294. Meet the Head of Operations at Europe’s Top Early-Stage Tech for Good VC w/ Yumi Tsoy | BGV

0:00Amardeep Parmar:Great to have you here today, Yumi. Can you tell us what you invest in and what Bethlehem Green Ventures does?

0:05Yumi Tsoy:Yeah, sure. So BGV is an early stage tech for good VC. We invest in really early stage companies using technology to address social and environmental problems. So think kind of healthcare, climate change, financial inclusion and things like that. We invest really early and particularly we're looking for businesses who make impact into the business model. So that means the more a business sells, the more impact there should be. So for us, the two very much go hand in hand. And we believe that impact and commercial success not only go together, but they also essentially are the future of how tech and venture will develop over time.

0:49Amardeep Parmar:And you said as well, it's the very earliest stage you're investing in. And that's obviously a unique challenge in itself, right? Because you've got to get people before they've got too far or before they're no longer in your remit, right? How are you finding those companies or how are you trying to assess people at their very early days?

1:03Yumi Tsoy:It's hard. It's kind of due to the nature of it. You don't often see founders who haven't incorporated their businesses yet or just thinking of the idea, kind of going to events, for example. But we just try to be as open as possible about what BGV does. So we run lots of investment Reddit events. We go to communities with... women founders with ethnic minorities, with people from different socioeconomic backgrounds, and we really try to tell them, hello, this is how venture works, this is how investment works, and that you can also do this if you're interested. And we have quite a big effort within our team to make sure that our team is also available for kind of one-on-one conversations.

1:48Yumi Tsoy:We go to different regions, like we network a lot. So yeah, and then I think the vast majority, you know, all of our deal flow is actually inbound. We rarely, I think we'll actually never go out kind of and target any kind of specific company. Like we just, we do the other round. We kind of try to be as transparent as possible about our process and what it all kind of takes to build a business so that people would then want to come to us.

2:14Amardeep Parmar:And obviously when people are at that early stage, they don't necessarily have a track record yet or any traction. How do you try to assess like who's the right fit for you?

2:21Yumi Tsoy:I think in the absence of solid data, we often look at what's the company's hypothesis for achieving the change. So you might not have lots of spreadsheets, but if you can explain what is the problem you're solving, why is it important, and what's your unique insight into it, that's really a really good start. Even best if you can then explain how your solution addresses it. Often, I think what we see is a really big problem scenario, for example, this climate change, and then the solution can be something like carbon reporting software. I think that doesn't make it clear what the link is or what's the founder's unique insight into it.

3:01Yumi Tsoy:And actually, when we see founders who tell us they've learned about the problem because they've worked in the industry or they've lived through it, that's a really compelling case. We then will look at, you know, did you actually kind of talk to other people who experienced the same problem or did you test the prototype? But kind of having that kind of really strong understanding of the problem initially is kind of definitely one of the most important factors at that stage. And kind of on top of that, obviously, we look at the team. Like it might be that your idea is great, but are you the right team to make it happen?

3:33Yumi Tsoy:and so we look at like what's your unique expertise like how how have you learned about the problem do you have the necessary skills in your team and if not like you know how you're going to kind of gain them or who you're going to hire in the future and just also like commitment like we we want founders who are really committed to solving the problem kind of probably more so than kind of creating a particular solution because you know as you know founders more often pivot and change what they do, but being really focused on making change in some shape or form, I think is the critical point of that, critical for us at that point.

4:14Amardeep Parmar:And you also run like a cohort-based model, right? So you're investing in batches and you have a huge application pool all the time. Can you tell us through that process and why you do it in that way as opposed to, say, just general investing?

4:25Yumi Tsoy:Yeah, so we run a program twice a year during which we invest 60K, which is a fairly small amount into every company that we select. We choose roughly 10 to 15 companies for each cohort out of about 500. So it's actually very selective. And the reason we do it is one, it gives us an opportunity to create a very operationally driven programmatic approach to investing. So we can invest in 25 new companies every year fairly easily, as easily as we can. But also important for founders, it means that they all start on the same kind of level. They all get investment, they all get access to content resources, but more importantly, they get access to the community.

