Gaming Strategies For Startups - Alvaro Alvarez, Partner, Boost Capital Partners

We all have those biases and you need to be acutely aware of them and try and work against them. Because I believe being able to manage those biases makes you a better investor.

Hey everyone, this is Prashant and I'll be your host for the VC10X podcast. And today we have Alvaro Alvarez with us. Alvaro is a partner and co founder at Bools Capital Partners. Alvaro has invested in in 100 companies spread over 12 years. Some of these include Deliveroo Super Sales, Zengargo, Hutch Games and Tenor. Boost Capital Partners is a new firm dedicated to backing seed and pre seed state startups and helping them achieve gaming level of engagement in their products. We talk about why they started Boost Capital Partners, how Alvaro spots winners, their fundraising journey, deployment strategy for Fund 1, his role as a board member of 25+Startups and much more. So without wasting any time, let's dive straight in. Hey Alvaro, so good to have you on the VC10X podcast. How are you doing?

Thank you, Prasan. Thanks for having me. I'm doing very well. I hope you're doing well as well.

Yeah, I'm doing perfectly fine and pleasure to have you on. To start things off, can we first have your story and how you started investing?

Absolutely. So I was born and raised in northern Spain in a small city and I developed a love for finance, for the financial world, for investing from an early age. So I went on to study finance and I then worked in investment banking in private equity. I joined the family office, all of this in London. And that's before I started my venture capital career with a fund called Initial Capital where I was a partner and that fund was backed by the same family office I had worked with before and we were investing predominantly in mobile games in that fund. I developed a career there for around about 10 years already investing venture capital. And that's how we got to Boost Capital, which is the fund that I now started and run.

Absolutely. That's a very interesting story. So at Boost Capital, I believe there's a new firm that you've started, but you personally have been investing for I think 12 plus years now into startups. So we'll talk more about that in a bit. But first let's talk about the story behind Boost Capital Partners and what made you start this.

Absolutely. So when I was at Initial Capital and as I mentioned, we invested predominantly in mobile games, I realized that there was a huge gap in the understanding of the needs of a user in everything that had to do with the acquisition, the retention, engagement and monetization. Of a user base. There was a huge gap, a huge difference between games companies and non games companies. So I was fortunate to work with companies in other sectors of the economy. And you know, if you came across a company in financial services, in fintech, for instance, they would be focusing on regulation, they would be focusing on whether the retail investor was, they were eligible to pitch to market to the, to the retail investor. And in education, in edtech, they would focus on other areas like, you know, partnerships with universities or distribution channels. But they would not be necessarily focused on the user at the early stages. And I saw that gap in the market where I was looking to democratize access to those mechanics, to those learnings that make gaming companies so successful in understanding and eventually monetizing a user base. So that's what led me within initial capital to think about my next step. And when I was leaving, I just, I took a step back and I was thinking, well, what do I want people to remember about me when I finish my career? I'm kind of halfway through my career now, so what do I want to really do over the next number of years? And what came out of that was that being an investor in games was not enough. And that realization that I wanted to also help companies in other sectors and that there was a lot of information, a lot of knowledge that could be transferred from the games industry to other industries in the economy. That's what led me to want to start Boost as my own venture capital firm.

Yeah, that's very interesting. And what are these learnings that you're talking about that the gaming companies are getting these things right, but the companies in other sectors are not focusing as much as they should on things like user experience. So can you tell us more about those learnings that you're helping these companies now in other sectors to get and you know, build using those learnings that you have like accumulated over your career as an investor in gaming companies?

Yeah, I think it all comes down to the user experience. And the user experience starts with the very first interaction with a user. Actually before you interact with a user, you need to find that user and acquire them and make them interested in your company and what you're doing. And obviously today, users are overwhelmed with choice. And so you need to be very clever from the beginning in how you approach that user, understanding your audience, the type of audience, the type of demographic that you are marketing to, and then making every step of that user path, of that user journey easy to understand. And so, you know, from acquiring those users, then you need to onboard them. And you know, how easy is your onboarding process? How many hurdles do you have in that onboarding process? All the way to once you put a user in front of your experience, how do you retain them, how do you engage them, how do you make sure that there is enough content in the service, the product that you're offering to them in order for them to stick around and to choose to be a user of your product for a long time and then eventually and fundamentally how do you monetize them, which is what makes you profitable and long lasting as a, as a company. And so to me there are two things that happen. One is that over time, because gaming is a sector where differentiation does not necessarily come from product, there is little differentiation oftentimes between one game and another. And so marketing mechanics have become very intrinsic to the value of a gaming company. And so from very early stages, that iterative mindset that a B testing mindset of testing your hypothesis of constantly iterating your product is ingrained in the mind of the founders. Whereas I find that as I mentioned earlier in other verticals, in other sectors, people have a lot of other things that they need to focus on and it's not intuitive to them that they need to focus on the user from very early on. And so they try and fix a number of other priorities and in the meantime they forget that the sustainability of their product and their company ultimately comes down to somebody paying for that for that product.

