Portftolio approach

This is my current impact investment portfolio.

I have invested several times in some of these companies, at different stages of their life cycle. 

Similarly to any other risk allocation decision, I try to hedge against company-specific risks (i.e. non Beta) by diversifying, which may bring my returns closer to market returns, nevertheless, I am happy forego potential upside in exchange for avoiding excessive concentration of my risk while missing on some opportunities, i.e. abandoning the chance to play the soothsayer.

When it comes down to deciding on the right ticket size, I operate based on the following allocation criteria:

  • Are the results there? Why is this time different? How has the startup performed since the last round?. Can it scale up? If it is not growing, I would most likely pass – founders are generally great story tellers.
  • What would I need to invest to keep my pro-rata? The current number of shares in proportion to the issued shares and voting rights.
  • Risks – Do I have an edge? (informational; analytical or behavioral).
  • Valuation

Other allocation rules that I follow:

  • I try to limit my overall allocation to startups, i.e. including follow up rounds, to less than 10% of my net worth.
  • The aggregate initial investment in startups is limited to 5% of my net worth.
  • For the first time in investment in any startup, not more than 1% of my net worth – this is kind of the Jason Calacanis‘ approach, if you have 50k to invest, do 30 x 1k investments and keep 20k for follow up in 2-3 of the better performing startups.
  • Ensure that I already have or know that I will have within less than six months of the date of investment, at least the same amount that I would invest, for follow up rounds.

We’re going to try to trim our weeds and water our flowers. Most of all, we’re not going to think too much about our weeds. We’re going to be watering our flowers.

David Gardner

Last mile delivery in India using E-bikes

Interview with Sameer Ranjan Jaiswal, co-founder and CTO FAE Bikes (*)

Logistics/last-mile delivery: what is your competitive advantage?

We are creating a niche for ourselves in the last mile logistics segment. Last-mile logistics using two-wheelers is a $10Bn+ market in India. Converting to electric offers a lot of economic and environmental benefits. Today, the demand conveyed to us from just the top 5 companies who utilize last mile logistics is 100k+. We are currently partnered with 8 companies like Quikr, Zomato & Swiggy (top 2 food delivery companies in India).

We are focused on providing a platform to facilitate the last-mile logistics using smart electric two-wheelers. With this platform, we enable the fleet operators to remain asset-light. At the same time, we take away their headache of vehicle maintenance to focus on their core business. Our partners need not deal with the hassles of paperwork and insurance. We provide a dashboard which allows them to track their fleet utilization and KPIs of their delivery personnel. Traditional mechanics don’t have the skills and knowledge to repair electric vehicles. On-demand road-side assistance gives our partners a peace of mind about using our electric two-wheelers. Our biggest competitive advantage, however, is our charging infrastructure. For many of our partners, their regular run goes beyond the vehicle range. This acts as the biggest barrier in them adopting electric vehicles. Hence, our battery swapping service and charging station network is essential for them to continue their operations.

Could you source all the energy for the chargers from renewable sources ?

India is making huge strides towards renewable energy. We recently crossed 80 GW of renewable energy capacity which contributes to 23% of the total capacity. However, it is currently difficult to source all the energy from renewable sources for the charging stations. Power industry is heavily regulated and power distribution and transmission utilities are natural monopolies protected by the Government. However, it is possible to partner with power transmission companies or power generation companies to source the power directly from renewable sources. But the costs of laying the infrastructure is enormous and makes it practically impossible.

Currently, there is a complete lack of charging infrastructure in India. India’s requirements can be mostly closely compared with China due to similar population. By June 2019, India had just 150 charging station vs 5 million charging points in China. This difference needs to be bridged if EVs are to become mainstream in India. We, at FAE, believe this can be done only by bringing the public as stakeholders into the system. Hence, we are installing charging stations by partnering with the general public and local business owners. This also means that we cannot currently source all the energy from renewable sources as we are dependent on the electricity connections available at their location. 

For further reading on this topic, Is India ready for electric vehicles?

I am an investor in FAE Bikes

My investment criteria

I try to follow certain ”rules” both for the selection of the startups and for the allocation of funds within my startup investment portfolio. These rules are not written in stone for me, nevertheless, I try to adhere to them as much as my human nature (greed and fear) allows me, i.e. I follow a heuristic approach to investing acknowledging that even 1% discretion in the decision making, means that in the end such decisions are entirely discretionary.

With regards to the criteria for selection; you will probably get my attention if you are a startup raising funds for:

  • Seed investment up to Series A (as Jason Calacanis says: such startup should be in the “ Goldilocks Zone, not too hot, not too cold “; beyond an idea and before you start executing your international expansion phase) ;
  • Have at least a successful pilot (best if paid by the end users) and ideally some market traction ;
  • Actual revenue of at least $60-$100k pa, $5k in MRR + with growth m/o/m ;
  • Depending on the market and product / service, pre-money valuation between  $1-5m ;
  • Impact related – solving a major problem ;
  • There are other companies working on similar issues ;
  • Trustable founder(s), strong technical team ;
  • Scalable ;
  • As little capital intensive as possible ;
  • Ideally has received a patent or applied for one (although this is more to signal to the customers than a value adder);
  • The startup has received nonrefundable grants, access to debt.

With regards to the criteria for allocation within my portfolio of investments:

  • I try to limit my allocation to startups, including potential follow up rounds, to less than 10% of my net worth.
  • The aggregate initial investment in startups -as an asset class – is limited to 5% of my net worth.
  • For the first time in investment in any startup, not more than 1% of my net worth 
  • Ensure that I already have sufficient liquidity or know that I will have within less than six months of the date of investment, at least the same amount that I would invest, for follow up rounds.