5:10Yumi Tsoy:So they see the BGB team regularly during the program and after they get to meet other founders in the community or investors. I think that is often the most valuable part of the program and that you don't really get to see when you just come in for one meeting with a VC and then leave. So it's a really valuable relationship piece and gives BHV also an opportunity to get a better insight into how do the teams actually work, perform in person or very close up and gives us better insight for follow-on decisions for later on in general in terms of understanding like how can we support them where should we prioritize our effort etc so let me and gara

5:59Amardeep Parmar:going for this at the moment right with fund modeling and how it all works and then when you're putting in 60k tickets you'll need some of them to do incredibly well to make about the fund right how do you think through that and the follow-on decisions and how you kind of make sure all that because you've got to answer the OPs and stuff too how do you think through that of like once you've done the initial investment who are going to be the ones who maybe hopefully return

6:19Yumi Tsoy:the fund yeah so well 60k is just the beginning yeah um so we've recently actually not recently two years ago now but it feels recent we've raised a new fund called bgb2 which is our largest fund to date and and with that we have the ability to lead and um co-invest into the most promising ventures from each cohort. So the number varies, but essentially that figure is up to£1 million into the most promising company. So we definitely like backing our companies, and particularly if they're successful, we continue doing so up until Series A. So hopefully it's not just invest 60k and then wait to see what happens for 10 years.

7:02Yumi Tsoy:Because yeah, I would agree that would be quite a long and challenging wait probably um but yeah like we i think kind of having that inside program is really valuable um and then follow on like our criteria for investment obviously uh become more sophisticated we want to see more progress we want to understand like what are the new news essentially since the program um whether that's on the fundraising front uh on the product on testing commercials um and so on so we only kind of yeah kind of continuously about kind of companies that exceed the expectations.

7:37Amardeep Parmar:And because you've got the dual mandate, right, of both profit and passion, right? The profit and purpose. On that purpose side too, how are you assessing companies to see whether or not they're making the kind of impact that fits your thesis and whether or not it's something which is going to really make a difference?

7:51Yumi Tsoy:Yeah. So the earlier stages, it is really about that kind of initial hypothesis. In more formal impact speak, it's called a theory of change. So we look at what is the path from problem to solution. And the theory of change is a really good framework to kind of going through the process like in a very kind of structured, logical manner and then creating a way for kind of testing whether you have followed actually that path. And then the absence of data, like lots of investors, but especially impact we see is like, we'll look at that kind of hypothesis. Obviously, that's just the beginning and you can't go on that for another 10 years.

8:31Yumi Tsoy:So what you have to do later on, once you have raised funding, then it's more, okay, now you need to show that you are creating the change that you set out to do. So we want to see some very basic impact data. So I think I wouldn't think of impact data as something kind of scary or difficult or side project. It's like, who are your kind of users? like who are you actually helping like that should be something that any business should know respect business like impact or not then um what kind of change are you creating for them like so that which essentially like how effective is your product and doing what you've set out to do so if you're a company that's um you know trying to prevent diabetes like and you know through an app like are you actually doing it and if so how do you know because your uh users are telling you Do you know because you have a biosensing tracker that can tell the changes in your glucose levels?

9:27Yumi Tsoy:Just like, how do you know? How confident are you in that knowledge? But initially, it tends to be kind of very basic data to see, okay, who's using it? How are they using it? How many? So, like that. And as they kind of grow to seed in series A, obviously, again, the standards increase even more. Then we want a little bit more extended validation. We want to see whether, like, you know, has anyone else kind of tried doing what you're doing? Like, have you worked with third parties, regulators, or I don't know, kind of anyone else who could kind of potentially verify what you've done? And yeah, kind of is it, you know, to what extent is it replicable rather than like a one-off, yeah, kind of outcome.

