What If Ventures invests in startups focused on mental health and addiction recoveryRead more...
Kickstart Ventures is the corporate venture capital subsidiary of Globe Telecom
[Editor's note: Future of Behavioral and Mental Health with BetterHelp, Headspace, Ginger.io, Providence Hospitals, UnitedHealthcare Optum, Khosla Ventures, Oak HC/FT and more has become 3 virtual conferences and one live event pushed out to May 27! Register one time for all 4 events! REGISTER. Also, during this stressful time use the code "vator" for 50% off BetterHelp online therapy for 3 months!]
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed!
While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Minette Navarrete is Vice-Chairman and President of Kickstart Ventures.
Navarrete is a member of the Ayala Corporation’s Innovation Advisory Council, and of Globe’s Innovation Advisory Board. She is a Senior Vice President at Globe Telecom, focusing on New Business, and a member of the Board of Directors of AdSpark, Globe’s wholly owned digital advertising subsidiary.
She has held a number of CEO/COO positions in various industries, ranging from scrappy Philippine startups to iconic global companies.
VatorNews: What is your investment philosophy or methodology?
Minette Navarrete: We are a young firm: we are nearing eight years old, so we started in March 2012. We are a corporate venture capital firm; we spun ourselves out of the leading mobile operator in the Philippines, Globe Telecom, so we are fully owned.
What’s different, though, is we have had all our philosophical debates about whether we were going to be a division of a company, or were we going to be truly autonomous. We were sort of coming from a period where if you were a good, top performing startup, you didn’t really want to take money from a corporate VC; strategics tend to be I guess slower, more bureaucratic, have more strings, and god forbid you take money from a telco. In a way, though, the market context is changing and we are moving into a period of collaboration between corporates and startups. I’m, personally, a big fan of that and I have seen how, when handled correctly, startups and corporates can complement each other really well.
In 2012, we spun ourselves out, and we were very direct with our board about saying, “We will have to be as agnostic as possible, so we will operate as close to a pure financial VC as possible and the locus of interest for is is the founder and the startup.” That means that, philosophically, what we would like to do is put the resources and the relationships of the corporate at the service of a startup. That means we help the startups scale faster, work more closely, get an in and have more doors opened for startup founders. Those are doors that might not otherwise open, not because corporations are evil but because corporations that are the size of Globe Telecom, for example, I think we’ve got about 70 million subscribers now, they do have an expectation of quality, stability and reliability, which are not characteristics that we often attribute to startups. That’s the founding philosophy, that we would take the access and relationships and the cash and we would begin to invest in startups that had promise.
I’ll note that the Philippines, and much of Southeast Asia, has not been seen as a hotbed as startup innovation, so we are trying to mitigate some of the gaps, whether it's the lack of capital, the lack of mentors, the lack of corporate interest or commercial relationships and engagements with startups. That founding philosophy has carried us over the last eight years.
VN: What is the size of your current fund and how many investments do you typically make in a year?
MN: We have invested out of two funds, historically. The first one is an evergreen fund that we continue to invest out of today, and really it’s investment in all things digital. From the beginning it was seed and early stage, up to Series A, and through that one we tend to write $100,000, $200,000, $500,000 checks, typically in companies that have not proven product market fit. In the very beginning we were investing in companies that were presenting to us with only a PowerPoint deck. By 2015 we had launched a second fund, which was a $50 million fund for early growth stage companies, so at seed we would write checks for $1, $2, $3, $5 million. This was one was a bit more strategically aligned to your classic telco, media and associated technologies.
Last year, we got commitment for a third fund, which we call the ACTIVE Fund, and this time, unlike the first two funds, we are investing on behalf of half a dozen LPs. They are all affiliates, so the Ayala Corporation, which is the oldest business house in the Philippines; Bank of the Philippine Islands, which is an affiliate of the Ayala Corporation and the oldest bank in the Philippines; Ayala Land; AC Energy; AC Industrials; and others. The new fund is about $195 million, and it’s intended to write checks of $2 to $10 million.
The thesis and philosophy around investing and bringing startups together enterprise to collaborate more closely remains, and now we have the opportunity to expand the resource base and the access base to cover industries such as banking, real estate, water, infrastructure, manufacturing, energy, so a much broader portfolio. The operations obviously need to scale, but we’re really excited about how we might expand the thesis of enterprise and startups collaboration to drive more innovation and scale in startups.