Yeah, absolutely, I totally agree with that. Sort of like focusing on the user journey and engagement, retention, all those things. But also like one more point that gaming companies are also like very different from maybe a company operating in fintech, because a gaming company you're like getting constant dopamine hits from internal, even tokens or points or things like that that keep people engaged. So how do you kind of try to replicate that kind of engagement on maybe a fintech platform?

Yeah, there are a number of ways. When we refer to engagement specifically, there are a number of ways that you can try and engage your user base. A lot of them have to do with social interaction. So creating a community, creating that healthy competitive ecosystem where people want to stand out, where they collaborate with each other. I'm thinking for instance of a trading platform, an online mobile trading platform. And there are always people that know how to trade. There are others that are learning. So content creation, that the presence of leaderboards in order to create that competitive angle, there are always gamification elements. I mean you can actually create virtual currency which a number of these Platforms have done already to start trading without real money and play with your friends, referrals, user gets, user campaigns. There are a lot of mechanics that create that ecosystem that can be applied and are not always applied at the early stages. One thing that I want to emphasize is that we focus on the very early stages of investment because everything that I'm saying does happen. If you look at a platform like Robinhood today, it does happen on those platforms. It does however, start happening much later when they start putting together a proper marketing team, a proper user acquisition team, a proper growth team. And at those points in time they start including these mechanics. We're trying to bring those mechanics to them earlier so that they don't need to spend money on marketing blindly without knowing that they're going to have a return on that investment at the early stages.

Yeah, absolutely, I totally agree. And one example of this I can see here in India, like we have a company called Cred, which is a fintech company. Basically you pay your credit card bills on their app and one gamification aspect they've applied, which you just mentioned, is they have credit coins which are basically like virtual coins, no value in the outside world, but you can use those coins. If you pay your credit card bills on time, then you get these points and then you can use these coins to avail discounts from different brands. Right. So what that does is it opens up a different revenue stream for the company that now they can have brand partnerships, they can have their offers on the platform which people are using their credit coins to avail those offers. Right. So creates a dopamine effect that you're getting these coins, you can use these to avail these offers. So yeah, definitely. Like if you think about it, then there are always like ways you can gamify things and increase engagement of the platform.

Yeah, absolutely. And at the same time they are giving their users what they want and what they need because it is true that a user will not always own, only exclusively want to trade for money, but they may be interested in spending those coins on other products that are of interest to them. And so by quote unquote playing a game within the fintech platform, they are earning coins that they can spend on their favorite products.

Absolutely, totally agree. And let's try to switch tracks a little bit and talk about your investing career. You personally have been investing for over 12 plus years. So like can you share what you look for in startups now to like spot the winners, to like you're investing at the very early stages and not, not a lot of Validation there, not a lot of data to crunch on. So what do you really look for in companies to spot the winners early?

Yeah. So what I find is that investors always say they back people at all stages, even in very large companies and at late stages, but at the earliest stages, you're basically only investing in people. As you mentioned, you have no other validation. And so I find it interesting that a lot of investors know that they are backing people or they mentioned that they're backing people, but they spend more time diligencing, validating other external factors like market size, like competition, than actually speaking to the founders. And so that is why I always call follow on investing, the ultimate insider trade. Because over time, you develop an understanding and a knowledge and a relationship with your founders that you do not get from just a few conversations before you decide to invest at the beginning. So in my mind, what my experience has taught me is that there are a few characteristics that define a potential winner. And at the top of that list, in my mind, is resilience. You have to ask yourself, how is this founder going to react in the face of adversity? What are they going to do when tough times come? Because they will come. When you're building a startup. I also look for a slightly obsessive behavior. You know, why does this founder want to solve this problem? What is it that you know, did they experience this problem themselves? Did it affect their family? Did it change their life in any way? That helps me understand how deep this problem is for them, how much they will resist before they give up in trying to solve this problem. And then I look for adaptability, which has led to our survival as a species. But also you have to ask yourself if founder can put their ego to the side and react quickly whenever they realize they're going in the wrong direction. And not only realize, but make changes effectively, keep pushing in a different direction. Except that they were wrong. And I would say that as an investor, when you're investing in early stages, you have to accept and be comfortable with the fact that you yourself are going to be wrong most of the time, much more than you will be right. And the idea is that all of us a work in progress, change happens in life. But whenever you do get it right, because you're investing at the early stages, the reward will be more than enough to make up for those times that you get it wrong.

