Investment and Growth | Jan Arp and Elisabeth Laet | The BOSS Podcast with Gregory Shepard

Gregory Shepard, an entrepreneur who's built and sold 12 businesses, a recipient of 4 private equity awards, TEDx speaker, and Forbes author. This is The Boss Podcast with Gregory Shepard. Joining me today are Jan Arp and Elizabeth Lott. Jan and Elizabeth are managing partners at The Holt Exchange, a global seed stage venture capital fund investing in fintech business application companies across the globe. Holt is powering innovative tech products, world-class companies, and entrepreneurs, and helping shape the future of their businesses. Jan, welcome to the podcast.

Wonderful to be here, and thanks for the invitation.

Oh, you're more than welcome. It's an honor. And Elizabeth, thanks for joining me today.

Greg, always a pleasure to have a conversation with you.

That's very nice. I feel very honored about that. Elizabeth, I wanted to start out with your location. So Holt Exchange is based in Montreal, and I've spoken to several entrepreneurs based in Quebec. For folks not familiar with your city, how and why has it become the Silicon Valley of Canada?

Well, I think there's a 2-part answer to that, Greg. And I think first of all, a little bit of history. So our anchor investor in our fund is the Holden Family Office. Now Holden is Holt and Dunn combined. And the history of the Holt family in Quebec has been significant. Sir Herbert Holt was really Canada's Rockefeller. He was 35-year chair of Royal Bank of Canada, which is the 3rd largest financial institution in North America. He was the founder of Hydro-Quebec, which was nationalized in the '50s. Today, that returns $2 billion in profit to Quebec citizens. They've opened the Ritz-Carlton here. Basically directed over, directed, managed, acquired, invested in over 300 businesses. So as part of, you know, foundational of our anchor investor was really building, being the next generation of builders around fintech based out of Quebec. But we are a global fund. But the important part about being in Quebec is, you know, Quebec is unrivaled in its appeal in terms of investment. Over $2.7 billion in venture capital invested in Montreal just between 2018 and 2020. Focusing on fintech, we have over 3,000 companies in finance in Quebec alone. We have an impressive IT sector. Sector, a huge pool of skilled workers. You know, today we have 27,000 workers just in AI-related skills, 14,000 university students in AI-related programs, and we're the number one location in Canada for university research funding, as well as world-renowned experts in AI— Yoshua Bengio, Joel Pino, I can go on. You know, large organizations such as Google, Meta, IBM, Microsoft have all opened up innovation research centers here in order to take advantage of this. And really, it's one of the most cost-advantaged places from tax credits. Now, our aim really in terms of investing in companies worldwide, yes, it's certainly the ability to bring technology into Canada and use Canada as a conduit into North America, but it's not our only aim. Our aim is to really look at top technology around the world.

I mean, it sounds like not only is Quebec a An anchor, but Holt Exchange itself is an anchor in the area.

Absolutely, yes.

Jan, talk to me about founding the Holt Exchange and how you and Elizabeth partnered up.

Yeah, it was a great opportunity. The 5th generation family, I'd say led by Brendan Holt Dunn, was interested in giving back to the early-stage fintech community and a family whose legacy is financial services and understands that sought out myself who was also eager to push the Quebec Canadian ecosystem forward. So that's kind of how it originally started and how can we level up and better seek a global pool of candidates to better fit into the ecosystem there. What we recognized is that the early-stage funding side for startups, there's a big gap, right? Most investors at that stage, you know, still look for profitability metrics, almost like Series A-style companies in terms of the way that they look at them. But before you get there, you need to go through the seed stage. You need to have exploratory capital to be able to build the stuff, to be able to eventually get there, get your first customers, to make yourself more suitable for those future rounds. And so what we sought to do is, okay, well, how do we find those early companies? find those individuals, a team, and some of the biggest challenges then is, of course, trying to assess market timing. So we said, well, why don't we build ourselves a big pool of experts and advisors that could support us in this journey? Elizabeth was actually one of the first, very first ones I had spoken to, and we had great conversations about how the vision of what we could build could better support, you know, the early-stage startups that go through this journey and— As we did that, we built a big pool of these advisors who have a range of expertise from the big buckets that we like to look at as product, market, financing, and team, but also in different vertical markets in finance. I mean, as a generalist, if you're in finance. And as we did that, as we then we built on the other side a way to really scout all the top companies that could fit into that network and started building sort of these matchmaking algorithms to better understand which ones would be best suited to partner with them in getting that initial network lift, which essentially actually proves for market timing, right? Whether they can get customers, whether they can get investors, and whether they can get other experts to support them. And so with that journey, Elizabeth was a key advisor through all of this, where eventually, probably the longest sales cycle to become an investor, I'd somehow convinced to say, hey, why don't you put some capital in and join us? get more vested in that. And she said, hey, well, if I'm doing that, I want to be at the seat at the table with you driving the ship together, and joined as a fellow managing partner. And here we are entering year 5 with a portfolio of over 35 companies, entering in to pull in some more and supporting some really great breakout companies and having a lot of fun in this journey.

Let me ask you a question that's a little off here, off the normal path, but I'm really curious about this. When I look at the early stage, so pre-A round, early stage VC, private equity, angel investing space and whole, that part of the lifecycle. I see companies that are what I like to refer to as value creation. These are the companies that are pre-revenue and then value capture, the companies that are post-revenue. And what I'm noticing is that if you look at the acquisition space, the companies that are out there acquiring companies are basically outsourcing their innovation, right? I mean, they're starting accelerators and they're investing into companies out of accelerators, and pretty much their whole innovation has been outsourced. So the value creation part of that's been outsourced. The value capture part of it, it seems like they are out there trying to acquire the companies as they head into that. And I'm just curious, in your space in fintech and in Canada and all around the world that you guys are invested in, are you seeing something similar to that? And I'd like to get an answer from both Elizabeth and Jan if that's possible.