We do invest locally; out of the first two funds we have invested in 42 companies in seven countries, most of it is Southeast Asia, so the Philippines, Singapore, Malaysia, Indonesia. We also have a number of investments in the United States, Canada and Israel.
VN: Can you give me a deeper dive into some of those categories of interest you mentioned, like digital, banking, real estate, manufacturing. What are the opportunities you see in those spaces?
MN: Obviously, we are going to look at innovations and technologies that are going to touch those industries; but from an investment thesis, we intend to use the capital and the resources to back the future that we imagine we want to drive towards. We’re 185, 186 years old this year, and we want to look at the next 50 or 100 years. What is that future going to be like?
We define four features that we want to invest in. The first of these, and these are in no particular order, is a "frictionless future." Particularly when you live in the emerging world, there are countless frictions you encounter in your daily life, whether that’s how to pay for things, how to buy things, how to move yourself from one place to another. A frictionless future imagines that we would invest in solutions for fintech and mobile payments, ecommerce, mobility, on-demand services. What are the opportunities that will help bring ease and convenience to the everyday live of everyday folks? Or bring more efficiency for enterprises and small businesses? Stuff like AI will come into play, also fintech, ecommerce and sharing.
The second one is what we call, “from automation to augmentation.” This is about the future of work. You have to understand, the process of industry 4.0 comes out of Germany, and that's a place where the population is aging, population growth is low, the cost of labor is high, and, therefore, to look at dark factories is perhaps seen, economically at least, as something desirable. When you look at the emerging market, and that covers much of Southeast Asia but also other continents, the emerging world does not have those factors. It has a large population base and it tends to be young. We are concentrated higher and the demand for jobs, among various levels of skill, is quite high. Automation to augmentation is about looking to technology to augment human capital. That means keeping human capital valuable and augmenting the value of human capital through technologies that improve productivity, that reduce risk for workers, that improve worker engagement and happiness, to make workers better skilled, better equipped, better engaged with their work. We think that's important for large waves of the population of the work. So, things like AI, machine learning, the Internet of Things, robotic process applications, augmented reality, virtual reality, these things all come into play. We’re looking for examples where we are aligned in terms of the philosophy and we can help these companies work more closely with large corporations that are looking for solutions to have a more engaged, better skilled workforce.
The third theme is called "smarter living," which imagines that the value of property must go beyond the piece of land and the brick and mortar that we build. So, we’re looking at how to build smarter homes, buildings and communities, and how to enable smarter city management. We are also looking at better, more sustainable, construction techniques and property management tools. How can we make living environments more engaging, more sustainable for the residents, workers, as well as the people responsible for managing those areas? We have interest in proptech, some interest in smart solutions for construction and building homes and some interest in related solutions in the Internet of Things, as well as analytics.
The fourth theme, which is very close to my heart, is what we call, “world of plenty.” It’s crazy when you think about how it’s 2020 and there are still large populations who do not have access to basic things like electricity or water, who live in highly polluted environments. A world of plenty is a reframing of scarcity as perhaps not a supply issue, but a distribution issue. Technology is a great solution for many distribution issues, so we’re looking for ways that technology can make water, energy, clean air more widely accessible, available, affordable, sustainable for more people.
Those are the four investment themes around which we are looking for technology that solves problems at scale.
VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?
MN: The early stage investments are out of our Fund I, because it’s evergreen. It’s to stimulate digital entrepreneurship, just to get some action going for startups in the Philippines and Southeast Asia. In the beginning, we were investing in companies based purely on a PowerPoint; at the moment, what we have learned is we’re not a particularly efficient investor for companies like that because we tend to highly participative and heavily involved investors. That means that when you look at our company, about half the team isn't doing investing, they are doing PR work for the companies that we invest in, they’re helping business development.
So, today, in terms of traction what we look at is a semblance of product market fit, so live customers who are not your friends or family, some indication of repeat purchase. When we do diligence we interview customers; much of our portfolio currently is enterprise SaaS, and we will interview both the founders and c-talent, as well as the customers. There are going to be hard numbers that we will look at, and it depends on the industry that they’re in, but we will tend to look for customers that have used the product for a number of months, enough that they have a point of view about whether this is actually solving their problem or not.
VN: What other signals do you look for? Team, product, macro market?
MN: Most people will tell you they understand what they’re doing, they feel the problems, whether it is because it is a problem that is part of their lived experience, or because it’s a problem that they understand in their own personal context. They will say they have the expertise and experience because they have perhaps participated in the industry or they’re trained for it.
