Super Angel #226 Francesco Simoneschi, Co-Founder & CEO TrueLayer and Angel with 60+ investments

0:00Francesco, welcome to the Super Angel Podcast. I am so excited to have you with us here for this episode. Thank you very much. Hi, everyone. And thanks very much for inviting me. That's really exciting. Is this a dream? No, it's not a dream. I'm an angel. Why would God send me an angel? Because God knows that everyone needs a little coaching now and then. I'm loving angels. I saw an angel. All angels say. Angel. Please send me an angel. The smile on her face We're in it together But don't help me Thinks as by an angel, girl

0:42This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Thanks for joining the Podfra. It's a really special one for me, as you know. You were one of my first investments in my VC career and have learned so much from you. So excited to get started. Do you want to get started by sharing a bit more about your story and also what got you into angel investing in the first place. Absolutely. And you know my story, like you have been part of my story in a way, maybe for the benefit of the listener. So Trulayer, the company that I founded that started here in London has been founded at the very early stages by Anthony's venture.

1:24And you, Anthony, were part of that investment team along with Jan. and so I'm personally you know I've been really excited to work with you but also I think like it's really nice to see you know people going through their entire careers and like all those stories panning out so it's fascinating to also see you taking on your own adventures and so I'm really really thankful for that. About myself so I don't know how to define myself I'm an entrepreneur I'm the CEO of TrueLayer, which is an open banking payment network based in London. We have been, myself and Luca, my co-founder, running and operating the company for the past seven years.

2:06Prior to that, I really started very, very early when I was a teenager, like at 15 years old, writing code and hanging things together and along with Luca. And when I was 19 years old, we really started our very first company back in Rome, in Italy. I'm Italian. And it was very, very different vibe. Even right now, I think Italy is developing their own kind of tech scene in a way. Back then, we were really, really unique. Like we were probably like one of the very few so young and really thinking about building a software company, which was like a very alien concept. And with that, I would say fairly successful for the conditions that we were operating in.

2:55And so at some point in 2010, we moved to San Francisco, where we actually started another company. And I also had the pleasure of working with other two partners in a very, very, very tiny kind of angel fund, which I started along with them. And that's maybe where I learned a little bit about angel investments and all that good stuff. In 2016, I moved to London. I wanted to have a new adventure, entrepreneurial adventure, for a bunch of different reasons. Came about to now open banking as a concept. I was really fascinated of this idea of bank opening up APIs and the regulator being supportive of that.

3:45And I thought that was a big, big change to allow a new infrastructure to exist that could push a different kind of payments and set up financial services. Yeah, I think that was a very good decision to pack up the bags and come to London a little bit closer to Italy. But also really glad that I've been working for the past seven years on something that I will define as one of the very few opportunities in, I would say, technology and financial services that are quite unique of the European landscape. I think that's where UK and Europe kind of are leading and paving the way for a whole entire wave of innovation around how payment systems should be in the future, right?

4:36And I think it's exciting to be on the front line of this movement. And yes, I do a little bit of angel investments on the side when I'm not crazy busy with Trulier, which is most likely the case. we always say, what is a little bit, right? And we'll talk much more about investment thesis, but you just shared it a bit there. I'm doing a little bit of angel investing. How much does angel investing matter to you? And how much time and how many portfolio companies do you have so far? In terms of number of portfolio companies, I think about two separate portfolios. There's one portfolio that they built through this firm, Mission Market, back in San Francisco, about 35 investments, I believe, roughly.

5:28And then as an angel myself, so outside of the firm, I probably have another Therese, roughly speaking, like also including maybe a few, not just like startup companies, but also some venture funds that are also focusing on early stage investments. So just a mix of the vast majorities are per company. The earth of time, I mean, frankly, it's something that I would do maybe mostly late at night or during the weekends. It's very, very hard to do anything else that it's not to layer at this point in time. It just takes all my time. So the way I think about it, it's been a large distribution project.

