robert_mai

Robert Mai — Scopus Ventures

Wednesday, May 25, 2022

Robert Mai joins us to talk about Scopus Ventures, an early stage fund focused on B2B enterprise software (initial checks $250-$1M).  Scopus is active in LA and Israel.  Robert also educates us on family office investing.

 

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Today we are here David, Minnie, Robert at Scopus ventures with Robert Mai. He’s the managing partner here at Scopus. We are in Brentwood Wilshire area in a building shared by the Consulate General of Austria.

I always wondered what that was. General. It’s like an embassy. It’s all right. Yeah it’s like the consular services outside of the city where the embassy is the embassy especially in Washington.

Yes. Yeah. So they come here for mostly visas and paperwork lederhosen and ski rentals great.

Well now that we know where we are. Give us the basics of Scopus.

Sure what Scopus venture is an early stage fund focused on B2B enterprise software companies. Our check size are running from 250 to a million first check up to three million dollars by the following round total investment. We currently have 15 portfolio companies half hour which are Israeli based companies which we help scale into the U.S. bringing to U.S. and other other half are New York San Francisco and Los Angeles based companies as well.

We were very agnostic to different verticals.

So we have cyber security. We have SAS tools we have real estate we have hospitality. So it really depends on we invest in entrepreneurs and not actually industry got any and you don’t look especially Israeli is there a connection with Israel.

My partner. Very funny question. My partner is is Israeli. I was his board member in his past life in his previous companies investor they’re working for family office in New York and we built a great friendship and relationship. And so when he moved out here to Los Angeles we he reached out and wanted to start a fund. So one of the drawing for him was when he was an entrepreneur. It was. He didn’t have anyone really to help him scale the business in the US and so he wants to help entrepreneurs in Israel be able to successfully you know move here into the U.S. and expand and scale their companies.

 And that’s Iran. That’s Iran Gillard. And your third partner my third party name is Balme Nora Mead. He’s a serial entrepreneur as an investor. His first company was Costco his technology group in the 90s. He took it public into Nasdaq ran it up to 100 million dollars in revenue. He was competitive at that time was Tom Siebel and Siebel system smaller company at 60 million. And essentially Tom Siebel approached him and said Let’s merge together and we have two caveats one caveats that I to stay on as president.

 The one is I keep the name Siebel system. And so my partner said that’s fine I’ll be the CTO. Essentially they they merged two years later.

They sold that to Oracle for about four and happy. And so that was a really interesting company and a lot of Salesforce folks came out of there. Yes. Yes. Including Marc Benioff. Yeah. Great. And this has been one for you.

This is fun one for us. And yeah we’re looking we’re doing some some some deep dive right now in to fund to probably next year in middle next year.

Great. Tell us a little bit more about your background.

So I come from a banking background worked at Lehman Brothers Citigroup and UBS. Right of eminent is an IPO. I shorted the subprime working for distressed hedge fund in New York and then ultimately the last 10 year prior to the fund. I worked for a multifamily office in New York called Clean Stein Fields was pretty much designated to do all their investment and essential we start to whole visit venture a platform and they were the one the first investor in StubHub and that’s how they got involved with wanting to invest in venture and one of our investment was in a company called tracks that my partner Ron with was from and it was an Israeli company and that’s how our thesis forms out as well for our scope as Fund is helping Israeli companies scale in the US.

I’m always curious how family offices source deals because they are they are easy to find. I think by design.

Yes I mean I think the great question by the way David are in the past family office was always consider I think was dumb money and I think over the years it’s become more active rather than passive investors and they wanted to not make larger sized checked into private equities or private companies in that way. They wanted to make more venture investment smaller dollar amount but they didn’t have the actual sourcing of the deals and so they start off with investing in V.C. funds and having certain right as a side letter to co-invest if it went to the next stage and that’s what my family office did in the past is we invested over 10 different V.C. fund locally in the New York area when they were all emerging there were small.

 I would say micro V.C. flying in around 20 30 million dollars and now they’re on their third fund Nasdaq 100 250 million dollars. And essentially once they started deploying capital we start deploying following them. And then if there was an opportunity to do it foreign investment their size was so small that we were able to step in to help them co-invest.

Great getting it going. What does it what does that involve it.

Family Offices thinking about getting the get going there’s of venture investing a lot of time you know there’s not a lot of resources for family office generally is always one or two individual like myself included and so family office is notoriously frugal when they have resources human capital resources so they really to rely on venture managers to be able to do all the heavy lifting to due diligence but you also have to have someone to screen those investment make sure that it’s the right fit they the size timing. And so for family office who are looking to invest in venture you want to make sure you have a good partnership and trust the V.C. fund manager.

