299. Meet the Experienced Banker Who Cofounded A Venture Capital Fund w/ Jessica Rasmussen | Two Magnolias Capital

0:00Amardeep Parmar:Great to have you here, Jessica. Thank you for having me. So tell us, like, what do you invest in and who are you? So, well, that's a big question. So I am a general partner in a venture capital fund called Two Magnolias. And together with my business partner, Marie, we are an early stage investor in the UK. We focus on two sectors. One is what we call the transformational economy and the other is human health. And the transformational economy is essentially a catch-all for new solutions solving old economy problems, which span many different verticals. And then, of course, human health, which has many verticals within it and expanding all the time.

0:51We don't do the sort of long term drug discovery stuff, but everything else falls within our remit. And then we have a very particular lens and our lens is to focus on underrepresented founders. And we define underrepresented by gender and by ethnicity. And I'm sure you know all of the statistics around why that would be a good idea.

1:17Amardeep Parmar:And how did you come to that thesis? Like what made you pick those particular sectors? Well, I think, you know, Marie and I have, before we became sort of venture capitalists, we spent a combined 50 years in investment banking. I did 30 years, Marie did 20. And we were at the very cutting edge of sort of global markets, macro environments. We worked at large global investment banks. Marie worked at asset managers as well, but I worked at global investment banks for my whole career. And we were, although quite senior, we were working within very large frameworks, which is fantastic. And the exposure that we had was incredible.

2:01And we were elevated into some rooms that many people don't get an opportunity to enter. But when we left banking, I think, and started investing our own capital, I think the most important thing for us was to have that direct influence, which is very difficult when you're sitting in, you know, the largest bank, largest retail bank in the US or, you know, the sort of fifth largest bank in the world. Your ability to sort of reach down and pull through into grassroots is quite limited. And I think this is what we wanted to do. The other thing we really enjoyed was this thesis of people and planet.

2:50And I think what's interesting is when you talk about people and planet now, you know, depending on who you're talking to, there's either a little smirk on someone's face where they go, oh, you know, really? You know, sustainability? Really? It's a bit, you know, kind of passé. Or they might say, oh, yeah, well, we're all doing it. And if it's the latter, fantastic. It's great. Because the world is moving so quickly now that there are so many old economy scaffolds that need to be unlocked and unpicked and brought down. And, you know, this idea that, you know, tech is a separate investment thesis, you know, within the private capital market is something that we kind of reject because tech is now a scene that runs through everything.

3:50In fact, we're in that sort of fourth industrial revolution, or some people say it's the fifth industrial revolution where we're now very much a tech-enabled world and nothing else really matters. So if that is the case, and if that is the speed at which we're moving, then there are many grassroots problems that need to be solved. And so that's where we operate.

4:14Amardeep Parmar:And you cut your teeth from angel investing first, right? Yes, that's right. So how did you get into that initial angel investments and start to pick, like, who do you want to back and who don't you want to back? Because, I mean, when I started angel investing in the beginning, I think it's quite hard when you first start off, right? Because you don't know. It's a whole new world. Yeah, it is. It is quite difficult because you sort of, you know, you go to these sort of, you know, we call it these speed dating events. And, you know, you see fans coming in and they're pitching and most founders, what we find is that 90 % of founders are brilliant salespeople.

4:49So every idea is, you know, world beating. Every company is a unicorn, which is exactly how fans need to behave and how they'll be able to back themselves or to be confident and stuff. So you're right. You get a lot of that kind of, you know, mix. But what we did was, so we left banking, both of us coincidentally in 2019. And we spent a little bit of time sort of discussing what the thesis should be. But then what we did was we joined the UK British Angel Association, which is a sort of industry body, to understand what is the framework? What are the frameworks? How do people invest, et cetera?

5:32and they used to run some or they do run some very brilliant pitch events and they bring people together but then of course in 2020 COVID hit so we didn't have to go anywhere we were stuck at home online on these pitch events that we could get through lots and lots of founders pitching and so we we sort of quickly decided what areas we wanted to to invest in and obviously in those days in 2020, 2021, you know, environmental, you know, planet related solutions was on a rip. I mean, absolute rip. Human health was ripping because of COVID. Suddenly everyone had, you know, we were our own personal physicians.

6:19We were self-medicating, you know, we were tracking our vitamin D, you know, all of these things. So, you know, I think those trains were moving out of the platform very quickly. So we felt comfortable that the marketplace had sufficient number of founders because that is the other thing. You can have a thesis for what's the size of your market and how many founders can you back. But also to get back to your point, you know, Marie and I had come out of banking and we'd come out of global markets. So we both had sat in trading rooms for all of our career. So the idea of risk to us was we're very comfortable in high risk situations because that's what is in our DNA.