Which rules do you follow? – Please leave a comment

I also found the following criteria from other investors:

1. Are the founders top 0.01% entrepreneurs?

2. What does this team understand about the market that other teams don’t?

3. What is the biggest risk to the company, and can the team solve it?

4. If it works, how big of an impact will this company have?

Innovation at the cross-roads

My current investment thesis is based on a combination of :

PAYG Inter-Operability + a.i. / data driven finance

since such combination could open the door to the financing goods and services for approximately 1-2 billion persons currently living at the bottom of the pyramid.

I became interested in the combination of PAYG Inter-Operability + a.i. + data driven finance as a way to enable access to credit for the BOP, after having read this paper:

Behavior Revealed in Mobile Phone Usage Predicts Credit Repayment

by Daniel Björkegren and Darrell Grissen

Marc Andreesen has recently said in a podcast – please note that I am just paraphrasing here – that humanity is nowadays at a time when it is historically most connected, and that in the next years we will experience the benefits of going from isolated thought systems to globally inter-connected systems.

Inspired by Marc, I firmly believe that if we combine:

  • an increasingly inter-connected population located in emerging markets – enabled by inter-operable systems rather than tolerating that such information be kept behind walled gardens – with
  • a .i . / data driven finance

we could soon expect to add billions of consumers/producers to the global economy, despite the fact that such persons do not have a credit record, ids, any significant assets, etc.

In sum, I am looking to add to my impact portfolio, seed stage startups active in frontier or emerging markets that are capable of mining smartphone behavioral data to create mobile users credit profiles, similar to:

‘The future is already here – it’s just not evenly distributed’

William Gibson — The Economist, December 4, 2003

Why impact investment?

I am another of the rational optimists and that is why for some years I have invested part of my savings in companies with high social impact.

The goal of ending extreme poverty has been announced on more than one occasion and it is a fact not too widespread by the media, that in the last decades’ much progress has been achieved in this area, removing almost 1 billion people of extreme poverty only so far since the beginning of this century. However, not everything is a reason for joy; there are still more than 750 million people who survive with less than USD 1.9 per day. Although it is projected that extreme poverty will continue to decrease, at the same time, mainly for demographic reasons, it is expected that it will be increasingly difficult to combat it despite technological advances.

Like others I am convinced that entrepreneurs, especially those who seek to solve “structural problems” and primarily those who plan to achieve BHAG goals (big, hairy, bold, goals), that is, big, hairy and bold goals, are and they will be fully capable of successfully overcoming these transcendent challenges as long as they are provided with the right tools and opportunities (including economic capital). Ergo, an important way in which we can all support these entrepreneurs is to do something ourselves for them, whether helping them as mentors, facilitating contacts, investments, etc.

It is notorious that in recent years socially responsible investment (ISR) has grown exponentially and possibly – unless we go through a lasting global recession – it will continue for many years to come, in the same trajectory. No one escapes either that the ISR remains proportionally marginal compared to the trillions traded daily in international financial markets; However, everything seems to indicate that we are on the right path and that the ISR will become even more important in the future.

Some of the reasons why the ISR has increased significantly in recent times and that allow us to anticipate that even in a scenario of high volatility and inertia, the ISR continues to grow, are the following:

  1. It is a worldwide phenomenon – guided by the once for altruistic principles and for the · invisible hand · of Adam Smith – which encourages the ISR to spread and spread to those markets that are more favorable to the objectives of investors;
  2. society supports it and governments promote it and even impose it on its citizens through legislative changes;
  3. there are an increasing interest and activity on the part of the stakeholders in these type of investments, a virtuous circle is created in which the growth of the market contributes to its actors becoming increasingly active in terms of its dissemination and public awareness.

Another of the emerging and lasting trends that should be highlighted is that of incorporating, at a strategic and tactical level, the ASG for investment decision making by consumers, companies and professional investors. As there is greater scrutiny by the different actors within the decision-making systems and especially by the shareholders, civil society and governments, considering the ESG factors will become an unavoidable stage in any project. Progressively considering the ESG criteria will become an essential part of the decision-making processes, to the point that, over time, they will no longer be considered extra or complementary factors to the financial objectives. We will get used to automatically incorporate the evaluation and further measurement of the potential impact of the investment based on ESG criteria, within the inescapable criteria for decision making.

Today, technological advances allow us that those privileged who have the necessary means to that end, can access a growing and increasingly detailed volume of information on ESG factors, discover the opinions and recommendations of other people (experts or not in the matter), spread our opinions and decide on the basis of our personal preferences (including – to a greater or lesser extent – the ESG factors), what to buy and what to invest in.

Similarly, company decisions are submitted incrementally to greater scrutiny and demand for transparency. They are expected to justify how they have assessed factors such as sustainability and impact (positive or negative), within the decision criteria. Eventually, these parameters will be as common and accepted as today is doing business legitimately and without resorting to corruption. They will no longer be extraordinary criteria, activities aimed at a certain public of the company, and like CSR they will evade corporate jargon to become a central part of the strategy of any company that will consist not only of avoiding negative externalities; but above all, in creating and sharing value (obviously not only economic).

Gastón Bilder

The content of this post was first published in Revista RS – Centro Internacional de Responsabilidad Social y Sostenibilidad.

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