6:20I don't know. I don't collect stamps or I don't know whatever it's called today, but I like to learn about other companies and maybe try in a way to potentially live another life through their eyes and through their experiences. That's maybe what drives me the most. Yeah, double click on that a bit more. So when you reflect back, even if you're not super intentional and spending a lot of time on it, I'm sure it comes to organic channels as well. You know, just from the mere fact that you're truly there, like a lot of the companies come to you, for example. But what would you say has Angel Investing given to you personally or professionally?

7:03Right. Just like looking and taking a step back. I would say the big motivation why I'm even spending time again is can I, it's probably like the sense of curiosity. I'm extremely curious about other stuff that happens around me. And I think as an entrepreneur, especially of a venture funded company, you develop some sort of like tunnel vision. So you happen to do, you need to do that thing for probably 10 years or 20 years. That's really like the time span that you need to allow for yourself. So this is a lot of time. It's a very big commitment. And it's very nice to, at the same time, have a little bit of a look inside other people's story and learn from them and try to understand how things relate to each other.

7:55Right. Especially when when in my case, for instance, I do invest recently a lot into financial technology, fintech. And so really, it is an ecosystem play. If I have to describe my strategy, it is an ecosystem play, right? Because I'm investing in things that are not related to true layer, but they are in a way as part of like a broader movement of technology and innovation in financial services. And so for me, it's immensely valuable, not just from a pure financial perspective, but also and mainly from the experience that I gain from sometimes just chatting with other fellow CEOs and see how they are setting up things and just maybe look at another trend and learn something out of it.

8:49And sometimes I can also be helpful to them into like just the other way around, because maybe I've done a similar thing in the past and I know maybe a common pitfall or something that I just have to learn the hard way. And that happens to be something valuable to them as well. I would love to be more disciplined and maybe a little bit more, you know, just like sometimes I remind myself, OK, I need to have a strategy. I need to sit down a little bit, think about check size and like, how is that I'm going to do follow on or like all this good stuff. Like just the thinking of maybe, you know, what goes into modeling a portfolio and how is actually you go about retarding the capital and making like a financial gain.

9:37But I never find really neither the time nor the enthusiasm to do that in a very diligent way. And so then I just get pulled a little bit more into the excitement of this new thing happening. And I just want to be a part of it. If you, you know, now having reflected and talked about the learnings and what it gives to you, like, do you want to share maybe with the audience a memorable deal that you've done or a company that you've like recently or in the past interacted with you want to share more about? The one that I will always remember in a way, just because it was quite interesting, is the very first investment we did at Mission Market, a company called Ease.

10:18It is a marijuana delivery platform. So those guys were Uber for wheat in California, right? That's a problem worth solving. It's a problem worth solving, especially when the whole industry has been really opening up in the US, right? In the past maybe 10 years and more. And if you, you know, like we try to at that time also to think about a little bit, okay, what is the reason why this is going to be net positive for everyone really involved, like from consumers to actually sellers. And at the end of the day, the big rationale is that regulating a very dark industry is actually net positive for all the different constituencies and actors.

11:07And so we wanted to be a part of that. But beyond that, just think about that was the very first investment of the fund. It was a company that at that time wasn't really existing, was just like a bunch of slides. And we just raised this very small fund. And the vast majority was our money, but also some more institutional money into the fund. And we have to go and explain to our LPs that the very first investment was like, you know, weeds delivery. And so it was a little bit awkward, but like we had like strong conviction into the company. And it's fascinating to see, you know, the very early investment and how they actually plan out and they actually build companies.

11:46Is, I believe, like, I don't know exactly when, but like at some point will probably IPO. They are in that sort of stage where an IPO at some point will be appropriate. And they are certainly market leaders. If you maybe have been in San Francisco in the past few years, there are gigantic deal boards. It's a very known company in that part of the world. And they went through some incredible up and down legal problem. It's very hard for them to access, still access the banking infrastructure. And they had all sorts of problems with accepting payments. And this is all in the public. And so it's just a fascinating story to just see how what from the outside is a successful company, really behind the scene, it really takes several years and all different kinds of people and different stages.

