How to generate VC scale returns without VC level risk? - Michel & Jor from Reflect Ventures

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Michel & Jor are co-founders at Reflect Ventures. Reflect Ventures invests in core infrastructure areas where there are significant barriers to entry and where digitization can enable huge economic gains. Some of their focus sectors include logistics, supply chain, distribution, commerce, and fintech. They primarily co-invest with reputable institutional lead VCs in Series Seed and A/B rounds of B2B and B2B2C startups.

How Reflect Ventures got started?

So about a year and a half ago, I and a few of my friends, we were very interested in investing in a startup, actually in the InsureTech space. Their minimum ticket was $500,000. That was a bit much for any one individual among our group. So we tried to negotiate them down. They refused, but they said, why don't you go in as a group? So we figured out how to do that. We figured out how to set up a syndicate, recruit people, get the money and then invested into them.

And once we had done that, it made sense to say, well, you've put in all this effort in order to do the first one. The second one is a heck of a lot easier. Do it again. And that's what we started doing. We started doing it again and again and again. And that's what we've been doing for the last year and a half.

Why the syndicate model over the VC fund model?

Well, we have currently been using the syndicate model because that's where we have started. We've been running for about 18 months and in this time period we found the syndicate model to be fast and flexible. But as we get a little bit more familiar and consistent with our investment, we will probably take the next step of having a fund so that we have more committed capital that we can do deals with on a more regular and stable basis.

But we will also continue to have syndicates since we have some members in our investor group that one, do like to invest deal by deal or two, in addition to investing in the fund, also like to overweight certain investments. 

How the syndicate and VC fund operates simultaneously? 

The fund will see the deal first because that is priority to where the committed capital provide for investors is in some of the deals that we have worked with, there is actually limited allocation. So in those cases, the fund will take all the allocation that's available and there will be no additional allocation for syndicate investors, while in other deals there may be the availability for syndicate investors. 

Investment thesis at Reflect Ventures

In terms of emerging markets, we are focused on a few geographies. One is Africa and Middle East plus Turkey. Another one is South Asia. So the regions of India, Pakistan and Bangladesh and Southeast Asia, as well as Latin America. These areas are exciting to us because these are areas that have generally good demographics. And I think the easiest way of saying that is they have young and growing populations, they have significant economic size, and it is still growing even given the macroeconomic conditions are happening in the world today. And also they're enjoying increasing GDP per capita. 

What do you look for in a company while investing?

So number one is, is it the right model? We are looking for companies that are operating in industries that are natural oligopolies or monopolies. So, as one example, everyone keeps pushing us again and again. Look at lending to the unbanked. There's a huge amount of money going in there. But when we look at lending to the unbacked, we see that this does not seem to be a natural oligopia monopoly. It's like banking. There are dozens and dozens of banks in most countries, all competing in the lending market.

Lending to the unbacked is going to be the same. Who wants to be in a business which is a race to the bottom, lower and lower margins? We haven't touched it. On the other hand, consider trucking marketplaces. You look at the history of Uber and such, and you see that when you have a two sided marketplace, it is very, very hard to be number two. Being number three is just impossible. How many places have three really successful ride booking apps out there? Doesn't exist in trucking marketplaces. If we're in a number one or number two in the industry, we have a very good chance of doing very, very well. It's almost derisked. The second thing we look for is that they need to be able to get big in their local market. We are not trying to pick global winners. That is very hard. The guys who say, I can pick the best SaaS tool for doing customer service, well, maybe they can, but they got to pick the best one in the world. Pretty much. That's a very, very hard thing to do when there are so many centres of excellence now out there for us. It's much simpler if we're investing in trucking in Pakistan. It doesn't matter if somebody else is doing a great job of doing trucking in Bangladesh. Trucking marketplace in Bangladesh, they're not competitive. The same for the trucking marketplaces that are in Africa. They are not competitive. And if you can actually be a big player in trucking in Pakistan, you're going to be very, very big indeed. Trucking matters. If the trucks stop rolling, the food riots start in seven days. If Facebook shuts down, well, I'm sorry, you got to find a different place to look at pictures of people's cats. So those are the biggest things that we look for.

