The Journey into VC #1 with Michelangelo Pagliara
/ˈventʃər kæpɪtl/
Money that is invested in a new company to help it develop, which may involve a lot of risk.
Background
Name: Michelangelo Pagliara
Nationality: Norwegian & Italian
University: Rotterdam School of Management
Degree: BSc International Business Administration Class of 2020
Michelangelo sat down with me virtually for a brief chat about his life experiences, aspirations, and drive that ultimately led him into the world of venture capital. His entrepreneurial journey started back in 2016 when he co-founded Trop Origins Inc. — a clothing brand — with a couple of his high-school friends in Oslo, Norway. Trop Origins Inc. would later pivot to become Trop X, a consultancy focused on the development and execution of go to market strategies for clothing brands.
In 2019, Michelangelo stepped into the door of KPN Ventures as the youngest intern in the corporate venture arm’s history. After his first VC experience, he would go on to launch Venture Insider with fellow RSM graduate and close friend, Dorian Simon, with the purpose of democratizing the insights they gathered through their experiences in the startup- and venture space. In October, Michelangelo will move to Berlin as part of his latest endeavour, working at Samsung’s corporate venture arm, Samsung NEXT.
Reasons Behind This Series
The purpose of this series is to hear from individuals who have decided to pursue a career in venture capital. We will listen to their stories, and shed light on the venture industry. It is especially relevant for you if:
- You want to break into the industry.
Why? because we try to uncover what venture capital firms look for in candidates. - You are a founder.
Why? because we try to uncover what venture capital firms look for in startups. - Interested in entrepreneurship & innovation.
Why? because the quickfire at the end is great.
The journey into VC is often serendipitous, which lays the foundation for great stories. Welcome to story number 1.
Note: This interview has been edited and condensed for clarity.
The Journey
The Brief
In 2016, Michelangelo and his fellow co-founders Hashin Karim and Liban Salad had started Trop Origins Inc. — A clothing brand focused on bringing tropical vibes to the cold, but beautiful country of Norway. With a palm tree as their company logo, they were ready to launch the next big apparel brand in Norway. They officially launch at the beginning of summer 2016. Midway through the festive period, Trop Origins Inc. had closed down their operation.
Oh god, it was bad. I think we had 10 sales, and a big part of that was ourselves and family members. But we kept going.
In 2017, they would relaunch the brand, however, this time focused on caps with a locational identity. A blue cap represented “Sørenga”, and a grey one “the City Center”, etc. All under the Oslo umbrella. They hired employees for their business — a lot of them friends — as interest for their cap brand grew. Through the summer of 2017, the company had accumulated 500+ orders. Eventually, Trop Origins Inc. was enrolled in the BI start-up incubator as both Hashin and Liban were students at BI Business School. With the help of their first investor and advisor, renowned BI professor Tor Haugnes, they would pivot to become Trop X, a small consultancy for firms with the goal of launching clothing brands.
The Details
Entrepreneurship is difficult. There are obstacles at every step of the way. Michelangelo recalls two main lessons for first-time entrepreneurs:
- Criticism
You are going to face criticism. When we told people about Trop Origins Inc. in the summer of 2016, people laughed at us. However, when we re-launched in 2017, everybody changed their minds. Don’t take criticism personally, move on and believe in yourself.
2. You do not have everything figured out
You are going to encounter obstacles you didn’t even know existed. For instance, when we sold our cap brand, we used an online Norwegian payment system which crashed. Because of this, we did not know who paid, what they ordered and in what quantity. Coupled with the fact that we did not have a distribution system, we ended up hand-delivering all 500+ orders ourselves. We had to solve these problems as they occurred, which is normal in the field of entrepreneurship. Persist and adapt, because you do not have all the answers.
Michelangelo laughs when he recalls his first meeting with investors.
We filled out this application for a business meeting where we would have the chance to talk to investors about our company. The application required us to list EBITDA, business valuation, etc. But, at the time, we did not have a clue at what we were looking at. So, we just filled in random numbers. And to our surprise, we got an invitation.
He continues:
If you are a founder, DO NOT DO THIS. We just did not know better at the time. We were fortunate that the investors we met were kind and took the whole situation lightly. They even helped us with guidance and advice.
You might wonder, how did they value their business if they were not familiar with standard business valuation practices?
Well, here is your answer.
So, this morning I met with my co-founders in a small conference room with a whiteboard. I stood up, walked to the whiteboard, and wrote down our valuation. Remember, this was not based on any metrics, just our subjective opinion.
Michelangelo recalls.
The following will demonstrate “how not to value your business” through a replication of the dialogue between Michelangelo and his co-founders in their business valuation meeting:
This is how much we are worth. 3 million kroner (approximately 300 000 euros)!
Michelangelo announces as he turns around confidently, awaiting the responses of his co-founders.
Liban and Hashin look at Michelangelo. Both with a confused look on them. Then Liban stands up.
Are you crazy?! That is not right. No…We are worth much more than that! 10 million kroner is our valuation (approximately 1 000 000 euros).