We do look for serious commitment. In the Philippines, certainly, it’s very common for founders to have a side hustle because they are looking to augment their own personal income. Our experience has been that when the startup is the side hustle, and the founders have a day job, it really doesn't work: progress is slow and sporadic. So, commitment does matter quite a lot to us. Integrity is also important, particularly when you’re looking at the early growth stage, which is what the ACTIVE Fund will invest in. You know that the product is likely to change, you know that the business model will too, you know that the technology will evolve. Because we, in particular, take minority stakes, we would like to invest in founders whom you can trust when it gets to the grey areas and they need to make a call.
Those four qualities are pretty much what we look for when we talk about the people. It generally is the people who will make the difference.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs, especially in the Philippines? And does being a corporate firm help you differentiate yourself?
MN: To begin with, there aren’t many funds in the Philippines, corporate or not, and we don't have a large institutional investor base. Many of the angels and angel networks are less than 10 years old, so it’s a young startup ecosystem. With the exception of ourselves and another corporate VC that started at around the same time in 2012, many of the corporate VCs are just emerging really in the last 12 months. Much of what we do is very similar and, in fact, many of these new funds will come to us and say, “What are you doing? How do you do it? Can you offer some insights and advice?” We’ve spent hours and hours sitting down with the corporates that want to do their own venture capital fund. That’s been a good experience for us, and we think for them too.
How we distinguish ourselves is we run the practices of pure financial firms, meaning we are very tight around who’s side we’re on. For us, it’s an explicit agreement with our board, with our LPs, that when we make an investment we sit on the side of the founder. We do not do the commercial negotiations, we do investment negotiations. If the LPs that we represent want to engage, and frequently they do, they do their own commercial negotiations; our interests are aligned with the founder and the startups. We’ve had a number of, shall we say, hairy situations where our principals, our LPs, have asked us if we can negotiate on their behalf, and we say “No, our interests align with the startup.” That clarity of principal has helped us work with both the founders as well as the enterprises because, after a brief period of not understanding why we do it that way, when we’re getting their money so why don't we negotiate on their behalf, I think they have a better understanding.
We have a good number of case studies where companies that we’ve invested in work quite closely with our principals. We have a company that we invested in maybe five years back, where they had a thesis and a service that they were looking to convert into a product. Last year they pitched to Globe Telecom and they pitched against large firms for 100 process automation projects. At some point, the chief HR officer of Globe ran to me to say, “Minette, I’m about to award these hundred projects, and these are the companies that I’m considering but I’m also seeing the pitch of one of your companies. Obviously the difference in size is staggering, but we’d really like to give them a shot. Can I award them?” So, of course, hand on heart, I say, “Yes,” and they get the project. Today, our CEO spontaneously said, “Gosh, these guys are good. They’ve sorted quite a lot of our employee processes that used to be such a bear to deal with.” So, we do see that, after a brief period of clarifying rules and goals, it does work really well and that is something quite different. While strategics have a reputation for being much more bureaucratic and, ultimately, seeking to gain control over the startups they invest in, whether that’s in terms of equity or commercial operations, we are quite clear that our intent is minority stakes and purely investments. That’s worked quite well for us. That's quite different from other corporates.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
MN: There’s a company we invested in called Coins.ph, which is a mobile wallet. It was an unusual investment for us because, in fact, Globe Telecom already has the largest mobile wallet in the Philippines. It was maybe seven, maybe 10 years, behind the large telcos that were offering mobile wallets. We liked the investment because it was interoperable, unlike the other mobile wallets. We liked the founder, who is a serial entrepreneur. We liked the drive and the way the company was working. There was, of course, a question around, “Why are you investing in a company that’s going up against something that we have poured billions into?” For us, the answer was that we think there is a future that is interoperable, which has many players, and we think it’s going to be one of the winners. True enough, that company was acquired last year by Go-Jek, one of the large Indonesian unicorns. That was, for us, just a good case study in understanding the market and the dynamics, and working through with a founder. We managed any conflicts quite well, I thought.
One of the recent investments that we made that is really exciting is a company out of San Francisco called Savonix, which uses digital technology to measure and monitor neurocognitive conditions like dementia and Alzheimer’s. It provides a digital tool that replaces pencil and paper, which is the norm for testing for mental processes of neurocognitive conditions. On the face of it sounds like, “Oh, sure, they take the form and make it digital.” But, actually, by making it digital they do a couple of things: you can measure dimensions that a pen and paper will not allow you to measure. You can measure which questions take more time, whether they changed their mind, where they hesitate, you can even measure speed. You can also aggregate and anonymize the data, and therefore what it will unlock the ability to do large scale studies for conditions like dementia and Alzheimer’s. We hope that will allow for larger clinical studies, better knowledge and insights and testing for how to manage, how to, perhaps, find cures, in a way that all the attention other diseases has helped us to improve the way patients are treated or managed or helped. We talked about the things that matter to us, and the founder, Mylea Charvat is great. She has the commitment and lots of experience, so we’re very optimistic about that.
