately, we have internal expertise, as well. We have partners who have invested and sold already on some new bank and FinTech; we have partners who have invested in building a very important consumer brand company. I also take Romain as an example, who is leading our tech Seed rounds, and Romain is technically and literally a rocket scientist. So we definitely have the internal expertise we need to leverage, and we have many long chats and deep dives on those topics.
And then we would probably need to rely on a lot of external experts. So as an entrepreneur, you might realize, that if you start fundraising, investors sometimes ask you for reference calls with some of your customers and etc. So we definitely do a lot of calls.
So overall, a lot of desk work, and a lot of phone calls and that is extremely difficult for us internally to remain consistent. Sometimes, it demands extremely extra work, because we do an extremely good number of calls. And then there's a lot of desk work that we try to understand the company's industry.
I want to give a caveat when it comes to experts ref calls. By definition, you're entrepreneurs, you are trailblazers, and you are breaking things and changing things. Yes, we do a lot of calls with so-called experts, and obviously, there are a lot of perspectives.
And you should probably do that as well. If you're doing an insuretech company, you should probably speak with some insurance experts. But at the same time, many times, they are actually wrong. Because you are doing something different, and they have a different opinion, precisely because they're working with incumbents.
Q: How do you look at valuating startups based on traction? Many investors ask about the amount of traction, revenue, experience on the field and base their valuation on these metrics. What's Partech's take on this? How do you valuate your investments?
To divert a little bit from the question, if you have looked at the Series A median increase... A recent analysis shows that the median of Series A valuation 3-5 years was $15, or 20 million, and now, it has gone to 30, to 40, to 50 million. So there's definitely a lot of inflation, for the lack of a better word.
You can write a book about the 20 methods to calculate the valuation of a company, but fundamentally, for a company at an early stage, all this math is a little bit fortune-telling. I'm not saying there's no logic behind it, but very often, you have a lot of market force behind it in the sense that you definitely have a law of supply and demand coming into the picture.
To argue in favor of the founders and probably as a VC, I shouldn't be doing that, but in the spirit of transparency, if you're building something you believe in, you should definitely defend yourself with your own benchmark and methodologies. There are so many different ways of looking at it.
And you can use a certain valuation, you should always defend it, and even sometimes negotiate. You can definitely negotiate with the different investors and some funders, because they better fit, or because they understand better the fundamental value of your company and they're willing to pay a higher price.
With that being said, we all know that nothing is purely positive in the sense that if you raise a Seed round at a very high valuation, the potential harm could be quite tremendous. In essence, for your next round, and the future round of investments, unless all this crazy valuation continues, you might run a risk of not being able to raise, or at least, at a proper valuation, because if your traction and your promises are not being delivered, or are being delivered slower than you have promised, then you might also have a down round.
You might have a depreciation valuation, and everybody will be hurt. And you might also some reputation risk for your company. So I would suggest that, number one, defend your interests for all the good, justified reasons. But also be careful about the valuation craze that is going on.
Q: What are some of the common mistakes that you have seen founders who are trying to raise the Series A? Can you elaborate that with some examples?
VCs say that you should always be raising. You are going to start burning more as you progress because you want to progress faster. So you're going to start deploying and onboarding more sales or engineers, and you're going to start spending more money.
So you want to be in a good position to raise and start raising the moment you actually need the money, or the moment the board decides you want to raise at the next quarter. You don't want to put yourself in a position that you need to start compiling that list of investors to reach out to at that moment. It's feasible, but the better way to do that is to set up a percentage of your time, get to know some investors, and get to know their profit companies.
So that they know you and the moment you want to raise, you are able to close fast. The mistake that I'm seeing with some of the founders is they're doing the opposite. They don't do the preparation, the curation part. And then they extend the actual race very long. So they're telling you I'm going to start raising, in first of January, and I want to close the round by the end of March.
Τhere's a lot of data pointing out that the VCs make many decisions, unfortunately, on FOMO, so you want to create a round dynamic. You want to be able to be very ready. You should have all your materials and documents and everything, and that's why you also need to start speaking with some VC folks that are early stage to know what kind of stuff they want to see. And that's how you can inform yourself, enrich and perfect your data tracking and so forth.
The moment you want to start the raise, you should probably inform everybody that you're going to start raising. And because you have all the data ready, you probably will be able to drive the process in a much faster way.
I've seen a few entrepreneurs who don't have all the data ready to start raising, and they start calling some VCs occasionally, and the whole process drags for two, three months. The whole process is bad for the entrepreneur, and it also drags a long time for the VC. Ultimately, it's not good for anyone, I would say.
The Right Team & Startup for VC Funding
Q: As a founder, I understand the importance of the right team. Is there something specific that you look for in the team? Something that it's good to highlight or to communicate to you?