After that, it's about the team and the company. Are they doing are the numbers good? Do we believe in the team? You're sometimes also being the first check investor. And since you're investing in different geographies, essentially that means that you are sometimes not in the same city or even the same country in the company that you're investing in. 

How do you conduct due diligence foreign geographies?

In most of our transactions, we have generally invested with other co-investors that are either global investors and usually combined with a local market expert investor. In many of these countries, these co-investors may be a local country fund or maybe a local corporate or local individuals. So that's how we coordinate our investing and make sure we have local sources that can assist in the due diligence and the background checks.

About our due diligence on the team. I think in these macroeconomic times. It's very important for us to see that the team is able to, number one, execute. A lot of that involves selling and marketing. Two is raising capital. If the team is not presentable, they're not going to be able to raise capital in the current round or in the subsequent rounds. And three, right now, which I think is a very key criteria now, is also can they survive a downturn and be ready to make very hard decisions, ie. cutting costs, scaling down. Because if they don't, they will not be able to maintain a good cash position in their company and may have to face closure down the road. I'll add one example of how this can work when it works. Well, we've done a lot of investing in Pakistan. We invested in Truck It In, which is a trucking marketplace there. And we invested in Dastiger, which is neighborhood store supply chain. And they both told us about a company called Oware, which was warehousing on demand, and Dastagir was using them. They were a customer. Truck It In was a supplier providing last mile fulfilment, helping them basically deliver product out of their warehouses to its owner. We were able to look at them from both directions and get an idea that their business partners, who we'd already invested in, felt that they were a good company and that gave us a lot of confidence when we invested.

Sectors Reflect Ventures invests in

So, first off, I would say that we are very narrow. We're looking for B2B to B2b2C in logistics, supply chain distribution, transportation, and fintech rails. So when we say fintech rails would mean the underlying tech on fintech that everybody's going to need to use rather than the products that 20 different companies are going to try to sell to everybody. Like the NPL. NPL is becoming a commodity in all these countries. We don't want to touch it. That's what we like.

So some of the sectors, we like to repeat our investments. We want to invest in the same thing in more than one market. We are very interested in trucking marketplaces. We are very interested in warehousing on demand. We are very interested in social commerce. We are very interested in asset like courier, neighborhood store supply chain. That has been a huge hit. And unfortunately, it's very hard now to find a company that is a leader in a sized economy that isn't just too large for us to invest. But we got into four of them early stage, and we're very happy we did. 

Perspective on Exits

So the first issue is, can there be an exit? We're talking about companies that are not your typical, okay, we've got our headquarters in Chicago. Let's go and do IPO on Nasdaq. So the first question is, will there be an exit at all? Now, I think there is good evidence that there will be an exit. First off, one of the largest emerging markets exits out there was Caspi, which is a neo bank in Kazakhstan, of all places. Not the place you pick for a big exit. But they went and they exited with, I think, a $10 billion valuation on the London Stock Exchange. And then this also gives you an idea of the variety of exits out there. It's not all Nasdaq and NYSE, Jumia is public in the US. I forget Nasdaq or NYSE. So that's another option. There have been exits via acquisition.

Kareem, which is a ride share company, started out of Pakistan. They sold to Uber for 3.1 billion. A very nice exit. And one of the reasons why there are so many great startups in Pakistan. Of course, India has a number of exits. All of these are possible. We're also very interested in the idea of roll ups. If we're invested into three, four or five trucking marketplaces in Africa, in the Middle East, in South Asia, in Turkey, there is a potential, if they are not able to exit individually, for them to merge and to form a giant that can go into IPO in New York or in London. This has a potential. I don't think anyone has yet pulled that off. Roll ups have been done in the United States and in developed economies, but not something like that. But we will see. 

