In today's blog post, journalist, Hugh Farrell (virtually) sits down with Bert Farrell, Founder and CEO of Zoosh Ventures. We discuss the growth and expasion of Zoosh, investing in start-ups & the impact of Covid-19 on ventures.
Hugh: Hello Bert and welcome to the founder's series. Thank you for joining us.
Bert - It's great to be here and thank you for having me.
Hugh - So Bert, what is it that you do for Zoosh?
Bert - That’s a good question Hugh and I guess the first answer is with “it depends on who you ask”!! As you probably know, at certain stages of a company’s development, the founders wear a number of different hats. My main role is as CEO of Zoosh Ventures, which is the part of Zoosh that works with early stage startups. The role involves finding prospective ventures - in most cases this equates to finding industry/domain-expert, experienced and commercial founders looking at making their idea into a successful technology company. As well as finding suitable prospects and ensuring that any partnership works for both parties, we then typically help with the funding round, an initial product roadmap and focusing on product-market fit during this first phase of the entrepreneurial journey.
Getting back to your “different hats” question - I am also currently the financial guy from the co-founders - under the watchful eye of our accountants in the different countries. As Zoosh continues to grow we realise we need a Finance Manager and are currently in the process of recruiting for this very important role. We hope to have the position filled in the next month or so. This in turn will allow me to focus all my energy on the Ventures business, including a 2nd Zoosh Fund to be in place this year. Ventures is where I believe I have the biggest impact (hopefully others will also agree with that statement) .
Hugh - Zoosh seems to be a business with a number of different strands - what is it about Zoosh that makes it different from other companies?
Bert - Zoosh is just over six years old, so still a relatively early stage company. Like so many other companies - the way we started and where we are now has been a journey with many turns on the road. Despite these turns we have stayed true to original philosophy & desire - which is that we want to build cloud technology companies as well as digital products for clients.
When we started we were essentially venture capitalists without any money - a very interesting way to learn the business. Initially we invested in our first few Ventures by means of sweat equity i.e. we raised money directly into Zoosh to allow us to build out our team and develop the initial products for the Ventures.
Essentially we were the original funders as well as the technology partner who worked with those Startups building out their initial product (MVP - Minimum Viable Product). That was the start of Zoosh and what has since evolved into Zoosh Ventures. Over time, as the Zoosh team expanded (we are currently at 45 five full time people in the company and another 40+ “Zoosh qualified” freelancers and subcontractors) - we looked at another approach to generating our own income. We started providing similar digital product services to other areas of the market, i.e. the non startup sector. So we began developing the skills and techniques to develop cloud technology products for those companies.
The final piece of the jigsaw has evolved over the last year or so where we started putting the two together -our experience with startups, plus our ability to work with larger companies and we started building our own new Startups with lead customers (SMEs or larger corporations). That is what we refer to internally as the Zoosh Products business unit.
Hugh - At what stage does Zoosh Ventures invest in or get involved with Startups?
Bert - Interestingly the Zoosh Ventures niche is at the very beginning of the investment cycle - referred to as angel investment or sometimes Friend & Family money (there is a third “F” which is used derogatorily to highlight the risk of this early stage). It is the riskiest stage of Startup investing.
Our main criteria for selecting where to invest is the founder or co-founders - their industry knowledge and commercial experience. It is somewhat cliched - but it all starts with the founders. Everybody has an idea, but not everyone is a Startup founder - we look for founders who have spotted an opportunity (or problem) in an industry which they have experience in and believe they can build a technology product to help solve this problem. In the case of Zoosh Ventures, our founders are not technology founders but they are building technology companies and this is where the “Venture Builder” model sits.
Hugh - You mention that Zoosh Ventures invests at the earliest and riskiest stage of the Startup - how do you compare this investment philosophy with the Venture Capitalists who appear to be the mainstay of Startup investing?
Bert - Yes, the vast majority of VC activity - especially in a small market like Ireland - is targeted on much later stage investing. There is the old joke about the bank giving you an umbrella while the sun is shining outside - no risk. It is similar for VCs who like to see the safety of customer traction, revenues (preferably recurring), proven business model etc. This is not a criticism of VCs as they live further up the investment ladder than the likes of a Zoosh Ventures. Whilst the VC is looking for the established product, customer traction and revenues - the Venture Builder is right back at the start i.e. pre-product, pre-revenue.
Whilst the VCs do not act in this part of the market - there are players such as Enterprise Ireland (E.I.) who are very supportive of this early investing - E.I. was the number one seed investor globally in 2020 according to Pitchbook. Interestingly Zoosh co-invested with E.I. on three projects in the 2nd half of 2020 - Frequency Communications, Rove and Clubspot. Zoosh Ventures invested via its pre-seed fund (ZIP) in partnership with E.I. and other private investors. All three projects were pre-product & pre-revenue whilst the combined total of the three investments was over €1.5m.
So whilst Zoosh Ventures invests & partners with pre-product, pre-revenue founders at the very riskiest stage of the venture journey, the flip side is that it's also where an investor gets the biggest potential return i.e. the valuations are at their lowest when the investor is getting involved at the start. Added to this is the fact that Zoosh is not just about the funding but in the vast majority of cases is also the technology partner as well as supporting the founder/s with commercialization - all this helps derisk the technology aspect of the proposition. Over the last five years, Zoosh has built close to 40 digital cloud products for a range of different companies and this expertise is particularly important to these early stage investments and indeed is a big attraction to our pool of investors i.e. ZIP investors as well as a growing number of angel investors who see the merit of the Venture builder approach.
Hugh - You mentioned something called the ZIP - can you explain what that is?
Bert - The ZIP or the Zoosh Investment Partnership is essentially a pre-seed fund where a number of angel investors and high new worth individuals (HNWIs) came together to invest in a range of Startups with Zoosh Ventures as the General Partner. Zoosh sources prospective investments, carries our early due diligence, particularly technical and makes investments on behalf of the ZIP investors. The first fund - ZIP 1 - started investing in 2019 and has made 9 investments to date (a number of these were co-investments with the likes of Enterprise Ireland). We are coming to the end of ZIP 1 and our 2021 objective is to create a much larger fund so that we can continue to find the early pre-seed investments, but also follow on investing into those companies in the portfolio that continue to demonstrate growth and scale potential. We also plan to increase the investment “ticket” size with the next fund. With ZIP 1 the individual investments were in the €100K-€150K range - our objective with the second fund is to increase the initial investments to something in the range €350K-€500K. This allows for speedier testing of product-market fit and starting to test a sustainable business model.
Whilst 2020 was a very difficult year because of Covid and impact on some of our Ventures - particularly those that were moving close to Series-A type rounds - they adjusted very well to the situation and have also been positioning themselves to take advantage of the accelerated move towards “digitalisation” that has been accelerated by the pandemic in their specific markets. On the other side of the portfolio - those Startups that are building the first version of their product & working on early market fit - they have experienced improved access to people in their industry and have had more & higher quality inputs into what the first release of the product needs to be.
Keep an eye on our social channels for part two!
Interested in learning more? Attend our upcoming webinar with three recent Enterprise Ireland HPSUs. Understanding the journey from idea to raising seed funding. Should be of interest to:
Investors: early stage & "friends & family" who invest & add much more value to a single or indeed multiple Startups.
Startups: commercial & industry experienced founders looking to build a technology company
Register here: https://www.zooshgroup.com/lp/the-entrepreneur-series-from-concept-to-seed