Absolutely. Totally agree. When a pitch comes to you, you think you like it right and you want to invest, then how do you conduct the due diligence to make sure that, okay, it's the right decision and we are backing the right people.

So all of us in the team have to meet the founders. That is a key requirement. We cannot vote at an investment committee without having everyone meet the founders first. We try and, as I mentioned earlier, spend more than just one conversation with the founders and evaluate different aspects of the relationship if there is more than one founder. Human relationships are always complicated. So again, going a little bit deeper into motivation, why is each of these founders working on this problem? How do they know each other? How do they split responsibilities in the company? And then the rest of the due diligence has to do with the commercial and legal side. So we evaluate the opportunity, the market potential, we evaluate who else is out there trying to solve this problem. Who are the incumbents? Not even the direct competitors, but those they are trying to disrupt. And we try and validate different aspects with founder referrals, with market experts. And then on the legal side, we just try and make sure that everything is going according to plan, that there are no open lawsuits against the company, that founders do have an employment contract with the company. So effectively to make sure that we're investing in a company that is, you know, fit for investment.

Yeah, that's great process there. And talking about the new fund that you've raised, and I believe you've recently also had the first close of $35 million for that. So how was the fundraising journey for that, raising that first fund? How did you reach out? How long did it take? Give us insights into that.

Yes, so I was fortunate enough to have an anchor investor I have worked with for many years before who was committed from day one. And that gave us the opportunity to skip that first step. Finding that one investor that commits first, that commits a sizable amount of capital, is always a challenge. And it is one of the main difficulties when you're raising your first fund. But in our case, that gave us the ability to focus on looking for long term partners that believe in our vision, that can add value to the companies that we back so they can be active and work with the companies together with us. And that made the whole process a little bit easier. And overall, I would say putting yourself out there and trying to raise capital is a good experience, particularly because it has significantly increased my level of sympathy and understanding for the journey that founders experience with us with VCs every, every day. To answer your question specifically, it took us roughly six months, seven months to raise the capital for our first close. We are now already at the level that we want to be that we targeted when we started. And so the rest of the year will be about trying to find those right partners and overfunding if we get to that stage. And one note on all of this that I would mention, if anyone out there is trying to raise their own fund or raising capital for their company, is that I think for all humans, for all of us, coping with rejection is difficult. But whenever you put yourself out there and you tell your story, there are always going to be people that like your story and others that do not. And it only takes one person to believe in you, and then you're off to the races. So to all of those that are trying to raise capital, just don't give up. Keep trying, because one day you wake up and you're in a much better position.

A beautiful advice there. And while you were like raising the first fund, how did you decide that? How much are we trying to raise that target number that you're trying to hit and at what stage will be the first close? So give us a view into that.

Yes. So we worked on it pretty analytically in the sense that we knew that we wanted a portfolio that comprised anywhere between 30 and 40 companies for fund one, and we wanted the ability to follow one in the fund as well, based on what I mentioned earlier about the knowledge that you develop over time of your founders. And so with that in mind, the last thing to decide was the check sizes for our first investment. And we know that we are particularly interested and more experienced in the very early stages of investment nomenclature changes between geographies. But I would call it a pre seed or seed stage. Our current ticket size is up to $750,000 for a first investment into a company. And so working backwards from those numbers, we just realized that the 40 million number was what made sense for us as a target for Fund 1. In order to have the ability to invest in 30 to 40 companies with tickets of up to $750,000 and then have the follow on capabilities to continue to back our companies in the portfolio.

Yeah, absolutely. And when you say precede, how early is that? Is it like a prototype? Is there early validation? What's that?

Yes. So we do not invest in ideas. So if someone reaches out and says, hey, I'm thinking of doing this, what do you think? That is not the right stage to contact us. We do, however, invest very early. And what does that mean? It means there is a product, it can be an mvp, it can be a prototype, but there has to be something to show. And there is ideally some Validation. There are a number of users that you've tested it with. There is a pilot that you are running already. That is probably the earliest stage that we get involved. Oftentimes there has been a round before, a small round race with angel investors. Sometimes that first round is the round where we invest. But in terms of product, there has to be something to show that we can evaluate.