Benefits of having a narrow focus

For us dealflow has not been a problem. After making a number of investments, we actually became decently, well known in the spaces that we invest in. So we actually get a pretty good choice of all the new companies in these spaces trying to fundraise. One of the benefits of investing in these sectors or in these countries is that this is not a space that your typical average investor wants to invest in. I think this works out for us very well because there is a scarcity of capital, there is a lot of value being created and less people are paying attention. And I think a lot of what these companies are doing will become a lot more evident once they become larger in scale and then they proceed to raise a larger round of financing or have some kind of some kind of exit event, then everyone will start paying attention.

This is one of the advantages of being narrow. If you are starting a warehousing on demand company, you start asking around who is investing in warehousing on demand? Who is calling up and asking people and asking, do you know any good warehousing on demand companies? There are not many names that you're going to hear, but I guarantee to you, one of the names you're going to hear is Reflect Ventures. 

Offering VC level returns without the risk of typical VC firms

One thing I'll also say about that we feel very strongly that our model is able to get VC level returns, but at much lower risk. When we go and we invest in the number one, number two or number three company in these spaces in one of these countries, for example, we invested in medicine more in Pakistan. They were number two in pharmacy supply chain. They're now number one. They are their their potential future is to be the McKesson. McKesson is, I believe, a $30 billion company in the United States supplying to pharmacies and hospitals in the United States. That is what they can be for Pakistan. Pakistan's more than the US. It won't be a $30 billion company. Maybe they're just ten or 5 billion. That's still a pretty big win. The odds of it are actually a heck of a lot higher than in your typical VC investment because there's really only one significant competitor out there for them. There is potential for both to win or for Benson more to win. Compare that with I'm going to invest in, for example, one of these SaaS companies doing bookkeeping for SMEs. What are your odds of picking the winner? Right? 

“Hair blown back” moment

The other thing, though, about doing syndicates, I think we've all heard now about hair blown back moments. And perhaps I have a bit of advantage there by not having hair. But sometimes you feel that when you're talking to a really, really awesome founder, right? I sympathize a little bit with the Sequoia people who talked about having a hair blown back moment because I felt that. But after you finished that meeting, you need to sit down with your partners and you need to say, can I get 30 sceptical people who are investing their own money and who are very protective of that money to believe in this founder and what he is doing? Yes, he blows back our hair, but does he have the right model? Does his business have the right economics? Does he have the right team? Is he in the right market? And you need to address those questions no matter how much you like the founder and how excited you felt after getting off the coal with him.

So you get the hair blown back moment, but then you get the reality check, can I bring in the syndicate members? And this is one of the reasons why we plan to heat the syndicates even after we raise the funds. After doing this for a year and a half, we think that having convinced syndicate members who have no vested interest in investing they can invest with other people, having to convince them of every single deal has forced us to be better investors and will continue to force us to be better investors. 

Rapid fire round

What are those sectors and regions you invest in?

B2B & B2B2C in supply chain distribution, logistics, fintech, rails, transportation, the regions Southeast Asia, South Asia, Middle East and Africa, latin America and Turkey, if you count that aside.

What’s the typical stage of investment?

We come in usually post traction, occasionally a bit earlier, and usually Pre-seed, occasionally up to the A.

What's the typical check site?

100 k to 300 k. But as a syndicator, it always depends on your syndicate members. Sometimes there's a lot of appetite for a deal, sometimes there isn’t.

Where can founders pitch you?

Founders can email us. I hope you'll put the email on the list here. It would be And the most important thing I'd want to tell founders is do a proper introduction to your company with enough information for us to know whether or not it's worth our time to talk to you. Don't just send an email saying, hi, will you invest in me? You would be amazed the number of emails we get like that, with no explanation of who they are, what they are doing, or why we would want to invest.

Where can our listeners follow you?

The best place to follow us is LinkedIn. That's where we have the most activity because the people we invest in and our investors, that's where they spend their time.

Reflect Ventures website-

Pitch here -

Michel's LinkedIn- link

Jor's LinkedIn- link

Hosted by Prashant Choubey

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