Liban says as he goes up the whiteboard to write down his number.
Hashin sits quietly and looks up at his two co-founders who are now both standing. He stands up and firmly announces:
No no no. You are both wrong! We are worth more than that!
Michelangelo laughs and continues:
It is funny because at the time I was 100% convinced that we were worth that much. The investors however quickly understood that we had very little going on. So, conviction and passion will only get you to a certain point. Ultimately, as an entrepreneur, you need to balance huge ambition with a realistic approach.
The encounter with these investors had sparked Michelangelo’s interest in the funding and growth part of entrepreneurship.
These individuals were so knowledgeable. I wanted to learn everything from them. Also, if I had a better understanding of the funding side of entrepreneurship, I could eventually become a better founder. And, working in the venture space would allow me to meet so many founders. These were my main motivations to break into the VC industry.
Read more about Michelangelo’s journey into VC here:
Advice To Entrepreneurs
With the limited industry experience Michelangelo possesses, he did not believe that he would be best suited to give advice. So, he decided to recite what his supervisor Samir Ahmad, and what his managing director Herman Kienhuis at KPN Ventures told him.
Note: The following list of points are not ranked in descending nor ascending order of importance; they are all crucial.
1. Do your due diligence
This is a common misconception: to think that all VC firms are the same. That is not the case. They are completely different. They have different investment criterias. They have different backgrounds. They follow different structures. Understand why you want to partner up with a certain VC over another. This is extremely important!
Check out this article by Alexander Buchberger on how to choose the right VC from an investor perspective.
2. Know you financials
You are getting money from someone. So, you better show them that you can make it back. VC firms are not philanthropies. They need to make adequate returns for their own investors, the Limited Partners (LPs).
Check out this article by Trey Calver to learn more about the corporate structure of venture firms.
3. Understand the fundamental dynamics of a VC fund’s lifecycle
VCs also have their own bosses, the LPs. To keep it short, a VC needs to amass a favourable return in their lifecycle, which conventionally is 10 years. Therefore, it is favourable for you, the founder, to partner with a VC during their investment phase, and not their exit phase.
Check out this article by Kostakis Bouzoukas for a more in-depth review of a VC fund’s lifecycle.
Advice to aspiring VCs
You need an edge.
Michelangelo tells me with a firm voice. He explains:
The venture industry is built on outliers. It builds on the power law. The funds in the top quartile are almost bringing in all the gains. So, the goal of many funds is to find the potential unicorns (startups with >$1 billion valuation). These are the outliers who predominantly return most of the funds in the industry. This unicorn mindset is also reflected in the people VC firms hire. They would like to see what you have that nobody else has; Your competitive advantage. Your unique value proposition.
To give you — the reader — a better understanding of the industry, the two conventional paths into venture are:
- Operating experience
- Finance experience, typically investment banking
Michelangelo tells me that it is definitely advantageous to have operating experience (running your own company) because you will have amassed a unique experience.
However, it is important to emphasize that there is no set path into venture! Don’t believe me? Check out the story of Michael Moritz.
As I do not have any investment banking experience myself, I cannot tell you that one is better than the other. Remember, different types of venture funds will prefer different types of qualities. Early-stage funds might prefer operating experience, and later-stage funds might prefer you to have a finance background. The important thing is to have some sort of edge. You do not necessarily need to be successful in that area, but you need something that is different.
Michelangelo continues:
My edge is that I love to write.
Want to see Michelangelo’s competitive edge? Well, check out:
Quickfire
What are you currently reading?
Machine Platform Crowd: Harnessing our digital future by Andrew McAfee & Erik Brynjolfsson. My supervisor (at Samsung NEXT) recommended it to me as preparation material. It’s a must read for anyone who wants to understand the technology part of anything.
Which public figure(s) must I be listening to?
1. Bill Ackman, founder & CEO of Pershing Square Capital.
A legend in the finance industry, and recently made an approximate 100-fold return on a COVID-19 hedge. $27 million to $2,6 billion. He is one of the leading investors on Wall Street, definitely someone to follow closely. Check out this episode of The Knowledge Project podcast with Bill Ackman.
2. Mr Beast, one of the most-subscribed Youtubers in the world (As of August 17th, Mr Beast has 41,3 million subscribers).
He is the definition of persistence. For instance, he pronounced the name of another famous youtuber (Logan Paul) 100 000 times in a Youtube video. *Evidence Here*
3. Sam Altman, among other things, the previous President of Ycombinator.
Look at the startup school of YC. Incredible value!
Which startup must I be following?
At the moment, I would say Scale AI. The company is based in San Francisco and they create and organize datasets for companies like Lyft, Nvidia, and Airbnb among others. Their founder, Alexandr Wang, is one of the geniuses to follow. Read his story!
What is the single question that you ask yourself before making any major decisions?
Why not?
Thank you for taking the time to share your story, Michelangelo.
I wish you all the best for your future endeavours!
Lykke til! In bocca al lupo!
Last Words
Everyone has a story. Do you want to share yours?
If so, feel free to contact me on LinkedIn!