Yeah, absolutely. And I think you've already made some investments from the fund one. So would you like to share some of the exciting investments you made there?

Yes, absolutely. And what we've realized is that the need for a focus on the user experience is much broader in terms of sectors that we originally anticipated. And so sectors that we were not very focused on at the beginning, including healthcare, including real estate, including even financial services, have become front and center of what we do. We've made investments in companies in Europe and in Latin America. We are also trying to finalize an investment in the us. Those are our core geographies. Europe is where most of our investments happen. And as I mentioned, in terms of sectors, we've invested in health tech already, we've invested in fitness tech, in prop tech, also in social music, audio tech. So in gaming as well. We've got our first investment in gaming and that is important to us. The reason is that we think the whole thesis for our fund is to create an ecosystem of people that can facilitate the transfer of knowledge between games and non games. And so games companies, whether that is because we invest in them or it is because they're part of our network and part of our community, they are core, they're key to what we are doing. And so we're also looking to invest in, in that sector in terms of specific companies, rather than mentioning specific companies because they are all equally important to us. I think I would like to mention a couple of cases where we've applied some of the learnings that we've had and they've had an effect on the, on the companies. There is a company in the UK that we backed which creates, is focused on optimizing the patient experience in a clinical trial. And so pharmaceutical companies subsidize clinical trials in order to test new drugs that then they commercialize in order to cure illness. And so they recruit patients in order to sign up for these clinical trials. And whenever one of those patients drops off from a clinical trial, the pharmaceutical company on average loses around about $5,000. And so that problem in terms of go to market is a B2B problem. It goes through hospitals, through doctors and through Pharmaceutical companies, it is not an obvious user experience optimization problem, but at the end of the chain there is a patient and what determines whether the product works or not is if the patient stays in the clinical trial or not. It's actually an engagement problem. And so some of the things we've been working with, we've been working on with the team that include making the onboarding process easier, understanding the user Persona. So who are you marketing to? Who are you trying to engage? Is it a 60 year old lady that has just been diagnosed with an illness? And so how does that person interact with a platform that you put in front of them? How much can you delay the barriers to the onboarding process, including the signup process? How much of the platform can you show to them in order to add value to them before you actually put up a barrier to engagement? And so those are the types of things that we've worked on with those improvements. This company in particular and a number of other companies in the portfolio have increased conversion rates, which is particularly what we are very focused on at the early stages of the onboarding process. And so we like to work on those product related problems that with simple improvements go straight to the bottom line.

Yeah, absolutely, that's, that's great value add right there. And another thing that I learned is that you sit on boards of 25 plus startups, so would like to learn like what's your role there and what are the major responsibilities of a board member?

Yeah, so the investor director role represents, as you mentioned, a significant responsibility because you have a fiduciary duty to the shareholders in the business. So sometimes you have to be that annoying voice that raises the question about the best interests of the company and whether what the operating team, the management team is doing, whether that is in the best interests of the company. And there is a lot of admin related work that needs to happen at board level approvals and strategic decisions as well. And the investor director or investor directors are the quote, unquote outsiders that make sure that all decisions are made in the best interest of the company. But in essence, beyond board work, I like to work in the same way with companies, whether I have an official role or not. And that includes a very broad range of user Personas actually that you need to represent. You can be a helping hand whenever they need it, whenever they reach out. And that can include very broad aspects of the running of a company, including hiring, including the vision for the company, including obviously the finances and the fundraising process. But you can also be a sounding board for their boldest ideas, the ones that they want to implement, but they are not certain whether they will have the sufficient resources financially or from a team perspective to do it. You can also be a shoulder to cry on when things do not go according to plan. And that does happen very often. So entrepreneurs oftentimes do need that support and that help when they're in a situation that makes them uncertain about the future. So the number of roles that can be played, both at board level and as an advisor or someone that is close to the entrepreneur, vary widely. But as a board member, you need to be able to represent all of those Personas.

Yeah, absolutely. That's great. And since you have already had a long career of investing in startups, can you share some of your biggest learnings in this journey that you. Maybe some learnings that you wish you had learned earlier so you could have avoided some mistakes? Right, Things like that?