I would agree that I liked how you sort of framed the dialogue there. I mean, another way to look at this on the innovation cycle, if we're referring to kind of financial institutions and their increasing appetite to work and partner with startups, has certainly substantially increased. Generally, one of the best models— I mean, we've studied a lot kind of the open innovation models. And there's various ways of doing that. One of the best ways that tends to work is on the funding side. So, these turn into like the CVC, corporate venture capital arms. A lot of the times, they prefer to sort of play at the Series A or later stage when they're making and cutting their checks and investments. So, it's harder for them to kind of play at the seed. So, that to your point is the value capture side of things. And as a bank, it's just how the business model is set up. Like, they're trying to de-risk things. And, you know, is a 10x or 100x return as appetizing as de-risking or minimizing the downside? You know, these are very costly endeavors to onboard a startup and work with them. It's not just the cost of the pilot. It's the, you know, you have to have the implementation in mind. And these are hundreds of thousands, if not million-dollar projects when they're kind of all said and through. So, generally speaking, they tend to prefer at the later stage, but that's not always the case. And I think there's a lot of great innovation that gets overlooked and missed in those types of opportunities. You know, when you're working with some really the value creation side of things, you're getting insights into the full universe of what's possible. And so, this can feed your own product roadmaps. It can also support the way that your your training, your individuals, your organization, and motivation, because many of them are excited to— your employees and staff— to work with these early-stage startups and have that sort of startup mentality and culture within your organization. And let's face it, talent is incredibly challenging to come by at this time. So, and we're starting to actually see acquisition of companies so early, and it's a bit different of just the organizations, these companies super early at the seed stage, purely just from a talent play. So that's the other model there. I think, though, regardless, if I'm a big financial institution, I mean, obviously, diversity and diversity in your innovation approach needs to be considered. And so on that note, I would strongly suggest— I do think the corporate venture arm and the funding and financing arm is proven to be one of the best. But you should be looking at omnichannel approaches and doing direct investments in yourself, looking to invest in other funds and making sure you're covering various stages so that you're not seeing the surprises and you're tracking the trends because things are happening so quickly. Like now, every year there's a new theme, right, that you need to be up to speed on to be able to make sure that you're getting in front of it and to protect yourself. And so I think you make a good point to say that value capture is where they spend a lot of time. And I think value creation is overlooked and we play a part in solving for that.

Those are some great points that Jan raised. And I really come at it from an operator side, having been in the operating side of a fintech moving to significant revenue size. I think in the innovation side and lots of great innovation labs, and we certainly partner with corporates in order to look at that. There's an element of, and this really comes from my corporate life, whereas there has to be a change of the business model internally to take advantage of innovation. I think a great example, just even one of the last corporates I was at, we had tremendous amount of great research internally and basically entrepreneurial-level projects. But we couldn't get them to market because basically, you needed to be at about $5 to $7 million in revenue to be able to be dropped into the distribution channel. And banks face a lot of the same issues, right? Like they can't just offer an early-stage product, get feedback. They're dealing with very sophisticated channels and distribution models. And so, this is a really kind of 2 perspectives. And where I see—

That's a chicken and egg kind of deal, right?

It is a chicken and egg. And I could think of Autodesk at the time, right? We'd end up going buying a competitor who was more advanced from a revenue side versus the team had been working internally on this for 3 years. But because it fit into the channel model. So, there is that different perspective. And where I've also seen out of the corporate innovation elements is that ability to look to say timeline, right? So certainly, from an earlier-stage company, and I'm going to say even from Series A to Series B, is perspective. What 3 months of time in an early-stage company means is equivalent to about 3 years in bank years, right? Like that comparison between dog years and human years. And so, how you find that in-between stage in order to be able to nurture innovation in the organization, take advantage of it. Initial conversations I had with large financial institutions as an operator was, we love your product. We want to invest but we want an exclusivity. And I was like, well, geez, exclusivity is where you go to die. Right? And so, there's a lot of maturity that I've seen happen over the last 3 years of working with early innovation companies where they see the need for acceleration versus exclusivity so that they can help accelerate that company. So, they'll invest and maybe not use it internally but invest it to get it to a market size that now it makes sense in order to do the internal changes and processes to be able to take that product to market themselves. So, lots of moving parts and I think we play a big part in that, especially with all of the advisors from financial institutions who participate really in, you know, overall in our selection process, our innovation process, who are getting a much broader window on opportunities of how to change things internally in their organizations.

So, Jan, you're currently invested into over 30 early-stage Canadian and international fintechs. So, I have a 2-part question on this. The first question is, why fintech? And the second question is, we've all been seeing this feeding frenzy that has happened over the last 12 months lead to a tremendous number of overvaluation companies, right? We were seeing 2 unicorns a day for a while, and then now the decacorn is the new unicorn. And a lot of these companies are starting to experience some serious overvaluation from investors who have been going out there quoting huge valuations, getting big rounds in, and that sort of stuff. And so I'm wondering if you think, first of all, why fintech? And do you feel like this overvaluation trend that we're seeing that happened post-COVID, the buildup and everything that led to it, do you feel like that's going to affect fintech as well?