7:06We've seen it, we've lived it, we've experienced it, and we've been in control of it and part of it for so many years. So actually, the taking the risk part, that was the easiest, that was the easiest part for us.

7:22Amardeep Parmar:It's interesting as well because you've already said we a few times, right, because you and Marie obviously have been in this for a long time together. How did you decide to do that as well, to go into it in that kind of a partnership and understand the balance of like why you work well together? Yeah, well, see, Marie and I met at Bank of America. I mean, I didn't really, so we knew each other for six years at Bank of America. I was there for 10 years. And so six years and now it's, you know, kind of, so we've now got a 13 year friendship. that's quite a long time when you think about it so you know that in of itself has sort of cemented everything that we knew however when we came out of banking yeah you're right why did we choose each other why did we feel comfortable I think because we both had seen the way in which we operated when we worked together and we'd worked together and seen each other in very high stress situations, fun situations, you know, times when we've been out, times when we've walked in in the morning, you know, a little bit worse for wear, you know, under severe pressure, making decisions.

8:36You know, I was sort of running teams in Bank of America. So that was quite obvious. I've seen Marie run, you know, run her business and run her portfolios, etc. So we kind of were very comfortable that there was nothing that we would be surprised about. But the other thing is, we both had a very clear idea about what we could bring to the next stage of our careers. And when we sat down and we were talking about starting a fund, or we didn't really talk about starting a fund, we were talking about angel investing. what we realized is that when you start an enterprise for yourself you have to really recognize what are your strengths and what can you really deliver and I mean it's funny we look back in 2019 when we first started talking about things we're like you know let's let's develop an app you know let's let's build a business let's you know and I think we very quickly came to realize that that would be a bad idea, that we were not that sort of people.

9:41But what we did have was access to capital. And when we spoke to founders, that is the missing link that most founders talk about. And it's not just the UK. Globally, how do you solve the sort of capital, the gaps in the way in which capital flows? And that's something that we did have. So we could, we very quickly decided that that was our real USP. That's what we could bring to the party. We could bring capital, we could bring risk appetite, operational experience, and obviously a vast amount of financial services experience. And that's why we came to the conclusion we did.

10:21Amardeep Parmar:And also raising the first fund, right? Because I think, I'm trying to get across to founders as well. Raising a fund is a lot harder than raising for a startup. Oh, is it? Okay, good. I'm glad you're saying that. And when you're going about thinking about that first fund, right, because I know you're now you're building a second fund. Yes. How did you think about the strategy for that first fund and how much to go for and what to do there? Well, we knew that our first fund, because, you know, it's really interesting. And I talk about this and I've talked about this several times. And when we came out of banking, investment banking, you know, 10 years at Bank of America for me, six years for Marie.

11:01She was at Barclays before. I was at Lehman. You know, we had a whole history and career of top tier sort of institutions that we'd worked for. When we came out and we started venture and we started investing our own money, we were reset to zero. people were like well what do you know about this why are you here why are you playing in our sandpit now and we were like well we didn't realize there was a barrier we didn't realize there was a door to the sandpit but we had all of this experience that we were bringing so it was a it was um we we were confident in ourselves but we also knew the ecosystem that existed And we also knew the barriers, the false barriers that are put up around this ecosystem to kind of stop other people entering the ecosystem.

11:57And we just ignored them. But what we did strategically is when we started our first fund, we knew that we had to put our money where our mouth is. So, you know, our first fund is our money. And then we raised it from people that we knew, professionals, other professionals like families, you know, high net worth, etc. Because we knew we had to move quickly to really put the thesis into work and to test it out. And we've managed to back some fantastic founders and we're absolutely delighted with that.

12:32Amardeep Parmar:And what does that process look like? To say somebody listening now wants to pitch you, is it an online form? How do they get in touch with you? And then what's the filtering levels you do too? Yeah, so our investment process is all about de-risking, right? So we de-risk our portfolio for the benefit of our investors, which I think is something that sometimes founders sometimes forget that they might sit in front of us, but all we are is we're the principal but behind us sits the people who've given us their money and trusted us with their money um so we you know we aim to de-risk that so the so the first step is you know my marie is in charge of all of our sourcing deal sourcing and all of our origination um and so what we've done is we have an online form if you go onto our website um to mignolius.co.uk you can fill in the form if you fall within our thesis.

