310. How This Fintech VC General Partner with £100M+ AUM Invests w/ Devin Kohli | Outward VC

0:00So great to have you on today Devin.

0:01Amardeep Parmar:You're at Outward VC. Tell us what do you invest in? What's your role? Yeah so I'm one of the founders and general partners at Outward. We set it up 2018. We focus on investing in fintech and the connected sector. So what we mean by that is how financial services is changing and disrupting different areas of the economy. We lean in and invest in those areas. How are you going to buy a house in the next few years? How healthcare is going to be delivered? How are you going to consume education? That type of stuff. And we do pre-seed and seed. And what made you choose that thesis? Why that area you think is opportunity?

0:35When my business partner, Kevin, I set it up in 2018, there was, in our view, no pure play person for what we call the scale up stage, that one to five million round size. Plenty of people doing the sort of early stage angel ticket plus what you would call pre-seed. Reshmeret seed camp being perhaps the most successful at that. And then at the other end of the spectrum, you had a lot of people at the later stage doing growth. And I think that was quite well saturated, culminating perhaps in, say, SoftBank moving their headquarters for investing here. So I think those are the, we saw it as an opportunity gap.

1:14Amardeep Parmar:And why FinTech as well? Why ethnically FinTech? So both of us and our team come from a financial services background. We also had set up Outwood initially within a bank and then spun it out. And that bank became an LP in Outwood. So we had our own financial experience and career path. We had a bank or two banks as an LP. So we could use disproportionate advantage on diligence, perhaps. I think also where we felt we could really help companies, whether it was on relationship side, client side, customers, etc. And it's first fund at the moment, right? Second fund. Second fund, yeah. And were you leading from the first fund as well?

1:57Yeah. So we led, in terms of leading, as a fund, we tend to lead the early rounds. And then me and Kev have been the general partners in terms of the leadership of outward from the beginning.

2:09Amardeep Parmar:One of the things about leading rounds, obviously, is more due diligence. There's an extra work involved. What made you go for that in the first fund and to lead on that part? Well, we had a 50 million first fund. And if you've got a decent size fund, there's a first fund. And I think we try to lead in as many rounds as we can. You can't always. And I think if you want to back some really exceptional founders, you've got to sometimes compromise on valuation or compromise on round dynamics, right? I think you want a seat at the table. You want to be able to help and influence these companies. And that's why we tend to sort of, if we have high conviction, lead.

2:46Amardeep Parmar:What changed between the first fund and the second fund? So it's slightly bigger, the second fund. I think the team is largely the same. We've actually added one or two more people. But I think the thesis is the same. I think there's been some learning. So I think learnings-wise, we are more discerning on follow-on. So we reserve half the fund for follow-on. We will take money off the table in later rounds when I'm in BC plus when we can. I think that's a good learning that I think most VCs have learned over the last few years. And I think really pushing for materially high equity stakes in terms of on entry, 10 % to 15%, i.e.

3:26potentially even higher at pre-seed, knowing that the companies grow very quickly, that you're likely to get diluted in subsequent rounds.

3:34Amardeep Parmar:And how has the lens you're looking at a company has changed over time, right? So you had your initial thesis, you obviously had the things you're looking at in the initial stages. So yeah, I guess a lot of the time why I see is as investors are investing for a longer time, obviously the bar of what they expect is higher because you've had a bigger sample size, right? How do you think that shifted for you at the time? I think that we've, I think I'd like to think we've got better at being more discerning about what's going to work, what's not. I think we've probably over-indexed now or certainly done more over-indexing on founders.

4:04Market size and diligence on clients and customers and referencing has always been pretty strong. But I think really spending a lot more time with the founders on their backstory is something which we've spent and we've done more on fun too. I think in terms of technology has changed so much just in the last two months, let alone the last few years. So I think you have to look at it with a lens of constantly evolving. and if this business can constantly evolve and maintain its competitive advantage in two three four five years that puts you in good stead for creating value so i think we're having to change our mindset that this isn't something that oh can they carry on doing what they're doing and be a winner in five years time can they constantly evolve and be the winner and how are they going to constantly evolve these are the questions we now ask ourselves and then when you

4:55Amardeep Parmar:look into a founder's backstory how do you try to understand they're the kind of founders who can keep evolving. You look for the usual things, right? You look for childhood, what challenges they went through, resilience in some form. You look for how they've worked with and the personal relationships they have around them. That probably helps you lean into how they work with their other founders, how they hire, how well do they absorb information? Are they putting their hand up when they know what they don't know these are things that we're sort of looking for can they sell i mean you might have the most amazing founder but if you can't sell your product you've got a problem right so or if they can't sell have they got someone who's really good at selling or so all of these things are are things we look through and i think the back story is a really important test of people in difficult you know because a founder's journey is never linear there's always a moment or multiple moments where you think what am i doing should i give it up you know and i think it's that test of the pivot of how you managed it in difficult circumstances which we're looking for and it's another thing i think as well too with like founders for example right do you invest in like solo founders sometimes there's always co-founding teams what do you look for there because i think even when it comes back to that point it's like it's very easy to have a honeymoon phase as founders but what happens when there's conflict and how do you manage that too is really important.