Great question. Sure. Maybe I'll just start with the first one, why fintech? I mean, Me personally, I mean, maybe I'm just justifying my own existence as that's all I've studied since I was in school way back when. But more seriously, I think there's no greater way to have an impact on this world right now. It does make me think of times when my early days and we used to do these pitch competitions and there's streams in the healthcare sector and then the one in finance and healthcare sector would always win, right? In the sense, because it just sounds better. You're saving lives, right? You're having a profound impact, whereas fintech, you're saving people money, right? Profits. It doesn't come across as sexy. However, if you just look at the flow of capital and where most of it resides, arguably in any economy, it makes up directly 10% of the economy and indirectly substantially more. It's the lifeblood of how everything sort of functions here. So you can have a substantial impact by being able to move the flow of that capital. So it keeps me very motivated to maintain and continue there. And there's just a lot of money in fintech, meaning if you can shift pockets and pools of capital into it, you can obviously get to work and make things happen. You know, we joke that in startups, you always want to show— it's about showing your market size in Bs, right? Well, in fintech, it's about Ts, right? You have trillions of dollars of opportunity in some cases. It's just that large when we're getting into some of the areas. Now, to the point though, are some of these Ts overvalued, right, in terms of market size? And, you know, is this going to continue? There certainly is a market correction that is occurring, and that is, you know, having a large impact on the industry right now. We're seeing it with our own portfolio companies trickle down to the early stage. There is a bit of a tightening of capital. Right now is people have a bit of a wait-and-see approach. You have situations where, you know, I'm speaking more on the early side, but I think it does reflect it, when they're going to invest, well, their portfolio is down. So meaning their startup portfolio, if they're heavy investors, is a substantial larger portion. So they feel like they have too much invested in the space, even though it might be still performing well. Or on the other side, they just don't know what's happening and they just kind of want to wait and see and have that rebound. They just don't have the same level of capital to be able to invest in it. So there is certainly a wait, and we've actually seen this before too, right? We've seen it when COVID first hit. So there was that pause in time. So we'll see how long this will last, but certainly there is increasing pricing pressures for the startups to kind of double-check themselves and see where they are in terms of their valuations. We've seen it with our own portfolio companies. Now, that said, great companies are still going to be able to break through the noise and invest. And so they're going to be able to raise capital and they're even going to be able to raise at solid valuation rounds right now. That will continue. And we're actually seeing certain areas a little bit more aggressive that still remain. The price of business to get into the metaverse or Web3 or however you want to call it, it's still commanding substantially high valuations right now. So certainly, there is a correction, which I think has been needed. But ultimately, there's still a lot to build. Like, if you're— once you get into the nuts and bolts of all the problems, and there's still a lot of true great business models that are being built right now, it's still a very exciting time. So while I do think there's a bit of correction for some, it doesn't mean— I don't think this is by all means the end. I think we're going to just have a shift over the next couple of years, and there's going to be a surge. And as an investor, It's a great time to invest if you're investing right now.

Yeah, I agree. I think that it's just a normalization. There's always that big buildup and then a normalization. And then during the normalization, there's another buildup and it just keeps flowing that way. I'm wondering, Elizabeth, when I look at the overvaluation situation right now and the podcast has both investors and entrepreneurs listening, And for the entrepreneurs that are out there, how do they understand if they're getting overvalued and how do they project that as a leading indicator to prevent it from happening, even though they may be getting pushed from the investor side to take more capital on and take more capital on? How do you look at that from an entrepreneur side and make sure you don't fall into that category?

I think that's a great conundrum that's happening today. I think the element, you know, everybody always says take as much capital as you can. Again, build yourself a long runway. But it does have an impact in the longer term. And I think there's an element of building solid valuations, solid valuations clearly substantiated by recurring revenue versus forecasted versus market opportunity. I think the element of the ability to price yourself out, the primary thing I still say to investors, money is great, but Strategic investment is what's really more important. So, that ability as to what's going to open up new markets for you, what is going to provide you the right support, and take that into consideration. I think also, we're in a unique position because we scout globally. And I think part of— we had talked about discussing how we actually do that. And I think to the comment Jen made, because we have the opportunity, Sure, there is unique technology. But in general, there's a lot of the same things happening, just being implemented differently. And what makes that difference is team performance, runway, and ability to implement. So, we've seen certainly very high valuations coming out of North America. And we'll go looking at comparable technology in other regions of the world. And so, part of that discussion really looks and, you know, how we've amalgamated all of our data together to say, okay, you know, roughly same technology, you know, roughly same stage of market, very, very different. You know, I mean, we have investments in New Zealand and Switzerland and UK and Portugal where we've looked and said, yeah, you know, I mean, there's definitely an advantage to investing internationally and having that as a strong comparative base. And I highly recommend that founders really should take that into consideration and look on a global basis You know, in order to get a better feel of where their valuation should be and not have it run away on them.

So I've heard also that you have about 3,000 applications for funding over 75 countries, right? And you guys invest in the top 1% of those applications globally. I wonder if you could walk through the process that you go through to choose that 1%.

Sure. And I think I'm going to take a step back on, on how we got to looking for that 1%. I think, you know, Jen and I, certainly looking at what we were doing with Holt Exchange, how we could be different. We looked at the impact of technology and especially in the hedge fund market, right? You know, algorithmic applications in order to be able to significantly decrease the amount of research work in order to build out signals. And we said, you know, really the venture market has not been revolutionized or disrupted yet by data. And here we are investing in all of these great enabling data companies. That how can we actually look and build it in order to have an impact on VC? And so, part of that was looking, you know, significant amount of effort spent. You know, probably most VCs spent 80% of their time scouting for the right deal. And so, how could we simplify that? And we looked and said, you know, huge, huge pools of data. And I'm going to go back to my very first statement about why we're located in Quebec. There's a 28% cost advantage in software development. Over other large metropolitan areas in Canada and the US. So, we actually have a whole arm of our company that is a software development organization that is building out the algorithmic basis on how to scout the top companies in the world. Part of that is building out where we look at significant key indicators on a global basis. We look for year-over-year changes. We can track a company 3 years and the signals might not be right. And when those signals great. Then we're like, okay, time to get an application in. Or we might be nurturing an application for 3 years. And I kind of shy away from the word application because we're not a traditional accelerator. We're a fund that invests early and then strategically de-risks that investment in order to prepare for the opening of their larger seed round. Different than where I considered community-based acceleration programs where you have a lot of external funding coming in. This is us, the LPs, paying for this. And what it allows us is this competitive edge to get in early. We also have a whole series of investment partnerships all across the world who work with us on de-risking these companies. So, it creates great deal flow for them. And the other one is why we say an application. Every investor is going to say, geez, I get over 1,000 decks a month, right? How do I— every deck's a little bit different. By actually having a very standardized process, we get to compare apples to apples. Really, really well, and we get to look for indicators in those apples and how well the orchards are doing in terms of where we're picking our apples. And then with the data play of our 500 plus advisors, every element that they do is codified. So we you know we do specific matching in terms of skill set. We are the Match.com of fintech and early stage companies on bringing the right level of advice at the right time, and it's a really good mutually beneficial relationship. You know, the advisors get to see a lot of great early-stage technology. They get to contribute to the growth of an organization. And, you know, most recently, a number of our advisors have also become LPs in our fund. So there, you know, there's even that further push to see this overall success in our model.