10:10Amardeep Parmar:And you also ran a session for us right before about how you track your overall metrics yourself to do you have like for the audience where like how much impact has BGV made through all your

10:22Yumi Tsoy:different investments oh this is a good test I think today so we've been around for about 12 years our portfolio companies have they have positively affected a lot like 22 million people they've also all like increasingly kind of companies that reach series a are all at that kind of higher end of like evidence so they can all verify what they've done through clinical trials through external research and so on but we actually we don't set any kind of high level portfolio targets because our portfolio is so diverse in what they do we have companies some of whom who are addressing education others are trying to improve like energy systems like there is no one metric that can summarize all of them so what we do is we look at each company individually and we work with them to answer what are that company's specific targets, like how have they progressed and what kind of change or what impact does it have on like I guess sometimes like the broader system, especially if they're an older company, we like not only like did your app or did your, I need to stop using app as an example, but did your B2B software help people but also like what did it do to actually like make a dent in the problem that you're solving.

11:45Yumi Tsoy:So we look at kind of systems change impact, how did you change the way that people think about problem or how did you change kind of resources or network flows kind of within your industry. So yeah, we look at a combination of different things, but there's no kind of one holy grail metric, unfortunately.

12:05Amardeep Parmar:Of some of the investments that have gone to say, series A and beyond and gone a bit further, have you got examples you can give of like what impact they've made in their particular issues?

12:13Yumi Tsoy:Yeah, I think probably one of the most recent examples that comes to mind is a company called Aparito. We've invested into them, I think, around 2015, which is actually before I even joined BGV. It's created by a founder called Ellen, who's a nurse at Great Ormond Street Hospital. And through her work, she saw essentially the difficulty of people accessing clinical trials, because a lot of time you have to come in, stay in a hospital for two weeks, do lots of tests. And this was particularly inaccessible for children or people with rare diseases. And so her company created a solution that would allow people to collect clinical trial data remotely and digitally.

12:58Yumi Tsoy:And so they've been doing this for, I think, about 10 years until last year they got acquired by Eddie Lilly, which is like one of the largest pharma companies in the world. So now the solution is really getting scaled like throughout the world, like, yeah, and improving like research, improving clinical outcomes, and particularly also like for people who wouldn't have had access to that otherwise.

13:22Amardeep Parmar:You said that was before you joined BGFU. You've been at BGFU for quite a few years yourself.

13:27Yumi Tsoy:Yeah, about six and a half years.

13:29Amardeep Parmar:How have the companies that come into you, have they changed the content of what they're focusing on? Has it been quite consistent?

13:34Yumi Tsoy:I'm probably not going to surprise anyone by saying there's been an increasing number of AI companies in our list, whether that's AI powered, which I think is essentially like using ChatGPT or a genuine new foundational model. There's been a lot of AI, both in the actual within the business models, but also in how people run the companies or companies applying. It does feel like it's absolutely everywhere. and yeah I think that's really kind of interesting in the sense that it does change the landscape a little bit because it's much faster it doesn't take much time to alter the develop prototypes to test the product to find information to create content market yourself so yeah like that that has been quite a big change I think we you know I think if they are used to be you know we've seen a significant number but a much smaller I don't know maybe less than kind of 20 percent of companies I think now in our pool of applicants I'd estimate probably over 70 have an element of AI or at least they mention AI in the application yeah.

14:41Amardeep Parmar:And you've been using some of it yourself too right on the back end and trying to figure things out there. I appreciate you working on it.