6:20There's a lot more pressure as a sole founder. You don't have any sparring partner historically. That's where we try and really help as the lead investor and be that shoulder. And as co-founders, then you've got to think about how do we work together, but at the same time know our roles and split that. And I think that's often the unraveling of a management team is where you don't know where the lines are and you're not in unison when it comes to working through problems. We've had situations of companies where we've had to act as the form of United Nations in situations where it's pretty, and it gets quite messy and you don't want to be involved.

7:05Ultimately, it's their business, but you have to find a way to work through it for the benefit of, yes, selfishly, your investment interest, but also the employees, you know the company itself uh their customers so i think founder dynamic is is super important making sure everyone is just very transparent about where they stand is is to us the best

7:27Amardeep Parmar:piece of advice and then with your co-founder i guess what makes your relationship i mean people have often asked that because kevin and i are like we're good friends we've known each other for a long time because of the history um but we didn't know each other that well and we sort of got put together a little bit in the end and it's worked touchwood seamlessly well for nearly 10 years I think because we know what we're both good at and we don't tread on each other's toes and I think there's implicit trust in the other one so you know if Kev's away he knows I couldn't handle the ship on ABCDE if I'm away same principle and we have never and it's cliche but we have never had a fundamental disagreement on anything we'll walk through like what do you think why and i think we're just very trusting of each other so touch wood yeah i think sometimes where like if your values are the same if there's things you disagree on sometimes it's a context thing right because you probably say the same thing we make very quick decisions and it's like okay why did you do that for i was like oh because this isn't this like okay i just didn't know about that and then now i see the extra information it helps and i think that's where always when you look at co-found it's like do they trust each other like okay cool you've made that decision and you're gonna okay i might disagree but you know better than i do on that or not and i just said we've been going for like nearly 10 years together as well when he started right at the beginning what brought you together it was a piece of i mean it was like so kev had historically been a fund called beacon capital which he set up which was one of the around the time Cameron and Osborne were creating Silicon Roundabout and getting you know London to be a tech scene the mayor of London at the time which was Boris gave small funds money and one of them was Beacon and he kept set that up so he was a he was in the scene quite early that didn't have any follow-on capital so he was looking at what next to do and at the same time I was investing on and advising on behalf of Investec in the space fast-growing tech companies around the world and the two of us and I'd had some fund exposure running some baby funds before so I was like the two of us got together and said look let's just create we see the opportunity both of us let's do it you know we had blessing from uh Investec to be the first principal LP and I think that was a big shift in getting us off the ground but I think it was the two of us working through like what does this look like where's the gap how are we going to do this what do we stand for and then the two of us also brought the next two employees with us who've been actually there from the beginning so sanjit worked with kev at beacon and andy worked with me at investec and the four of us started out together which is quite a nice story and i'm happy to say sanjit and andy are still very much there and very much part of the family how do you think you've been able to keep them there for that long like what is about your dynamics i think we treat each other as a team more like a family and again cliche but like we all been to each other's weddings we've all like respect each other sufficiently that when the chips are down we're there for each other but at the same time we value each other's opinion so like it is not when an when an investment is made it is not Kev or Dev deciding it's and it's not that we are our names do rhyme and it's not that we meant to set up this fund from like um people often ask was that like rehearsed um but like i think and andy and sanjit like will argue their case like just was with sebastian and and darcy and and and our two fellows who've joined us as well like so everyone's got a view and actually we have to convince each other and we have healthy debates about everything um not least investments so I think it's a great place to work everyone who's come in even as an intern or will say that and feel that so I think we've been good at that aspect of it and I think everyone's also vested in the performance of the fund so we have given everyone in the team a meaningful amount of carry to ensure there's alignment of interest so again it's not just the Kev and Dev show.

11:44Amardeep Parmar:We've moved this period as well so how many investments have you made together do you know? Yeah, so as a... Fund 1 had 21 investments and we're 10 in Fund 2 so far, maybe about to be 11. So let's call it 32. And then obviously there's going to be quite a bit of treachery links going into that. What's that process look like for you? So let's say somebody wants to pitch you, what do they have to go through to get to that Fund 2? We get sent around 70 to 100 decks, which roughly meet our criteria, a month. between the team we filter that down and spend time with maybe five or six in terms of read through the pitch deck done some brief analysis had a call and then from that lean into sort of maybe one or two where we really feel there's high conviction and then two of the team will sort of lead on a deal and then the rest of the team will gradually get involved to a level where we get the whole team to meet XYZ founder if we then very comfortable we can move to set terms and then go forward it is sometimes we can have three deals on at once and it you know it's pretty full-on at this and that can be at different stages one could be at like super excitement on the founder struggling on on where the business can pivot looking can grow into one could be like the market's huge and the founder's great, but they're missing a sell.