I wonder, Jan, you guys get a lot of investors looking at deals, and there's a lot of hearsay about, you know, the horse and the jockey, the horse being the business, the jockey being the entrepreneur. And I'm wondering your thoughts on one side, one camp is sort of like, oh, it's all about the jockey, and the other side, it's about the horse. Either way, it seems subjective. So I'm wondering what side you fall on and why and how you look at the other side for those entrepreneurs that are out there listening.

Great question. But I would bet probably majority, the simple answer is, especially for the stage we play, would say that it's all about the team. However, the longer answer in my mind is that everything's a scale and a moving scale, and then how do you weight that scale for different whole bunch of criteria? Like, just even think of like a personality test, right? And how you get to properly assess from that sort of vantage point. I think it's a good comparison, and we look at that when we're building our models.

Yeah.

And what it does, it helps us to actually really think through, well, what does make a good founding team, right? And how much weight should you put into that? Because you can't take any really indicator on its own. And just like anything, when you take that indicator, it's a sample of time. So how is that through time, right? Because things are bound to change, especially when you're looking at kind of team dynamics. There could be reasons why the team's not performing at its best at any given moment, yet could be performing later on better later on. And so, how do you identify how a good team can prioritize well? I mean, that's key to a good founder, the ability to understand exactly what to do and when in certain circumstances when they haven't been doing the right thing, do a big thing called a pivot. Do they have things where they can take feedback or continuous learning? Versus being stubborn. Yet the challenge, of course, is a founder needs to be somewhat stubborn, stubborn in the right way, right? So how can you identify between what is the right and wrong way here, or have what we call kind of that founder-market fit, right? Which can go beyond that. It's part experience, it's part network, and sometimes you can see a lot, you can pull a lot of data to already help you with the decision to better ask better questions, to better validate these points, or do they just have that sort of unrelenting passion for where they are right now? So that's kind of part of it, right? But in some cases, you can have a great founder, a great team, and they're just in the wrong market. Will they be able to pivot hard enough to be able to find their way, or do they really need to ask that tough question and shut down? I know I've personally been in that situation where we were working on something quite early stage and having that conversation of, After X amount of time going, you know, all we invested, and you feel like it's your baby and you're trying to make it work and say, no, this is no longer working. We like this. We just got to, you know, we got to come back with a completely new area. And that's not easy to do. And so some cases founders could just be in the wrong market. And so that ties back to your other point, whereas now an earlier stage, there isn't usually tons built either. You just hope they have the right market and the right tailwinds.

Yeah.

And you're betting on the team, and you're hoping that what you're betting them on is to create optionality to eventually kind of really pinpoint their product market fit. And what we do find sometimes is how early we come in, the next stage investors are really pushing them to just say, "What's the one thing you can do well?" And and I and I get that your North Star metric to be able to do that. But you know, we've sometimes you're just so early, you've kind of got it need it have a bit of more ex. exploration in that capital to uncover where it is in a profitable fashion. I'll give you one example. One of our breakout companies, Owl, in this story, had a suite of products. They had a— just with your name alone, they can get up to 70 data points, and they're able to pull it. They don't store the data, which is great for financial institutions, don't have to worry about hacks. And they eventually— they first started pitching as a supercharged sales bot, but the unit economics weren't as fantastic. The sales teams weren't as eager to pay for it. They said, well, how about augmented due diligence? Because you can use the same thing as you're going through and reviewing, you know, who should be— to making sure that from obviously KYC and AML sort of product, very enticing, especially nowadays more so than ever. But they actually eventually settled on fraud and insurance fraud at that. And if they didn't have the time to explore, if they really overfocused in any given particular area, they would have missed the area where they can charge hundreds of dollars per search versus dollars a search. And that's a 100x multiple. And now, and it's been such a need and the sales cycles are short and they're doing fantastic. So, you know, just sort of to say, how do you find the right founding team?

Absolutely.

Be able to support them in identifying their markets, but making sure they're not too far off. But yeah, it's definitely for me a combination and leaning towards team, but ensuring they're in the right Right market.

So the entrepreneur, the jockey in this scenario, is ever-changing, right? I mean, it's a different person that you need when you're in the vision stage and you're trying to get through ideation and find that product-market fit. You need this creative, outside-of-the-box thinker, but then later on, you need an operator who can actually sit down and prioritize, to your point earlier, and focus on what needs to be done. And then you need somebody that can manage a team and manage investors. Moving down that. So when you guys are working with these companies, Jan, do you help them develop and evolve into the different types of personas they need to have as the company moves down the lifecycle?