Yes, I would say that my biggest learning is that as an investor, you are very often wrong in your assessments and you have a lot of unconscious bias, either because you invested in a similar company that didn't work out before, or because the founder in front of you doesn't look like you, or because the approach was through a cold email rather than a warm introduction. And you have to work against that actively, because we all have those biases and you need to be acutely aware of them and try and work against them, because I believe being able to manage those biases makes you a better investor. So some of my learnings include the need to reevaluate your beliefs very regularly, adapt to changes. Technology is a very rapidly changing environment. You do need a growth mentality. You do need high levels of curiosity to learn about new topics all the time. After so many years, there are new topics all the time that come up the next big thing in technology that I do not know anything about. So you need that ability to, that curiosity to increase your knowledge of new areas. And that, frankly, is what makes me get out of bed every morning. The challenge of understanding the ideas of the most talented people on the planet and trying to keep up with them, that is very exciting. As a, as an investor, I would say that if anyone is starting a fund, is starting kind of their investment career, what I always advise is to make sure that you play the part and you convince people that you are really deeply interested in the sector. And that includes going to a lot of pitching events, it includes reading a lot of books, speaking to a lot of people, following some of the influencers in the, in the Space, it includes putting your kind of $500, your thousand dollars into the companies that you believe in to prove that you are actually trying to build a track record. So that's what I would recommend to anyone that is looking to break into the, into the sector. And it constitutes part of the learnings that I've had over the years as well.

Yeah, absolutely. That's great. And moving on to my last main question before we move on to the rapid fire round, and this one is about how do you view the current market and how does that determine the strategy at the fund?

Yeah, well, I have to say this is the strangest market that I've ever witnessed as an investor in my career. Why? Because on the one hand, there is plenty of capital on the sidelines. Capital that was raised before Q2 of last year of 2022. And that capital needs to be deployed if established firms, venture capital firms, remain true to their model, their asset management model, which consists of raising capital, deploying it over a cycle and then raising again. And those cycles that were shortened significantly in the last few years, cannot last more than three or four years in order to make that round of investments from a given fund. So we're already in the territory where some of these capital that has not been deployed needs to start being deployed. And on the other hand, there is a lot of fear to deploy that capital in the wrong companies. So the market as a consequence is lower. Now, I do, however, see a lot of recent green shoots and I believe that tides are turning and that we'll see before the end of the year a more bullish market than we've got today. Having said that, if you are a startup, I think it's incredibly important for you to be able to manage your cash and extend your Runway. And the reason for that is that the focus on profitability that venture capital firms have now and they didn't have two years ago is not going to go away anytime soon. I don't know why it ever went away. But you do need your metrics to look good and manageable before you hit the market and raise capital. And you need time in order to do that. So my advice from that perspective, however good or bad the market is in a few months, would be to make sure that you give yourself that chance to survive until you've got metrics that allow you to raise your next round of funding.

Absolutely. Totally second that. Now let's do the rapid fire round, wherein I'll ask you five quick questions about the fund and you have to give five quick Answers. Sounds good.

Yeah.

Right, so the first one goes, what are the sectors and regions you invest in?

So our focus is horizontal, as I mentioned, we focus on the user. So as long as it is software, we can do it. Some of the sectors that we focus on include health tech, wellness tech, edtech, fintech, government related tech we're passionate about as well, climate tech, prop tech and entertainment. I would say those are the main ones in terms of geographies. Europe as the main geography all across Europe, including the uk with the UK being an important part of that, and then Latin America as a second geography and opportunistically in the US as well. So I would say Western markets as a whole.

Absolutely. And what's the typical stage you invest.

In pre seed and seed.

And what's the typical size of check.

Up to $750,000 for a first investment into a company with follow on capability.

Great. And where can founders apply for funding in case there is a direct way?

Yes, just head to our website which is www.boostcp as in capital partners. That is our name, boostcapitalpartners.vc. so BoostCP VC. And you have a section there called Contact and you can fill out your details there. It will reach us directly and then we will provide an answer to everyone that applies there.

That's awesome. And last one, where can our listeners follow you?

Right now primarily on LinkedIn on my own account when you type in my name. And Boost Capital Partners, we do have a LinkedIn page as well where we post content on a regular basis and you can follow the news around us and what's happening in and around the fund. So do give Boost Capital Partners a follow on LinkedIn.

Absolutely. I'll make sure to put all those links in the show notes below. Thanks so much for coming on the podcast and happy investing.

Yeah, thanks for having me and best of luck with the, with the podcast. Thank you.

Thank you so much.