13:32We're very, very clear that we don't do any creep outside of it. So if you fall outside of our thesis, then not for us, but there are plenty of other people in our peer group that, you know, people can go to. And so then once that form is filled in, you know, Marie does the first pitch round. And the difference with us is that we are GP led. So one thing that we're extremely proud of is that when you come to two Magnolias and you get to pitch, your first pitch is with a GP. It's not with an analyst. It's not with an AI bot. It's your deck is not filtered by any tech. You get to see the GP. So you really do get a really fair shot on your first pitch um and if you get through marie then it comes to me and then you know i do a bit of a longer q a and a bit of a longer session not everyone gets through even that first part so by the time you get through me you've seen both of the principles of the part which means that we we are the conviction is really starting to rise and then Then we go into our processes, which is we have two really strong advisory boards, we have deep domain experts.

14:59Then we go through all of the sort of technical stuff. And if you get through that, then we go into full BD. It sounds simplistic, I'm simplifying it, but we front load the pitching stuff. So founders really get a fair shot.

15:23Amardeep Parmar:What are some of the things you think you index on more than say like other investors that you find more important maybe? Well, I don't know what other investors find important, frankly. I'm sure we find the same. I'm sure we're all trying to find the holy grail. But we are, everyone will tell you, all the investors will tell you that it's a sort of founder-led, you know, investment decision. And, you know, for sure, there is no question that that is the case. But we have a few things which we've taken out of our learnings from our previous careers. So when you're sitting in a trading room, if people ask, you know, if I ask somebody who hadn't sat in a trading room, what do you think?

16:11What do you imagine when you think of a trading room and how people, you know, what are the character of the people in there? You would probably say, you know, fast pace, you know, very quick response times, you know, quite direct feedback. You know, those are the sorts of adjectives you'd use in describing that. So we naturally fall into that space. So one of the things that we really value is responsiveness, founder responsiveness. and we feel it because we're very responsive as a company and as people so we're very responsive we're very direct and the feedback is very clear and it's like I mean we hope that's the case but um so when we email and we don't hear back so that sort of deafening silence I'm simplifying it That deafening silence is quite, yeah, it's quite tricky for us.

17:18So we really, and when we've invested in people, you know, if you look at all of our founders, responsive response rate is kind of really where we're at. So, you know, I'm on WhatsApp with all of the founders. When I WhatsApp, I'm on kind of 24-7 or 27 or whatever the word is. Sunday morning, you know, Monday evening, etc. You know, that ability to have a quick response and a quick dialogue, like, you know, I've seen this, what do you think of this? And we really, that index is very highly with us, which is a nuance, but...

18:02Amardeep Parmar:Hello, hello. I hope you're enjoying the show so far. I'm Amiri 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 program and come to the event, go to bayhq.com forward slash join. We also just released our first ever book called Startups for Outsiders, which you can get on Amazon now.

18:41Amardeep Parmar:And the link is in the bio. Hope to see you soon at our event. Hope you enjoy the rest of the episode. And so say you are in the process, right, where there's a founder you really like, but they've got different terms on the table. How do you, what is it about to you, Magnolia, is that people choose you ever compared to other investors? Or how do you try to differentiate yourself in that sense? I mean, we rarely have to pitch a founder. And I don't mean that in a sort of arrogant way at all. I just think that there are so few investors that look like us. You know, there are more now, but to have an all-female GP team focused on our industry sectors and then focused on underrepresented founders in those industry sectors, I mean, very few.

19:35You could probably count them on one hand. And then to have an all-female team, that's almost unheard of. So if a founder wants to diversify their cap table, they choose us. If they want two financial services professionals, females, they choose us. So it's typically a dialogue. Of course, I'm sure when we launch our second fund, it will become more interesting. and we might be, you know, using some elbows to try and make sure that we also get a seat at the table. But, you know, from our perspective, you know, we feel we bring this sort of holistic approach to venture that is slightly different from what's already there because we didn't grow up in venture.

20:28So we're sort of writing our own rules as we go along.

20:32Amardeep Parmar:And is there a kind of personal connection you have that founders as they build up over time too. And if you look at your portfolio now too, I know as you're investing like our best underrepresented founders and female founders, do you know the rough dynamics of what potential your portfolio is different things? Yeah, I mean, look, as I said, Marima has all of our deals sorting, but our latest statistics are great. So last year, I think, well, certainly in the last quarter, 100 % of our pipeline deals fell into our investment thesis. Not many funds can say, you know, 100%. So it shows that we're capturing, you know, all of the relevant deals that we feel are coming to us.

21:13Now, it might not be 100 % of what's in the market, but certainly we have 1 ,000 founders in our pipeline. And word of mouth is really interesting because people say, well, you know, you should talk to two Magnelias. You're their kind of founder. So that is starting to filter through also. I mean, obviously, we're networked with all of the obvious networks, female networks, you know, ethnically diverse networks, sector specialist networks, you know, Blue Earth, you know, all kind of all of the health related networks also. But, yeah, I think that, you know, 50 % of our, you know, founders are female, you know, 41 % ethnically diverse.