Well, we certainly help them surround them with the right cast of people, right? So we have now over 500+ advisors. And so what we've understood is life for an early-stage startup is frame of either they have a product problem, a financing problem, a market problem, or a team problem. And we try to then prioritize, build frameworks or processes around that, and then introduce them to the right people to support them and push them through it to the next stage. And that sort of thing, from my perspective, just sort of repeats. Of course, you can drill down further in those 4 big buckets, but it sort of repeats at the different stages. But the network that you need sort of There's different, obviously, funders and investors. It's a food chain, so you need to find the right people that are around it. So, we certainly help them with getting them and filling the gaps and the right tools. It's important that as we work with them, we do ask them questions about the culture that they're building and where they want to be and what role they do want to play. At some point, you can't force someone into the role that they don't want to be in either. And you still— I mean, you mentioned you can't shift from a vision to an operator later.

Yeah.

You still need the vision. You can't cut and go purely into the operations. Otherwise, the longevity of the company is just not going to succeed, right? It's kind of like the— in my mind, the finite mindset versus the infinite mindset. And so, it's just about identifying it. It's for sure when you're early stage, you have to do a bit of everything. But as you advance your roles, there certainly gets more specific and it shifts more into obviously delegation, that's for sure, and identifying where you want to, but then building the cast around you. In the beginning, you're kind of doing it all. You're first having to get the company its first million in terms of revenues and then you're raising money and it's doing the fundraising from that standpoint and then making sure it's all operating. But through time, you are shifting. So, we certainly do try to support them in identifying where they want to play and then find them the right people to coach them and train them there and then build their teams accordingly through that advisor network.

Awesome. Thanks for sharing that. Okay. I hate to do this. But we have to stop right here. But coming up in my conversation with Jan Arp and Elizabeth Lott, the managing partners at the Holt Exchange, Elizabeth tells me why she loves fintech.

I think all across the board, everybody is going to be looking at implementing technologies that allow you to meter by the second in terms of, you know, how you bill, how you charge, how that experience moves forward. And so I look at, you know, technologies like blockchain that are going to enable you to do those things. And so I really feel that, you know, we're investing in probably the biggest platform change that's going to happen over the next 5 years.

Learn more about the BOSS Business Operating Support System at bossstartupscience.com, or you can reach Gregory Shepard at gregoryshepard.com. This has been a production of Forbes Books.

Gregory Shepard, an entrepreneur who's built and sold 12 businesses, a recipient of 4 private equity awards, TEDx speaker, and Forbes author. This is The Boss Podcast with Gregory Shepard.

Welcome back to my talk with Jan Arp and Elizabeth Lott, the managing partners at the Holt Exchange, an AI fintech accelerator that's helping partners navigate success through their investors and associated network of financial institutions. Elizabeth, in part 1, we talked about the horse and the jockey. Early-stage investors have been arguing about this for years. Do you bet on the entrepreneur, the jockey, or the business idea, the horse? And for many of us, we're looking for businesses that can scale and become meaningful. What factors do you consider when it comes to the potential scale of a company?

I think so much does play in terms of the individual. And I think, you know, you highlighted very well the jockey of the horse. I think as a horseman or horsewoman myself, you know, that ability I've gotten on a lot of stubborn horses or difficult horses. There's not a lot of great synchronicity, but, you know, I might have got them over the jump. The beauty is when you get the right horse and the right rider together. That's where you hit Olympic gold. But both of those can be trained for. I don't think they're innate abilities. I've also— I'm going to give you a plug here, Greg, because I do love what you've done with the Boss Startup Science. I know that one of our portfolio companies as we were going through due diligence and looking from an investment side, just even kind of going through The methodology in terms of looking at how you present yourself. I think that ability to go into scale-up mode is like boot camp training, right? Like that ability to constantly be on your game. And I think to the point of moving from being visionary, being an operator, and trying to do both at the same time. I still think my where I look across all of the portfolio companies. And you can just never do enough of this, right? Which is that ability to be asking questions. You know, my favorite is if you want money, you ask for advice, right? You're basically going to get a lot of it. So, you know, that element of there's not— I think there's a big gap. The biggest gap where I see so much isn't team, isn't market fit, isn't technology. It's in product management. Product management is the mini CEO of the company. And that ability to really hunker down on that expertise in product management. And you can hit the job boards and see between Google, Microsoft recruiting for top talent in product management is really, really difficult. And it's hard for earlier-stage companies to get that talent. And so therefore, where do you get help in that product management side? Because so much of what's happening around market fit and really listening to where potential customers are coming from. Henry Ford, right? If I listen to my customers, I would have given them faster horses, right? But you have to find that in-between of how you push innovation without total disruption because it's really hard to get adoption when you have total disruption. So, you have to constantly be sensitive to that. And I do think there's a methodology. And you have to kind of continuously reevaluate from that product management side on fine-tuning my fit a continuous basis. And I think to Jan's point, even talking about Owl, and I think really great founders have that ability to find great product management fit and build the organization and how they grow around that.

So, let me get into that just a little bit with you because I am passionately in agreement with you. I think that I did this long study of why entrepreneurs fail and it was like this big 5-year thing. It was hundreds of thousands of pieces of data. And the product thing came up every time, right? So I'm in violent agreement with you on that one. And when you look at product and you're out there and you're having these conversations with people and you think about why they're failing due to product, right? So because you're so passionate about this, I'm going to aim the question directly at that. Why do you think entrepreneurs fail at the product stage? Like, what are the variable reasons that cause that to happen?

Well, I think Jan highlighted that really well, right? In the sense, you've got to be a bit stubborn because if you're trying to disrupt a market, there's going to be resistance to that, which is, oh, this doesn't work. I don't like the way that— I don't see it. So, you have to really push that vision through. But adoption is the most important element. And so, you have to kind of mold through that. But I love our portfolio companies and we talk to a lot of early stage. I'd be like, have you had 1,000 conversations? And in most cases, the answer is no, right? And so, how you actually slice out, carve out time. So, you've got time that you need to be talking to investors. But you really need time to do that product fit into potential customers on a regular, substantial basis. And there's just not enough of that. And how you take that feedback. And at the end of the day, We did a really great exercise with one of the corporations I was with where we went through and had listened to all of these features and functionality that people wanted, which also can kill an earlier-stage company. You get involved and all of a sudden, feature scope comes out and you're delivering to one client and you're just bottlenecked. That ability to really price out what functionality is worth. Would you pay an extra $1,000? Is this $200,000, right? Like, To quantify their need in relationship to your ability to monetize it. And really good product management does that exceptionally well to be able to say, here's what's core. Here's what's core that we need to focus on to succeed. Here's what's periphery that might open up a broader segment of the market. But really finding that core deliverable.