So this a little bit inside baseball we see stuff but I think it’s actually pretty interesting for founders what is when you gave away or rather when you got co-investment rights were the founders aware that they might have to take your investment and did they actually have to take your investments.

No So great question. Most founders a lot of times you know they have the first seed investors are the VCR. And so when they’re looking a lot of time to invest have a second round or seed extension or series A they’re just they want to kind of fill out their rounds so they have a large family office won’t be able to lead right. So they generally wait until around that’s try and raise five or ten million dollars a raise enough like eight or nine main dollars and they try to fill that other 5 1/2 thousand spot.

 That’s one the family office can really step in and say OK we’ll do half a million to a man dollars when there’s other other investors already aligned in the syndicate and they go where you went directly on the cap table not through. Yes. So yeah we went directly to the cap table. I think a lot of entrepreneurs also once they figured out that having a family office as an investor is actually an easier play because V.S. fun has a certain life right. It’s either seven years eight years or ten years and it’s easier to convince an entrepreneur saying we’re true partners as a family office are there their family money there’s no exit no liquidity requirements after 10 years to return capital to investors it’s just their money but the founders they wouldn’t necessarily know to go to a family well family office are notoriously private.

 They don’t advertise that they’re looking to deploy capital. And again it’s about relationships about partnership with venture managers people they trust. So view if you’re playing golf on a golf course you know it’s easier to convince someone who’s your friend playing golf Hey I got this great investment would you mind putting a half a million dollars into an investment they’ll do it right away without any due diligence most likely because they trust the person that’s representing them.

Well I mean I’m not playing golf but I am interested in working for the record. Kitchen pitch while surfing. Yes yes. Managers want to get there and just hit me up on LinkedIn.

But so tell me more about the what the family office is looking for. I know it’s inside baseball but I’m interested. Sure. Are they thinking about their investment.

Yes I think when for most family office. I think most managers think Miss misread how family office think about performance. A lot of times they come in with IRR numbers. And that’s the requirement. I made a 5 percent IRR and four family offices who are smarter there.

They’re chasing cash on cash return at the end of the day there. They’re all about wealth preservation. They’re what about slow and methodical creation of cash so they do cash on cash return for them two times over 10 years is a 10 percent back the napkin IRR and they’re happy with that. They’re not looking to take big risks and lose big. They’re just looking to make sure that they grow their wealth moderately. And for venture managers a lot of time they have to change their mentality and saying OK if we return capital cash on cash because you can misrepresent the IRR if it’s investment for six months.

 And it can go like 2000 percent and it’s only fifty thousand dollars. It doesn’t mean anything until you actually see where the cash in cash returns are coming from.

Do you think that’s pretty universally true. Because I’ve talked to some investors who who think of their portfolio as a broad portfolio think of venture as the high risk part of it. Well sure you and they at least they say they want a 30 percent Ira.

Yeah I mean I think those are the ones that are chasing the higher risks but larger family office. I mean you why say I wanted to find large family office in there again there’s two different type they’re single family office and there’s multifamily office any one of over 280 million dollars that’s still a 5 5 percent allocation to alternate investment. So it’s still five or 10 million dollars to say in terms of Mount dollar amount. And so for them it’s it’s a moderate growth because they don’t lose 5 or 10 million dollars.

But isn’t it our job kind of to take a lot of risk. I think as venture I think we there’s always risks but you have to take risks with some some precaution and we’re managing money with fiduciary.

No family office can do no due diligence and playing the golf course V.C. managers need to actually have to peel that onion a little bit layer because the amount of data information would venture versus private equities are totally different too. So there’s not a lot of information and you really have to kind of think outside the box a little bit as a financial investor going at this early stage.

Does it frustrate you that you don’t have more data. How do you evaluate companies.

Yes. So yeah it frustrates me a lot but. The best way for us is really what that’s how we invest in people. And again it’s you know checking on background making sure the customers there’s a valid customer that’s willing that’s doing the PEO sees what they really think and all the numbers in the world that you have on my financial model on projection.

They’re just they’re just pie in the sky right now. That’s how I look at it. I look at there always room. Yeah maybe maybe to the downside maybe to the upside you know when you know the funny thing I always humor I have this humorous comment where I go Why is that. They’re teaching entrepreneurs to always have break even cash flow on the third year all the time. 

Is there a difference the as you mentioned. What are the differences I guess there’s multiple families but are there different ways they approach this asset class.

Yes. So there are two types of really family officers single family office and then there’s multi-family office multifamily office have a lot more regulatory requirement in terms of compliance. They have to report there any of these multifamily also because it’s not just their family money but outside money. And so they actually have to go reregister would like either Ira A’s FINRA as a regulatory body and then with the S.E.C.. And so there is a little bit more upkeep what family office multifamily office. Meaning you have to pay for valuation services on a court on an annual basis and that costs money.