12:39It's just fascinating to see that all panning out. There are other couple of companies that I remember. I want to mainly talk about like Mission Market more because those are companies that at this point I have several years worth of experience with them and just like looking at them versus some of the most recent one where it's very early days for many of them. And so I guess I remember this other one called Koniku and Ash is the CEO and founder. I feel like he's a crazy guy in the most positive way as a scientist with an incredible passion for what he does. Now, the idea back then, I met the guy when really he was just probably like himself and a couple of other people coming out in the bio, which is a biotech accelerator in San Francisco.

13:30So Conigo at that time and still today, they are building, basically, they're using real cells, like real neurons in vitro dishes and connect them to hardware to basically have this sort of wetware computation. You do have real neurons, actual neurons, that they do some part of amputation and they are connected with the rest of just more traditional CPUs and GPUs. And so through the years, they went through a bunch of iteration. And now they basically develop those kind of smell computers, like those computers that can smell molecules. And those molecules can be everything from, you know, maybe explosives in an airport to actually, I don't know, some sort of like viruses in the air, like matching with COVID.

14:26And this is a company that is becoming really successful and raised hundreds of millions of dollars in venture capital. And I remember back in the day, it was just a crazy concept of you basically want to just get the brain of a person and connect it to a physical computer and just get that source of competition power. And I think I just have those very fond memories of the early days when I met Bosch in San Francisco. And I think I was just captured by his passion when he was talking about this future that he was creating and inventing. And I think at the end of the day, that's what really moves me, this sort of passion behind the ideas and just this incredible drive that entrepreneurs really have when it comes about building the future.

15:15And I think that on that story, I want to go to our investment thesis segment. Oh, no. Not about the thesis segment.

15:28And the reason why I want to go to the investment thesis segment is because you said just before that you kind of had two investment careers. You almost done 30 investments in both of them. But they're very, very distinctly different in the sense that what you did in the Valley was you actually raised a fund there, a small one though, and primarily with your own capital and a couple of institutions, and I'm sure also a bunch of friends. and now you're investing entirely out of your own pocket. So I'm curious to ask you, how has your thesis adapted from back then to today and considering those two distinct differences in the purpose of your investments, right?

16:14I think, as you're saying, there are maybe some commonalities, but also just the setup is different. So mission market, small fund, as you said, some of my money, also the other partners as well. We started in 2014 or 2013. And the reason was, we just happened to see just entrepreneurs and friends building companies in San Francisco. And some of them were actually then going and raising A and B. And so we said, look, we want to just be part of that. And we pulled our money together. And then some other friends and entrepreneurs from Italy and Europe, like they came along and we realized that they didn't have any source of avenue to deploy any money whatsoever into those early stage companies that were born in Silicon Valley.

17:11And that was an age where I believe still being in the Valley in San Francisco was extremely important. And it was a point in time where I think we were all feeling that all innovation could only happen in Silicon Valley. It was the time of like Uber and Facebook going on mobile and all those kinds of Instagram, all those sorts of companies. And so that was the thesis really, like how do we get access to some European capital? And when I say European capital, it's really other entrepreneurs and angels and some institutional capital as well into those early stage opportunities. And mostly a mix of Y Combinator companies and some other accelerators and our own kind of just personal network of entrepreneurs.

18:01So that was the pieces. And so in order to do that, the idea was to try to index some of the maybe largest trends that were happening at that point in time, delivering marketplaces, for instance, being one of them. That's why EES at that time kind of made sense, but also other stuff and just like leverage also, again, just opportunistically, just our background and Stefan and Simone, which are the other two partners, like we're also adding their own kind of background and people that they knew. So it was about trying to be generalist, but selecting some kind of teams that at that point in time were kind of indexing a little bit more or less everything going on in Silicon Valley from an early stage perspective.