Yeah, maybe just building off some of Elizabeth's point then and getting there is kind of that feedback loop. We all know the high level, the build, measure, learn sort of mentality, but how well are you taking that feedback and listening? What is really being said? And what information do you process and which one do you cancel out? And we've seen it ourselves in the way that we grade. So to give some context, before we invest in a company, we might see hundreds of advisors might actually meet our startup. We've found a way to do this in a systematic structured process. It's value-add for everybody. To all meet each other and hear pitches, and the startups get to meet all these advisors, so it's great. But we're collecting all that data in the backdrop there, and there's times when it's very clear that there's tons of momentum around the startup, right? And momentum is a real thing in the early stages, and everyone's kind of talking, right? It's going to be their top 3, and you can see it in the way that the comments come through and how well people understood what it is and how they can get behind it and support it. There are times when the advisors might rates the companies not so great. But when we actually dive deeper into the data, they're not understanding the opportunity. The problem that's being solved is a little more complex. Perhaps it's not positioned well, or perhaps it's just a different field that is not as clear for everyone. And so you need to really weight the decisions or the information that you're taking, the wisdom of the expert crowd. You shouldn't be listening to everyone. You should be really pinpointing those that say, kind of the ones that truly know and have a better understanding of what's occurring. And that line is very hard to do, right? To be able to cancel out the right noise, take the right information, and to adjust yourselves based on that. Especially as a founder, you have so many things going on and you're trying to continue to build and consider what to do next. So I think that's a key component. In fact, that's where we spend a lot of time. We try to be that third-party voice of reason as we dissect the data with them and say like, listen, this is a recurring theme here. We tend to agree with this. We were in that meeting. And sometimes they're not even giving you the main reason because they don't want to. They don't want to deal with the fight that they're going to have to get into. So they might be kind of trying to let you down easy with some other reasons versus the real reasons of what's being said. And that's sort of where we're trying to play a role to support them and help them navigate it. And the best founders can take that feedback properly and be able to adjust and move forward versus getting defensive over it and not adjusting accordingly.

And, Jan, how do you find out about the founder's skill sets from a tactical level? And how do you grade those, like financials, key metrics, indicators, any KPIs, valuation drivers? How do you grade those and how do you find out whether or not they have those attributes?

Yeah, from a founder perspective, again, we try to look at those buckets areas, right? And in doing so, we put some key advisors who both have those buckets and that vertical market assessment, right? And what we're able to do is take, you know, we'll start with the deck and we'll sort of build those questions from there and put them, that sort of information in front of key expertise who can then add and further comment on it. And one of the biggest things that I can see is watching how the founder is able to hold themselves in those meetings with these experts in each of these markets, right? Whether it's like dealing with the way that they handle the product or the market. And so we're able to kind of get an assessment leveraging the wisdom of the expert crowd to be able to kind of move them through there. Now, so that's kind of more on the founder side and the character of the individual that goes through there. There's other high-level data points we can pull from online, whether or not, you know, they have a strong network or how much experience that they have in the space, right? And like how much they've been referred to in the space, etc. You know, you do have a digital footprint that can support, but I would not be making my decision on that alone. I think that model doesn't quite work. You need the kind of human loop to still to analyze and process these large volumes of information. Of course, we're attempting to try to solve for that where you hit a button and everything is decided for us and we make the investment, but I think we're quite a ways away from that still. You mentioned other points about whether the financing, the metrics and whatnot, that's just kind of getting into the due diligence at that point, right? Okay, if they have revenues, let's look at their bank side of things and statements and how that lines up with their financial statements and how they think. More importantly is how they think about their projections and their growth drivers. And again, so I come back to the founder of how they see where they can actually— where the market can be, where they can go with the market.

And Elizabeth, the question for you that I have is a little bit trying to pivot here to some market information. There's been this incredible growth in space, AI, medical sustainability robots, and of course, SaaS is always moving. And I know that you're focused on fintech. at Holt Exchange. But can you tell me what is crowded and where there is room? And are there any new emerging markets or subsectors that people should be focusing on as an investor or an entrepreneur?

I'm a big Ted Lasso fan.

Me too.

There's a Chilean, I think, soccer player that says soccer is life. Well, you know, my, my slogan is fintech is life. Uh, I don't look at fintech really as a segment anymore, but as opposed to one of the largest infrastructure plays that is happening in the world today. You know, when I see Biden fast-tracking, you know, digital cryptocurrency regulation, when I look at what's happening in the metaverse moving forward in terms of really our digital interactions, You know, we're digitally interacting today. I've lived my life for almost a year and a half now in Zoom. I've reached Star Trek level of transponding. And where we've built a deep knowledge in fintech right now is what I call enabling infrastructure. If I look at blockchain, if I look at digital currencies, the monetization of our lives in digital is really at a neophyte stage as to how people are going to be making money. I mean, look at Netflix just took a major, major hit. Yet, you know, they have significant eyeballs, but, you know, improper monetization as opposed to, you know, they locked themselves down to a single subscription model as opposed to looking at how people are interacting with that content and the ability to upsell and downsell with the real value of an entertainment experience that they're providing or a shopping experience. I think all across the board, everybody is going to be looking at implementing technologies that allow you to meter by the second in terms of, you know, how you bill, how you charge, how that experience moves forward. And so, I look at, you know, revolutionary technologies like blockchain that are going to enable you to do those things. And so, I really feel that, you know, we're investing in probably the biggest platform change that's going to happen over the next 5 years.