 Except unless you have a billion dollars in assets under management that’s again a discouragement to a lot of multi-family offices to do that on their own. So that’s why they tried to co-investment and then they can piggy off if someone else’s valuation when they’re making a co-investment with other venture versus a single family office they can just mark their books any way they want to mark the books essentially but they’re the most likely ways they’re doing costs at costs in terms of that investment until there’s another up or down or fundraising round. Ok.

And so you said earlier that you were industry agnostic is incorrect.

So our Web site is pretty pretty clear. But what we do and what we don’t do a lot of times we don’t take investment unless it’s referred to us by someone we trust as well either through an accelerator to other venture funds or angel investors. So that’s one way we how we filter out. So I think half of our investments are have come from accelerators and so. But our website now tells us that we work in iron price software B2B cybersecurity you know SAS tool business environment H.R. tech.

So interestingly recent episode we were just talking with Lauren’s lines and we’re kind of talking about the fact that accelerator is going to feel like they’re going away or a little bit there’s almost fewer of them rather than more of them. Sure. Although maybe there’s also a new generation of them right rising.

Yeah but there we have two of our investments are from fusion. Yeah. Israeli based investments accelerator here based in Los Angeles. Yeah. Year and Guy have been great operators bringing companies from Israel over to L.A. Market. I think there is a lack of accelerators in the L.A. market. I wish I could. There is a big B2B accelerator. You know we go takes alchemists literally almost every six months up in San Francisco in the Bay Area. 

 And I think there’s there’s an appetite here but there hasn’t been really a true B2B accelerator player yet in the market. I’m waiting for that to happen. I’d be telling people who want a starting salary to start a B2B accelerate here because they would be so successful if they can get corporate and gay engagement and sponsorship. And you know we have a full floor upstairs.

We love to have an accelerator come here.  We’ll invest out of that too. 

What about SMB like service Titan for example is a huge share company that started here in L.A. that serves SMB.

Yeah I think there there’s a there’s a there’s a market for SMB. You know again we’re really focused on the enterprise customer level. And so we’re trying to go for those larger engagement where the MMR or the A.R. contracts are a lot larger so there’s a little bit more stickiness to it. And then we can also leverage our network to help determine our scale.

And when you see companies because enterprises sales is a long sales cycle typically when you see companies and you make your investment decisions do they do companies typically have signed contracts.

Otherwise she’s sure they to our entry point I or is somewhere between the MVP level stage where they have a minute and the minimal viable product and they may have a few trial customer and POCs.

We’ve invested in some pre revenue companies but have POCs. And for us is that that’s kind of where we’d like to play because the valuations also we probably have to talk about that some point in the next few minutes but that’s for us where we’re trying to get 5 or 10 percent of the of the companies.

 And so you’re willing to take the risk on the sales cycle. Yeah. Well I’m comfortable with the EEOC. I would say that you know one of our added value in our service is be able to help shorten those sales cycle you know sales cycle can average anywhere from six to 12 months for these corporate enterprises especially you have to add in compliance and legal. And for us it’s just really be able to knock on those doors and have the access to the decision maker.

I see that this could help me out and help my my bottom line with reducing human capital or automating certain workflow workflow process. And so those those kind of POCs, trial customers again I kind of maybe use them synonymously. Some people would say trial customers actually paying customers and pieces are non-paying customers. Yeah. So but I look at both ways as as anyone is trying out the platform.

 Yeah some are not paying someone not paying so they’re there they’re just kind of a great idea. Let me try it out. And it’s usually a personal contact again that and helping out dog trainers and think a large enterprise can’t come because companies nowadays are realizing that they need to also make sure that they’re thinking about innovation and not using legacy system. And so for them is just a leg up to be able to say can we do something different. And can we save money.

Is there a particular function in the enterprise where you’ve got more access. I mean enterprise sales can be to the CIO can be this to the stage or to the marketing team. Where do you help most.

We. So we help most. Not only is this an introduction but also sitting down strategically and in terms of go to market strategy. So again going back to creating KPI is what that companies either should be looking at. What is the driver for growth. And then once we get those unit economics then we can understand what are are they the customers. Is it more of a larger contract. Is it per licensing.

You mentioned valuation. Other interesting parts of actually getting a term sheet and those pieces. We’re doing a lot of safe notes.

But we you know we’ve done a few equity rounds.

Convertible notes are slightly different obviously than safe note do you know the maturity there’s a maturity date for a convertible note versus a safe note. There is usually an icon accrued interests versus the non accrued interest. You know I think safe note is it’s more an easy standard to page documents that you know both. If you’re a seed investor it’s easier to start fund and go forward versus if it’s a convertible note. There’s might be a lot more like liquidation preferences qualifying financing triggers you know drag on REITs all the nuances.