22:01Last quarter, 31 % of our pipeline was ethnically diverse. You know, I think it's over 50 % of our pipeline is female founders now. So, yeah, we're tracking the data all the time and we're tracking the trends in the data all the time. I mean, over 50, 52 % of our founders from outside of London, we're very focused on the regions and we're present in the regions whenever we can be.

22:28Amardeep Parmar:So you mentioned word of mouth. So obviously we got connected by Jinesh, one of your earlier founders. And obviously we can't remember exactly what you said in the podcast, it was kind of singing your praises, right? And obviously when founders are saying that about you, that's going to make a huge difference to who you attract and the other people who want to try to pitch it, right? What is it that you enjoy the most about what you're doing now? Because obviously it's very different to working in the financial services industry and what you're doing before. And you've got like a lot more direct impact with different founders you get to do.

22:56Amardeep Parmar:Which part of the kind of cycle is the most interesting for you? I mean, the greatest joy is when we take a founder all the way through our investment process and we are able to send them the money. That is the greatest joy because that is when we actually know that all the talk is actually resulting in funding. So, Janesh, take Janesh, for example. I saw Janesh when he pitched, you know, his very, very early idea at a networking event. And he was pitching like any other founder with no money, no backing. And I mean, he raised very quickly because obviously he's got a really strong thesis. But we were the first venture capital fund in and we were very early, almost pre-revenue.

23:48You know, it was really, but that impact of being able to do that in a small way, when we see what he's doing now, it's like it's life changing. It's absolutely life changing. So that's the greatest. So it's that particular point where we can say, you've passed IC, you're in, it's done. That's, for me, a huge relief when we can do that.

24:16Amardeep Parmar:And we were talking earlier about how the world is an interesting place at the moment, right? What kind of trends are you seeing that are affecting your pipeline or where maybe you're looking for investments in the future? Yeah, I mean, I think it's incredibly interesting. And, you know, the most important thing for us is that we look to not what's trending now. So what's trending now is interesting, but it's really where do we see, what do we see over the next five to seven years? And obviously we have two theses, right? So we have this kind of the transformational economy and we have health.

25:01In the sort of new economy sort of solution space, anything to do with energy transition is a must-see for us, just because we really want to understand what those new technologies look like. Now, what's interesting is that some of those energy transition technologies are now, will in the future be very much linked to space. And there's a lot of activity going on in space. Now, space is not one of our, part of our thesis. We're very much planet Earth. But there is a really clear link now, which is being espoused by many great brains globally, that the future of energy involves space. So that's one thing that I'm keeping an eye on quite closely.

25:59The other thing that we need to make sure happens very quickly and we need to focus on is circularity. Now, circularity, people say, well, it's just about, you know, make sure you have sort of bar degradable stuff. And yes, and that's true. But we haven't moved on in two decades of wanting to focus on this. If you go into a supermarket now, average supermarket, and you pick up a punnet of grapes, it's still in the largest plastic container you can possibly imagine. All of the perishable items, they went through, supermarkets went through so many cycles and they've come back to this because of perishability.

26:44So the future of food, agri, and its combination with circularity remains unsolved. So we're very interested in founders who are looking at those technologies and how we can replaceable technologies and we can move quickly because the earth is full. The landfills are full. I'm not sure people, you know, we're full. So, you know, we have cargo containers traveling all over the world full of rubbish that we're selling to, you know, Western democracies are selling to poorer economies because that's one way that they can earn revenue. I mean, it's an absolute disgrace when you think about it from a sort of holistic perspective.

27:34So we need to solve that. That's for sure. When it comes to health, it's incredibly interesting because wellness is, it's all about wellness and it's all about, and now it's not about sickness, right? Because it's almost, I think we all realize if you get sick, it's a problem. I know there are many solutions coming if you are sick, but you just don't want to be sick. So avoidance and taking care of your personal health. I mean, wellness, the wellness market is supposed to be valued somewhere in the region of$10 trillion over the next three to five years. It's currently$6 to$8 trillion globally.

28:19I mean, it depends how you define it. But if you take all the strands of wellness. So the issue is that we're in danger of wellness and healthy living being, again, bifurcated into just the very wealthy because it's an expensive business, wellness, right? So, for example, if you can go into a gym and get 100 of your biomarkers done twice a year, you will understand your own personal health equity better than 99.9 % of the population. So suddenly the world gets divided again. Now, what we need to do is ensure that level of knowledge is, you know, is systematically is kind of, you know, spread evenly, particularly in the UK.

29:23So we're very focused on that. So founders that are focused on solutions that can provide a sort of deep population experience so that we can relieve the burden on our NHS and we can relieve the burden on our, you know, sort of treasury would be a useful thing, we think.