Jen, I have a question for you that just popped in my mind here with regards to the failure of these entrepreneurs, the data shows that the majority of the failure actually happens in the first year post an accelerator. Why do you think this is happening? And what would you say to entrepreneurs to avoid this landmine?

I mean, it's a great question. I would say, I think that it might be attributable to the fact that there is an abundance of accelerators, incubators now, and their range— I mean, everyone's an accelerator. In fact, we actually stopped calling ourselves that a while ago. We got tired. I mean, we are a fund. We just believe in a structured systematic approach to venture investing is the future. So naturally, if you have all these ways of pulling and everyone's pulling in all these various companies, it's also just the next stage, right? Like the failure rate from getting from seed to Series A, right, you're gonna see about 90% fail, right? So just getting to that big one and then continue on the path there. So is that just a natural evolution there? Is that part also, you know, needed? And is this— are these accelerators playing sometimes a part in accelerating the failures so that they can come back into the ecosystem and refocus on their areas? Or are some of them not adding the value that they could be doing in many cases, right? Versus, you know, kind of picking some really great companies and providing more substantial, like the network that they require to kind of move the needle forward, right? There's still a gap. It also has to do with just when people like to invest. The stage, I mean, seed stage is a very different type of investor, although some would act like a— that's what I was kind of saying at the beginning of the podcast. It's like there's so many seed investors who act like a Series A investor, right, who expects Series A sort of metrics. And so it's more challenging.

Yes.

So it's hard for startups to even kind of get the funding that they require to survive, to be able to even execute on some of the stuff that they want to do in this particular case. And so there are still sometimes the funding issues. But I mean, yeah, I think naturally there's just— while they come out of it, it's not— I don't think the accelerators are also causing the issue, although I have seen it can. There can be a lot of distractions. And we've actually— we get pushback sometimes saying, hey, well, we don't want to go through this program, or your diligence process is long. And I'm going, shaking my head, going, I don't understand. I'm going to introduce you to 100+ people. I'm going to match you with people that I think are going to be your customers or your investors. Where else do you get this sort of handholding? And it's— and they're so— they're kind of getting pushed or jaded. They don't want more workshops.

Sorry, it seems like that would be a vetting point too, right? You're sitting there going, man, if you're not even willing to go through this, how do I know you can start up a company and go through, you know, that? It seems like that would play into, you know—

Agreed. In many ways it is. However, what I've also known, as long as I can get on the call with the founder and then have that conversation, they'll— the best founder, that's the feedback loop. It's going, wait a minute, let me resituate. My beliefs, and I understand that what you're offering me is actually very advantageous. I didn't think of it that way. It's you're right. It's not a long due diligence process. You're literally you're just you're actually working for me in the interim, and I'm getting this free ride, this free value. And at the end of it, they're going to even give us some capital for you know, and then they're going to further be invested with us, which means we're going to be more incentivized to do more of this, more more working together in the future. So, but again, I think the issue is because there's been so many incubators. Accelerators was so much just like types of the same material. Like when the first— reminds me of The Lean Startup when it came out and I bought into it too. Go speak to 100 people, fill in the business model canvas, all that kind of stuff. I think that they try to oversimplify how hard it is to actually build a startup and it was great and I believe in structures and frameworks, so don't get me wrong, but I think many just got kind of tired of all the There's too much noise out there, not necessarily the great value-add to support the companies and what they really need.

Yeah, I agree with you. I think I see we've studied this so thoroughly and I had to do it for the book as well. And I was just blown away by how many folks there are out there calling themselves an accelerator, but they really don't have the chops behind what it would require to really accelerate a business. I agree with you. I think it's going to be interesting to see what sorts out over time. Those that are real like you guys who are actually providing the things that are necessary for these entrepreneurs to get a springboard, and then those that are not doing that basically. You guys are unusual too. I mean, I've talked to Elizabeth and even in this conversation, knowing what I've done in the space to research all of these accelerators, 1,272 accelerators. And then learning the way you guys do it versus the way a lot of the other folks do it, the advice that I would give to entrepreneurs is you need to pay attention to what they're offering. Along those lines, I want to ask Elizabeth a question. Your bread and butter is investing into these fintech companies. And in this conversation, I keep hearing about this war on talent and the shortage of tech talent What's your view from where you sit on how that affects which companies you actually invest in?

Well, I think a core portion of what we look at from the investment side is going to be the OpEx to be high performing. There's no doubt that if you're located in, you know, some key cities in North America, you know, you're paying $150K to $200K for top development talent. So, the ability to look, which is, you know, we certainly collaborate with their companies to look to, say, you know, establish development organizations out of Canada. Very, very favorable environment in terms of credit and partnership and access to funding grants in order to be able to develop. So, you know, that's certainly, you know, back to your— I get the first question, why Canada? Why Quebec? I think the ability to look at collaborative development, really, really great founders are looking to say, how am I going to build out over the next 5 years? And there's a lot of really great emerging models. And also, I've been with many organizations, even myself in my early-stage companies, that ability to outsource certain portions of your development. That's no easy feat. But when it's done well, it's very, very cost-effective. And it also, you know, I think your initial point, even talking about the founding team, right? How you go through different stages in your development cycle. Well, I think you can go through different stages in your requirements for your technology team. So, you've got to find that right balance. But yes, there is a global shortage of talent and as well as— I think a lot of people really enjoy the early stage. I mean, look, I think Google said they were asking people to come back to work and 30% of the company's resumes hit the line. So, I think that there's some really unique opportunities to be working in early-stage, fast-accelerating companies today. Very exciting spot to be.