14:46Yumi Tsoy:I like it. I'm using one system to talk to the other system so particularly at the moment I'm trying to make a new kind of program and platform support website for our companies. And so I'm using Figma Make to create the front end. But then as I've been learning, that only goes so far. So using chat GPT, various kind of super base databases, using Claude to then generate code to plug into those systems. And that gives me, I think, a lot of empathy for how founders build things and also what we can do and how maybe we should assess investment applications coming through because at this point, if we see companies who've been, say, going for nine months, a year, and they're like, oh yeah, we still need investment to build a prototype, it feels a little bit less believable because it probably would take anyone an hour to mock up a prototype, unless you're developing a really genuinely like a limited foundational model, in which case, okay, fine, but you can still create original prototype and it'll help a lot when you raise.

16:00Amardeep Parmar:Hello, hello. I hope you've enjoyed the show so far. I'm Amrit Parma, co-founder of BayHQ and the host of this show. For those of you who don't know, BayHQ is the community for high growth Asian heritage founders and investors in the UK. Over 7 ,500 people have attended our events, 200 people have been for our impact programs, and obviously there's been over 250 episodes of this podcast. If you want to join us and take part in the programs and come to the events, go to www.fahyhtu.com forward slash join. We also just released our first ever book called Startups for Outsiders, which you can get on Amazon now and the link is in the bio.

16:41Amardeep Parmar:Hope to see you soon at our event. Hope you enjoy the rest of the episode. So I guess on that as well. So when you've got 500 applications for say 10 places, Where's the biggest drop-off? Of those companies that apply, what is it that they're lacking a lot of the time?

16:58Yumi Tsoy:Yeah, well, to us, it's just very competitive. So there are lots of applications that we would have liked to take further, but most companies fall off of the first stage, which is just the application review stage. So we get our mentors, founders, BGV team to review every application so we can at least be confident in the rigour of the analysis. which is hard at that stage because as you say like there's not like masses of data that anyone can provide but again in a very rounded opinion from people that we work with and it's at that first stage that I'd say the vast majority so about like 460 out of the 500 for example would hold off like usually like often because either like there is a really clear link between like problem and solution.

17:47Yumi Tsoy:So someone will say, you know, problem is climate change, like solution is, you know, carbon reporting software. That might be the case, but you haven't really explained it. Or so that's when it's like, okay, the best applications will be very clear about like, what is their unique insight into the problem and the opportunity that, you know, maybe others don't have. That's essentially what makes it attractive to VCs. They want to see outliers or something that's unlike anything they've seen before. So, generic, we're solving a massive problem. That tends to be a weaker answer. Some we say no to because they're just really early.

18:34Yumi Tsoy:And I think, I guess, in our world, early is different to other people. For us, it means maybe you haven't done any testing at all. We can see there's been somewhat leading in terms of the questions. Like, would you pay for this amazing product is not a good marketing kind of question.

18:52Amardeep Parmar:We haven't got the mum test on the thing somewhere over there yet.

18:55Yumi Tsoy:We do recommend it to people. It gets more like, have you done testing to see how do people use your product? Do they actually even want to use it? Or are they engaged with it? And if not, then yeah, you really should. We want people to be close to their customers, to the people that they're trying to help. So that's another big reason. And sometimes it's the team, because you can tell when it feels like, I'm just going to try, apply, and see if anything happens. So we want teams who ideally are committed to building the company. and some we're you know we don't require like immediate full-time commitment because we understand that people come from all sorts of backgrounds they have commitments they have families and jobs that's fine but I guess in that case we want to see what's the plan like is that going to be the plan forever or are you like what would it take for you to like really commit to the company full-time and if people say that it would need to raise five million pounds before we commit we're like well okay that might be hard um so yeah i think that's like probably some of

20:03Amardeep Parmar:the most common reasons because you touch so many different parts of btv as well right because obviously one part is application process but then it's also the onboarding and then it's also the alumni too right is that you're gonna have relationships with people who've been on the programs in the past and on the actual program itself like what do you feel like the people been through the program, the alumni, do you feel is the best value add that you guys get?

20:27Yumi Tsoy:Yeah, I've actually just said this. Thank you for asking. Well, people tend to say it's like clarity, confidence, and community, three Cs. I'm not going to make this into a framework.