 And again it goes back to how much money you want to really invest in lawyers and legal costs versus something that’s safe notes easier and standard to to make the deal happen quickly agreed.

And I think that the the debt aspect of an actual convert creates situations that people don’t count on. Yeah I think also one of the things were as a V.C. making sure you have a skin in game right. In terms of were fun we require financial rights making sure you have access to that financial right sometimes they don’t give it to you. And even then when you’re asking for it.

 BS Oh well we’re still in. We’re still operating we don’t have an otter warrant and we kind of have to convince them saying Well I don’t need audit financial I just need to understand what’s your monthly revenue numbers are.

And that information right. Yeah the information right. Yes. Let’s say that were leading around your lead you would expect information.

Well yeah. You kept classified. That’s a major investor right. Either it will bring one over like 500 or million dollars you get information rights and lot of times date don’t you have to ask for it if you don’t ask words. Yeah. It turns out sometimes they don’t give it to you.

Give me my question. So you’d say someone is investing more or a million. Yeah yeah we’ve seen I think lower.

Yes I was in the threshold lower than that. Yeah.

LAUGHTER We had just a deal a few months ago where we if you had the documents say stay like you had had five hundred thousand. Consider a major investor. But based on there’s no shares in our investment the number of shares converted was like one dollar off to the five hundred thousand dollars and making sure you have good lawyers. We used Gunderson out put a plug in for Gunderson and recognizing Oh you need to add another share to that in order to be considered a major investor.

Right. Great.

How about just anything that’s really been catching your eye recently.

Recently we we’ve seen a lot of H.R. tech companies a lot of agents either from employee engagement to recruiting to gamification to personality exams. There’s a lot of capital being utilized within organization allocated to organization right now for H.R. TEC. You know we sit there and say we’ve seen a lot A.I. audio tech A.I. that’s kind of consumer driven through Alexa Google Voice. 

We see so many cyber companies I mean security security cyber security companies. And we’ll continue to see that and we probably see like 300 from Israel Israel alone so many cybersecurity companies have said about differences between the Israeli sea and. Security I think is so Israeli entrepreneurs. They are all Israeli entrepreneurs have served in a unique Israel military unit call 8200 hundreds.

 I think one of the personality differences that you see a lot between entrepreneurs U.S. trainers and Israeli entrepreneurs is their direct directness. And so I think there is maybe a slight language barrier or in terms of articulation but their tech knowledge is superior. I mean they are amazing in how they look about solving problems. And for us is really just refining that pitch.

So that’s what we also provide as well as fusion away. Another one is up West up in the Bay Area as well.

Do they typically have operations or sales or something in the U.S..

No they do not. And so again that’s I think one of our value add is here in our office is being able to help them with bringing you know bringing in a sales manager to help them craft their sales pitch and understand what their sales go to market strategy is who other customer flying. Remember anything else about scope is that you think is important for our listeners to hear about.

No I think you know I think L.A. one of the reason I moved to L.A. back to L.A. I’m really from Orange County but lived in New York for 17 years and you know I saw the technology innovation moving in 2009 2010 in New York and I think L.A. is right behind New York and there and that’s why I’m here because I think there’s a lot more opportunities a lot of migration from the bay area down to Los Angeles lots of very smart students and entrepreneurs here in L.A. it’s just a matter of making sure we be able to reach out and help educate them as well along the way.

Great. Well it’s been so nice to have you and I hope that you start that accelerator.

Thanks. Great. And one thing I had I do it was their view that they have to acknowledge that one is people always say how can people get a hold of you. Because I’m always a guy. I didn’t have a problem. So like they did want to get in touch is it you know go to the website them in a transom find them again.

So I would tell you this you know we get bombarded as you do with emails and calls from strangers the best way to get ahold of me or is either introduce yourself at a conference I go to most of the conferences hear from fusion L.A. expert dojo tech stars but one of the the the best way to get a hold of me or contact scope is is just through a referral. And I think octomom has to be a lot more creative right. They they have to think outside a box. We didn’t talk about family office fundraising right. What do family offices look for in venture managers. And usually they don’t they don’t generally invest in first fund because they’re they’re very hesitant to make sure that the fund manager have the infrastructure in place to be able report as well just feel confident that they can know how to source great quality companies and so they generally invest in second funds are not the first one.

Great huge shout out to Patrick Ryan today who has been sending me lots of feedback.

One of his pieces feedback was you asked for feedback until you had to send it to you. So LinkedIn is probably easiest for me.

I mean to say I listen to your podcast and look at all the IT and also to be the mom be the man who left his review on i Tunes really appreciate it.

Anything else because he said that I’m going to set up a podcast at 10 1.

Turned out it wasn’t great. Or do you realize there are things.