We can go on for maybe an entire day, just talking about that particular subject. Different investors have very different opinions, so what I'm saying does not represent Partech, but for me personally, entrepreneurs and the team are the most important elements in the entrepreneurial journey.
You can pivot, you can have an amazing idea, but if the team is either not a good fit for the project, or if the team for some reason is actually not VC kind, growth style startup compatible in that sense, then there's a big issue.
There's nothing wrong with building a nice and sweet and small business and running nicely in a small city. I think there's a lot of overhype about building the next billion-dollar business.
As a matter of fact, very often, if you have a business that is profitable, and it's growing very nicely, organically, and if you, for whatever reason, don't think you're the one that's going to be the happiest, or at your best state, for family reasons or personal aspirations with a high-growth company, then you might not even want to take VC money.
First of all, this money is very expensive. Your company is going to be worth more in 10 years, and now you're going to give 10, 20, even 30% sometimes to a VC for relatively little money, for 5, 10, 20 million euros. So you need to think about whether the team actually needs VC money depending on the project you're working on.
But to answer the question, the thing is that we, as Partech, can't forget that we are venture capitalists. So we're aiming to back entrepreneurs, that are genuinely thinking to tackle some of the most pressing and important problems that are scalable, which actually need VC money. That's what we do.
Because otherwise, we're just gonna open the bag and start loaning money, but that's a whole other business. So I think the ambition level of the entrepreneur can't be faked. I think it's very genuine. And over time, over the course, we can see it and there's no reason to fake it; you just need to be authentic about it. That's kind of the base of it.
So it's important to think about what kind of business are you trying to build and then reversely, you need to look for the most compatible investor for you because some of the VCs have a fund model. So they can probably only invest in companies that are going to be on track to 500 million to a billion or even more, and alternatively, you have smaller VCs and tech investors who are completely fine with smaller returns because they have different priorities and different objectives.
And to complete the question, if I were to summarize a few things is one of the key elements in entrepreneurs is probably what I call the yin and yang of a founder. The yin part is the internal works. Are you a founder, not necessarily always by yourself because you might be complimented by your COO, or another co-founder, but in general, within the team, do you have someone that holds the thread of the numbers? Do you know what's going on within the company? Can you actually "come down to earth" and look at the numbers and do the basic math and focus on the product, and etc?
And at the same time, the yang will be the expansion part. So are you able to go out and be quite aggressive in a positive term? Are you able to think who are all the stakeholders and players out there that you can work with, and are you able to close the deal in an extremely solid way?
I can give you the example of Sorare. It's an NFT (non-fungible token) related to football clubs. Sorare is issuing this NFT so that fans of football clubs can buy crypto-based virtual collectible cards of football stars. This is an investment that one of our newest partners, Boris, has led at Partech and we're all very proud of this investment.
We're especially proud of the achievements the founders have made. And the founder, when the company was 12 people, was able to close deals with tens of football clubs, and I'm talking about real football clubs. So that's the yang part for me, not fearing of failing and just going out and smashing it, like a hawk, for the lack of a better analogy.
Sorare, by the way, still has 12 people as we speak. They're doing multi-millions in revenue weekly, and Benchmark just invested $50 million in them at a multi-million round, and the company is barely two, three years old.
Advice for Entrepreneurs
Q: What are your top Dos and Don'ts for startups being in the process of raising capital?
Do your homework. Super strong homework, to show that you know what you're doing, you know what the landscape looks like.
Be extremely rigorous in the way that you collect your data and present your deck, etc. You need to have that rigor in it.
Be fast. When you have all the first two parts, you need to be fast in the process.
The Don'ts are probably just the opposite of these.
Q: What does fast mean in that context? Is it a week, a month, 2 months?
The time to dive into depends on the stage. Some companies are at the Unicorn stage, so they have a lot of data that need to be crunched. At the Seed stage, if needed, we can move extremely fast.
Q: What is your timeline when it comes to investing, from initial contact to full capitalization?
Leon Ge: Between the term sheet being signed and the money going in your bank, there's another run of due diligence regarding taxes and legal stuff that you need to expect. So, if you have 30 days of cash left, then you're in a bad place. The money is not going to be wired. It is not as an angel investor.
So when you speak with VCs, they have regulations to comply with for the better or, the worse. So from the time that you sign the term sheet to the time you have the money in the bank, I would say that it takes at least a month.
To be safe, you should at least prepare for a month before the money's in the bank. And prior to that, it really, really depends. It can be a week if everything moves fast. It can be slightly longer if you are at a Series A or B or later stage, then the VC folks might need to schedule a meeting to come to meet you in person. It can take up to two to three weeks.
Joel Larsson: It depends a bit on the funnel as well, depending on how you handle the money within the VC fund, but usually, VC funds withdraw money from their investors to be able to send the money to the startup. So that has a time delay as well, depending on the size of the investments and how much money is available within the fund at that point. So this is going to delay the money wire on the startup side. So it's good to have a good buffering time for sure.