18:54And so it was about going wide and try to be relevant in three or four things that we believed were interesting. And I don't know, VR was a theme, for instance, we made a couple of investments, turned out to be certainly different than the way we imagined. Delivery was a theme. And actually, I think we managed to find one or two good companies in that space. We actually believed a lot into biology and synthetic biology and biotech as a team as well. And so we made a few investments. And also, I think financial services, FinTech, in some way was starting to shape up. And that was another interesting thing.

19:39So certainly slightly more structured. Don't think necessarily crazy structured, but a little bit structured in the thinking. And then it comes my personal portfolio that really developed after, I would say, 2019, roughly, when I had a little bit of space to breathe after Trayer was starting to stand on its own legs a little bit more than what it was, maybe just like a very much like a startup phase. And I feel like the strategy there is very different. I would say financially, it is about providing an edge versus Trulayer itself. So as an entrepreneur, you end up having all your eggs in a single basket, which is your company.

20:28Now, I do believe that today is really like demonstrating something good and it will do more and more in the future. But I think just like the very simple financial advice that everybody should follow is to try to have a diversified portfolio of assets in different risk profile and categories. And so I think tech entrepreneurs like myself, they are adapting that principle also through angel investment. So you start placing some very small bets into other founders and other companies in order to edge your position a little bit. I think it's just like kind of investing one-on-one, like try to have a differentiated portfolio of assets.

21:15But that's only like maybe the rational part. Like what rationally, that's kind of the excuse, right? rationally, that's my excuses in kind of in a lockbox sitting there. On the rational part, and you just spoke about allocation in terms of trying to actually put your money in healthy and meaningful places. Are you also then hatching your own bets in terms of having a public stock portfolio and real estate and that kind of thing? Or are you still heavily allocated to both, of course, TrueLayer, but then your angel portfolio as well. I went full circle on this thing. So I started like, okay, I need to have a view on basically every single asset class in the world in order to diversify.

22:05And I can kind of like pick the best companies. I have my thesis. I know all the answers, so to speak. And then I realized really, where is my edge? Where is that I'm good at and I can have possibly a 1 % increased chance of success versus everybody else in the world? And I realized that it is in the early stage investments and early companies. As an entrepreneur, I happen to be maybe just 1 % better than maybe the average. And that gives me some sort of marginal gain that in this world kind of happens to create alpha. So I resorted to say, traditional investments is with more traditional wealth managers.

22:52They know what is good. And also, frankly, the mandate there is to don't take excessive risk because basically the vast majority of my wealth and assets isn't something that is extremely, still extremely risky as private companies, right? And so their mandate is to be boring and have like just the steady end and apply all the rules and just be financially savvy so that I can carve out stuff that where I'm more directly involved. That is more about trying to have an edge, but also on the other side, again, just maybe have fun, learn something and follow curiosity to a certain extent. in the end of the day, like when you put your actual proactive energy to something, you might as well do it on where you have an edge and then you have other people that do it professionally that you can actually outsource that to kind of have a bit of a diverse web portfolio.

23:49So it makes a ton of sense. It took me some time to get that view. I think I went through a time where I wanted to just like pick stocks and just like try to do everything by myself, but it's just impossible. There's enough things to lose one's sleep when you're building a company. You don't want to lose your sleep by looking at the stock market. I get that. Just looking at the similarities, because we did talk about the big differences between doing it in a structured fund versus doing it as an angel now. But like, for example, when assessing founders, I'm assuming, I mean, these principles evolve, but they hopefully are in a similar ingredient.

24:31So I would love to ask you, you know, when assessing founders, are there any absolutely key ingredients you are usually looking for? Or the flip side of that, any no-goes or anything that does not get you as excited? Absolutely. I think there are many, many similarities the way we would approach things, because also with Mission Market, we weren't really leading rounds. So when you're not leading, I believe the first thing you need to assess for yourself is financing risk. Let's say that you actually picked a good team, the right idea. But if for whatever reason, the funding doesn't come together, you as an investor, a very small investor, you're not going to move the needle.