We recently invested in a company called Igloohome out of Singapore. They are a smart lock company. Of course, there’s quite a lot of that going around and big players that have acquired smart lock companies. What's different about this company is it really thinks about this not as providing locks but providing access, particularly access as an enterprise solution, so for buildings and large communities. We always liked the founders, even before investing in them they were coming over to work in our offices, and we all knew that we would be on their cap table. They have commercial relationships with Airbnb and SingTel, so large enterprise customers, where access to facilities and utilities need to be systematized and able to transition from one key holder to the next, and need the transaction logs in a way that the standalone consumer-grade products do not require.
VN: What are some lessons you learned?
MN: I should probably start by saying I was not a VC from the beginning of my career and I did run a startup once. My first lesson learned, for sure, was it has to be all about the founder and their plans, their drive. We can build all the support systems for the founders, like we bring mentors from overseas into the Philippines, we run workshops and clinics, and you can see that, however much we hope for as investors, it up to the founder be interested or not. The founders that most make use of the opportunities, who most consult their advisors, who most ask their board to work, they get the furthest. It isn’t what we imagine we are investing in, it’s what the founder imagines it’s going to be.
At the end of the day it’s about building circles of trust. At Kickstart, we are very clear about our responsibility to confidentiality, security, and the privacy of the people who we invest in. While the culture is very open and informal and collaborative, we’re also clear that we keep tight control over the data. We don't necessarily share everything with the LPs because we’re mindful of conflict situations. We know that reputation is all, and no single deal is worth all your future deals. We know that if we betray a trust, we will never get a great deal again. That’s something that’s deeply ingrained in everyone at Kickstarter. It’s also about building circles of support; we’ve had wonderful experiences where we’ve taken a bunch of founders to exhibit in Singapore, for example, and when one founder isn’t around the other founders in the portfolio can pitch on behalf of other portfolio companies. I think it matters that they are looking to help each other. A spirit of service is necessary. I understand that in traditional VC the belief is that the guys in the suits, the ones holding checkbooks, will somehow be more influential. That’s not the kind of attitude we want to bring into the ecosystem for ourselves. Much of the perspective that we bring is how we can help companies we’ve invested in.
Another thing is it’s important to have operator’s perspective. My background has always been running companies. It’s a new thing for me to be investing but not myself running the company, and it's a great experience. I learn so much, but also we bring an operator’s perspective. It’s important to not just have the investment, but bring value post-investment. A lot of the value that we bring is the post-investment value; the ability to open doors, to make introductions, to endorse a portfolio company to enterprises that can help them grow and scale.
VN: What excites you the most about your position as VC?
MN: I have to say, I love all of the jobs, but the part I like the most is the opportunity to create impact. I like knowing that this isn't about us. Investors are a support system, we’re not supposed to be the rock stars of the ecosystem, so I love seeing founders and startups evolve and mature and scale and succeed. It’s a really nice experience and because the Philippines is quite early in the development of the startup ecosystem, you can really see people changing, people understanding how things work. In our early days we were giving workshops to teach people how to pitch, how to look at cap tables, how to understand valuations. When we see companies like that evolving, growing, raising further rounds, it is perhaps the most satisfying aspect of the job.
VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general?
MN: In emerging markets where the startup and VC ecosystem isn’t as well developed, and where, perhaps, large enterprises don't really understand how startups work, it takes the entire team, the entire ecosystem to support a startup. We’ve got a great investment team at Kickstart, but we also have a portfolio team that tries to help the portfolio companies hire the right talent, make the right connections, get the right exposure, build business connections. We have unusual roles inside our company, jobs where someone doing business development isn’t doing biz dev Kickstart, they’re doing biz dev for the portfolio companies. The more that we, as VC firms, understand how we can put our resources and assets in the service of startups, the more successful collaborations we will find across the ecosystem.
Read more from our "Meet the VC" series
NGP Capital invests in growth-stage companies, with an initial check size of $10 millionRead more...
IA Capital Group focuses on fintech and insurtech startupsRead more...