The last question for you, Elizabeth, and then one more for you, Jan, and I'll let you get back to your busy What I've noticed is ever since this war started, Russia and Ukraine and a lot of Eastern Europe, all of these engineers are now done. And so what's happened in the Valley and in California where I am is the prices of engineers have gone through the roof because, you know, all of those engineers disappear. Now they're turning inward. China's off the radar now. So you have— China's off the radar. The United States and a few other countries, India and some other places where you're trying to find engineers. And it seems like this is going to get a lot worse as, as this war progresses, you know, where people are out there just trying to find engineers. Are you guys experiencing that in Canada or do you have protection from that?

Well, I think, you know, what a great opportunity for governments to be fast-tracking immigration, right? Like the talent coming out of Ukraine is incredible. And some of our portfolio companies certainly had remote teams in the Ukraine. I think that talent exists everywhere. And I think that countries such as Canada and the U.S. need to be accelerating immigration and certainly making it faster. I mean, we've hired some great resources from around the world. But It is a bit slower, right, in terms to get people moved in and set up and their citizenship. So I think that, you know, that collaboratively speaking, in order for us to continue to move ahead from an economy side, we need to be taking that much more into consideration, which is, you know, how do we relocate talent? And then the second component is I think as we move into these really virtual worlds and and digital worlds and working remote, the tools are definitely increasing for much better collaboration. So, I think that you really can have your development team all over the world. And as long as everybody can align to a time zone. And we're actually kind of playing in the metaverse with our office right now. And I like it because I log in in the morning and I get to see everybody's little icons in there. And I feel more like a team. I can have a water cooler conversation. So I think technology is definitely going to help us overcome some of those challenges on getting more talent accessible to us.

So last question is for Jan. There's an old business phrase, it's not what you know, it's who you know. You guys have brought this up a whole bunch of times in terms of your advisor base, and it seems like a huge value add. And these advisors are— some of them, I'm assuming, are future customers or people that are going to give them information on how this fits in the product-market fit category. When it comes to investing generally, how important is it or should it be to an entrepreneur to be referred to you by one of these trusted colleagues versus just coming in through a blank application?

Oh, it substantially moves the process much, much more quickly. I mean, we're happy for the entrepreneurs listening. You go on our website and you can filter through and see the list of names. names that are on the website. But, you know, and then, you know, how are you going to process that? First and foremost, identify which are the key ones to go after, and then how do you open with what sort of area? Everyone's super busy right now, like no one has tons of time. So how do you be able to really prioritize those and be able to get through and have the right conversations? I mean, from our side, that's where we spend a lot of our time when we're working with the different founders is really first and foremost pinpointing who to go after and then ensuring that both parties are interested to engage and have the time for it. I mean, life is all about timing and certain— like how you might find your— think of it like you're finding your next love of your life, right? You could have missed the opportunity because timing was off. You were too busy, you couldn't show up. So we try to spend time in understanding where everyone is and are they capable and where they can add value because everyone wants to be valuable and value-add in those processes to be able to facilitate those connections. So we spent a lot of time trying to just profile our advisors, understanding the areas, the verticals that they're in, their strengths of where they give good information and how they like to engage, right? Everyone likes to engage in different ways. Some people enjoy being able to participate in the interview process. So they're kind of at the top of the funnel and they're really seeing what's out there. Others just want to wait until the end of the program. Right? When they're all properly pitched and groomed, and then they can make their decision thereafter on the top one, and that's how they want to play. So it's— everyone likes to engage in different manners, and how do you streamline that process? And again, listen to what's being said in that process, right? Like, if you've never met them before, you can lead with a key conversation, a key point, so that way, A, you can— you're kind of on your second or your third date, so to speak, versus, you know, having to start from scratch and building off of that. When we get an intro from any of our advisors, we take that very seriously from how we consider for making that investment from our side. We do the same thing. We will look double and triple at that. Plus, we get all this background and context of a trusted source to understand so that we can ask even better questions. It's all about, at the end of the day, what is the investor doing? They're just accelerating your business. But you can also accelerate it through the acceleration of those contacts. So yeah, we spent a lot of time looking at that. And I think it's super important and it certainly adds a lot of value.

I just want to say in closing that I have evaluated 1,277 accelerators, like specifically went through. I had a team of 3 people going out and looking at them. And although some accelerator, microfund, corporate, whatever they decide to call themselves, they all are in the business of assisting startups to get from one place to another. And I want to say that the Holt Exchange is exceptional in that way. So the fact that you guys only take 1%, there's a reason for that. And that's because you get a lot of attention and that's why you get a lot of applications because you guys actually do add value. And I just wanted to state that because when I did the investigation and I looked into them, there was a lot of them out there that were charging a lot of money, taking huge percentages or both. And in the end of the day, when you ask the entrepreneurs in forums and chat groups and whatever, what value they got out of it, it was not that much. But that's not the case with yours. You know, your folks are like, you know, if you can get in, it's like getting into Harvard, you're almost guaranteed success. So kudos to you guys for what you put together and thank you for joining the podcast.

Well, Greg, coming from you, that's a pretty big compliment. So much appreciated. Love the work that you're doing. Would love to find a way that we can collaborate even more. So appreciate the time today.

Yeah, echoing that. Thanks so much. Super kind words. And I think it speaks to just how easy we kind of get along and see the big vision of the ecosystem collectively. So would love to find ways that we can also sync up and make better support those entrepreneurs That was Jen Arp and Elizabeth Lott, the managing partners at the Holt Exchange.

And that wraps up this episode of the Boss Podcast. If you enjoy the show, make sure you take a second to subscribe so you automatically get notifications of new shows when they drop. And also, if you have a minute, I'd love it if you left us a review so more folks like you can find out about the show. I'll see you next time, my friends.

Bye. Namaste.

Learn more about the BOSS Business Operating Support System at bossstartupscience.com, or you can reach Gregory Shepard at gregoryshepard.com. This has been a production of Forbes Books.