Author: Jun Hon Pang Edited by: Márcia Costa
The relationship between entrepreneurial innovators and investors is symbiotic. This second series of ‘investor vs innovator’ articles continues to examine the perspectives from the two different roles. We interviewed venture capitalist Tomi Fyrqvist and entrepreneur Luca Schnettler, who were both speakers of SIULondon’s event on ‘Young Innovators vs Investors’. Both of them are highly determined and driven people in their respective roles, and are deeply involved in emerging technologies that shape businesses.
Investor: Tomi Fyrqvist
Tomi is an associate at AXA Venture Partners (AVP) in London. Prior to joining AVP, Tomi worked for over 3 years in investment banking at Goldman Sachs across several industries including technology, with a focus on early-stage companies, consumer, retail & healthcare in London as well as New York. Before Goldman Sachs, he also worked with Morgan Stanley, McKinsey and Boston Consulting Group (BCG).
(1) What motivates you in your role? What brought you from investment banking to your current role in venture capital funding?
Since the start of university, I wanted to become a tech investor or tech founder. We are living in exciting times with all the exponential growth in tech and software. When I completed summer internships at Morgan Stanley, McKinsey, BCG and Goldman Sachs back in 2011-2012, there were already two tech companies (Apple and Microsoft) that had replaced two industrial companies in the world top five companies by market capital. Today, all of them are tech-based companies.
After my studies, I joined Goldman and had the chance to work on a number of interesting assignments, such as Skyscanner, iZettle, JustGiving. The reason why I left banking was to ‘jump into the driver seat and try to hit a target that is hard to foresee’, which is always the case in exceptionally good investment. I wanted to answer questions such as ‘what important truth do very few people agree with you on?’ – i.e., try to develop a non-biased mindset and search for the unconventional wisdom. I moved to the tech investment side. I decided for venture capital with smaller cheque sizes as I knew it would be a totally new skillset: being more “80:20”, developing sales skills to charm entrepreneurs, and becoming more dynamic by speaking or meeting five companies per day. At AVP, we don’t only provide capital, but also aim to create value through collaboration. The best part of venture capital is how it provides the opportunity to brainstorm with creative entrepreneurs every day.
(2) What are the values you look for when investing in a startup?
The most important things are: (i) team, (ii) addressable market and (iii) unit economics. Team is important because it drives competitive advantage, and differentiation of the products. Addressable market validates if you are solving a large headache that people will be willing to pay for. Unit economics tests whether the company can scale efficiently, as it relates to sales and marketing investments to acquire customers. For example, deep-tech companies that require years of development, or e-commerce, which requires large investment into logistics, are capital intensive. E-commerce is very interesting from long-term barriers perspective though: if you own the logistics and supplies, you own the distribution channel and the customer – and that is super valuable. Venture capitals are focused on these three factors. Getting them right in the beginning will help to cross the chasm and create competitive advantage, which will ultimately make the stars align in the long run.
Marketing, while scaling-up, is very important. But in the long run, technological product and infrastructure (including software infrastructures) become more important – customers come and leave if you’re just throwing cash into marketing without working on the other pieces on the side. Essentially there is a lot of due diligence (DD) involved in any investment case, and there is a learning curve to be more efficient in the DD process over time.
(3) Based on your vast experience in technology, which areas do you think have the greatest potential for growth?
Artificial intelligence (AI) and machine learning are obvious areas. The more interesting question is, where should you operate in this space? Amazon is already extending their offering from EC2 (cloud computing) to commoditizing algorithms. The ‘hyperscalers’ (Facebook, Google, Microsoft, Tencent) are already building their own chips to optimise the platforms where the algorithms are run and where the tasks are performed. So you have to be careful to not do something that is going to have a massive price erosion, or building something like a generic algorithm, where the natural home to build it is somewhere like Amazon. Competitive markets reduce profits. Ultimately, you need a differentiated value proposition, product or market position to charge higher economic rents than a fully competitive market. Google and other technology companies are now facing some of these consequences, as governments are considering charging them extra-tax due to their great market position for so long and ability to keep pricing high.
In enterprises, business process management (BPM) and robotic process automatic (RPA) are interesting emerging areas. For BPM, there are a number of players that are taking the game to the next level. For RPA, which can be a subset of AI, there are interesting things happening. As enterprises migrate to the cloud, it enables more cognitive intelligence in RPA, just like what UiPath and Celonis are doing to automate mundane tasks. It’s almost similar to lean manufacturing, but you’re considering the factory flow to be your existing desktop processes and try to make it more efficient.
In the consumer marketplace, our fund does not invest in e-commerce, but I personally invest in some of the public names like MercadoLibre. The fact that they own the logistics and the distribution channels creates great barriers to entry in the long term. Then it’s all about capital efficiency.
Finally, if any of you readers have an answer to the question: ‘what valuable company is nobody building?’ please come talk to me! 😉
Innovator: Luca Schnettler
Luca is the CEO and Founder of HealthyHealth . He started HealthyHealth himself back in June 2017 to utilise digital means to innovate the insurance sector. His vision is to build a preventative rather than reactive healthcare system for HealthyHealth’s customers.
(1) Could you tell us about the latest progress in your company?
To give you some background, HealthyHealth collects the clients’ data with their permission (including lifestyle, mental/emotional, social, pollution, medical and other factors), and compares them against a data pool of 40 million individuals that we hold. We are then able to create a profile of real-time risks based on 200 medical conditions (including 38 types of cancer, diabetes, coronary heart disease and depression) for each user. Based on this, we provide our users with an individualised personal prevention plan focused on suggestions to most effectively reduce their detected risks, instead of giving generic advices. There are millions of health plans out there, but none of them focus on individual risks, and only give a general indication on what you should do – here is where HealthyHealth comes in!
To achieve the business model, we have formed partnerships with (re-)insurers, employers and consultancies. Since this year, HealthyHealth started working with four companies worldwide – two (re-)insurers, one consultant and one hardware provider. For example, Garmin supplies the software that identifies the risks and prevents them from happening, based on the data gathered from the user’s devices. Presently, we are in the process of developing new partnerships in the UK, France and Germany, and we are looking to expand and discuss more details with those partners – some exciting developments that unfortunately I cannot announce yet.
(2) What motivated you to start this company?
The motivation was mainly to individualise risks and to help people. I felt that I needed to change something in the healthcare sector, or digitalising the traditional markets of insurance and healthcare. On a personal level, I always have a passion for entrepreneurship. I started my first business when I was 6 years old - I sold cherries from my home, in Germany, and made quite some pocket money out of it. When I started university, I felt that it was not something I wanted to do in the long term, and I really felt that I want to build something on my own. I then quit halfway through university and started this business.
(3) What are the main challenges of you starting up this company? And how did you overcome them?
One main challenge is that the insurance sector, the one we chose initially, was quite hard to get into. It is a very traditional and slow industry. Other major challenges were forming the initial network and raising initial funds. Perhaps the fact that I was only 19 years old and dropped out of university did not help. However, young age could also be a double-edged sword – on one hand, there are people who are much willing to help me; on the other hand, there are always people who do not take me seriously. Overall, the advice is to mingle with a lot of people and to take up every opportunity you can. It is also important to stick to your ambition and do not give up when it gets really challenging.
(4) What is your vision going forward for this company?
I want to build a truly global brand. I know HealthyHealth will not only digitalise healthcare and insurance in developed countries, but also in developing regions. We want to enable everyone to take up insurances and thus risk, and contribute to economic growth.