25:14And so the first thing that the first risk you need to mitigate is financing risk. is another larger investor coming along that is going to provide enough capital for this team to get off the ground. And that's something we learned and I learned. And this is a principle that I still apply to my own personal portfolio unless I happen to know the entrepreneur for maybe a very long time. And I know that there is something there that gives me comfort in terms of like mitigating this financing risk. and so maybe I'm very happy to be the very first check in the company or among the very kind of like first check in the company.

25:55But otherwise, of course, as a small angel, it's way easier to just chim in around that is already forming. There is some space left and that's where you fit yourself. This is a simple thing to do and say, but I believe pragmatically for an angel, it kind of does make a big difference into just the mortality rate of your portfolios, especially in the early innings, right? I would say there is a basic test that I'm trying to do with all companies that I'm investing with personally, which is about what happens if, how would I feel if that company goes busted and I lose all my money, right? How would I feel?

26:42And the answer must be something like, clearly, I'm not going to be happy, for sure. But there must be something in there in terms of learning, in terms of excitement, in terms of just like irrational motivation, so to speak, or some other utility. like just trying to put into your utility function, like your value formula, something that is not just about return on investment, but also about the amount of learning and just the experience of doing that thing. And that is the basic criteria that I'm trying to apply today. And maybe that was a little bit different versus the more the venture fund, where I would say it was more about maybe the excitement for the category and the excitement for the future that that company was building.

27:39But as well as are all the economics making sense? Is the right entry point? At the end of the day, just slightly more a decision about how are we going to make some money out of this investment? In the early stage, I believe that it's less sophisticated versus like growth stages and late stages in terms of what is the exact entry point? Like, should you care too much about that? I think like up to a certain extent, but was certainly more central in our thinking back then versus like what I'm doing right now. The other thing is about some sort of, I think right now I have more experience by just being a founder myself of just like pattern matching behaviors.

28:27It's very hard to, sometimes it's very hard to explain in very rational formulaic terms. is just something that at the end of the call, you say, okay, there is something in there that gives me really comfort that this person is going to go through all the hardship of building a company and come out of it successfully and creating a village around him or her, right? And that's, I believe, at the end of the day, that's really important, especially if you're investing at the early stages. Like you learn to not trust traction metrics. If we're talking about companies that are raising kind of pre-seed or seed, because those early tractions sometimes are just like showing that they can execute something, but they don't have intrinsic meaning of its own, right?

29:20They can easily be gained. So then it all reverts back to who's the entrepreneur? is this person going to go through all the trials and tribulation of entrepreneurship? I have one question before we go to your core learnings. And that's just because, you know, we're on a call here with one guy who does LP syndicates into venture funds backed by the thesis that it can help many angels, you know, really get closer to the venture ecosystem. And then with another guy who's running his own VC firm, who's very much involved in the Yeah, in the angel scene. So I have to ask you, of course, how do you think about investing into funds?

30:02Do you do that at all? How do you work with the venture scene? I'd love to hear more. Yeah, I do that. As I said, at the very beginning, I do have a portfolio that also contains a few funds that are either focusing on the super early stages or maybe series A, maybe some B round. I don't do like growth. I don't think that is kind of like the kind of return that I'm looking for. I'm constructing that portfolio way more skewed over early stages. I mean, the rationality there is that for as much as, again, I'm trying to be smart about things and have an edge on things, The reality is that there are people like you guys that are doing that professionally, putting like 100 % of your time and your passion into it.

30:52And clearly you're going to do a better job than I do. I believe that that's the reality. And so you are trying to create a diversified portfolio of approaches, geographies, people, operators, sectors. and it comes with also, it's way easier to diversify if you go through a fund, right? Like by definition, you get also all their investments plus yours. So it is part of like, let's say a strategy. Again, don't think that as a highly sophisticated strategy, this is basic, like I like maybe the operators at the fund. And I think like the basic math is that I'm better off investing into a few of them versus just like do my own investment.