13:12You know, it could be in different stages of an investment and different stages of conviction. And then somewhere in the middle of referencing. Referencing is very important. Like they say, we want to believe everything a founder says, but, you know, we ultimately have a fiduciary duty with the money that we manage to make sure that when they say they've got ABC client or they've got, you know, 2 million of revenue coming in, we want to check that. Do you often get people where you do the referencing where red flags come up? We've had situations where the referencing doesn't quite stack up to what was aligned to.

13:47I think that's kind of normal that at some instances that some people stretch it a little bit. We've never, I don't think from memory we've had something which is completely BS, I think. But I can't recall one.

14:01Amardeep Parmar:And with the process too, because obviously for the very best startups, the VCs are competing amongst each other in order to win those deals too right and what is it if you think about your team and like outward that made you able to win some of these deals which other vcs want to get on so we very early on the process if we really like a fan go go and reference us and hear like which of the founders in that you that you see on our website or which of the companies do you want to refer to you pick right we'll connect you and and in some instances we'll have a few percent of the company in some instances about 20 percent in some instances a series c in some since they're a startup so like you pick you tell us and also go and speak to all the other investors that you may know and what their view on how it is i think we've now been around enough that people know how we operate we've been on enough worked on enough situations some of which are very sticky and it's how you handle yourself in those situations which i think makes the fund and i think that's it's not always about oh my god they were they were an investor in this rocket ship and In fact, we really didn't do very much because the founder did everything.

15:07And it's more about how did they work with us in these stupidly difficult situations and got us out of these holes together and we're our partner. That's, I think, what you're looking for. Because in the rocket ship that goes from zero to 20 billion in three years, I don't know how much a pre-seed fund really adds that much value or a seed fund. Whereas I think in the not so linear stories, I think the best VCs come to play.

15:33Amardeep Parmar:Hello, hello. I hope you're enjoying the show so far. I'm Amarit 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 than come to the events go to vahyhq.com forward slash join we also just released our first ever book called startups for outsiders which you can get amazon now and the link is in the bio hope to see you soon at our event hope you enjoy the rest of the episode what part of the process do you enjoy the most right so you've obviously got sourcing winning selecting supporting which part of it is the one that you may enjoy the most so i i couldn't count on too many hands and fingers how many times if someone's called up fam has called up he or she and it's gone right major problem next week this is the situation how do we handle it and i enjoy the situation okay i don't enjoy it from their benefit and i certainly don't enjoy it from the stress level but i enjoy like okay let's stay calm and work out how we're going to resolve this problem how are we going to tactically negotiate this how are we going to think about the structure on that how we can whatever it is and sometimes they're really material events that shut down the business sometimes they're personality issues and i enjoy that and you know sadly it means that times late at night or very early in the morning you have these very weird calls and timings of stuff but it is but that is the bit i enjoy and then when you've seen your input or your team's input correspond to an output of like a good resolution that's where I think you go you know all the hard yards was worth it and like obviously over this period too so you said like nearly 10 years now amongst that time like when you started this out and like where the market was then compared to it is now how have you seen that change and how have you seen like the attitudes and change amongst the industry and like you're placing that too so I think when you're first starting out you're hustling to a level where you if you don't know how to you have to learn how to build your brand like get into deals like tell people who you are be super responsive but thing is then maintaining that intensity when you're now more established is actually arguably even harder because there's just a lot more to do so I think those things are constant in terms of the wider market, I'd say there's more VCs around.

18:19I don't know if that's a good thing or a bad thing. There's more people wanting to be a founder. And I think particularly during the COVID sort of sugar rush, everyone wanted to be a VC and everyone wanted to be a founder. So you had like double, the marketplace had doubled on every level. So everything was getting funded and everyone. And now when the market changed, I think you really got to see who are the VCs who can survive for different reasons and who are the founders who can survive for different reasons. I think then you've had this sort of euphoria dropout where not everyone wants to be a VC backed founder and raise X number.

18:56So I think that's changed and that's a healthy change. I think also linked to that then, whether it's valuation expectations, whether it's certain structural things, those have also changed.

19:08Amardeep Parmar:Are you investing solely in the UK or where do you invest? So there has to be a UK nexus to what we do. So our second fund was cornerstone by the BBB. So linked to that, there's a rationale that there has to be a clear UK angle on how it happened. So yes, but it doesn't necessarily mean UK domicility. It can mean, you know, founders and the IP sit here, but for whatever reason, the business is domiciled elsewhere. And how do you see the UK ecosystem change over time as well? Do you feel like, have you seen large improvements? You mentioned about lots of tourist VCs and things go around. Has it become harder to get through that noise now?

19:46Amardeep Parmar:Or have you seen really improvements? I would say that the UK remains a very good place to set up a business. My concern is that we, really the government, have not helped themselves and helped the country to a level where maintaining the UK's lead in this space, right? we should be the EMI changes were good but the visas at the extension of SEIS and EIS was good but they should be going much more in terms of if risk helping risk takers you know whether it is changes to entrepreneurs relief whether it is looking at how you can supercharge innovation through incentives I think they can go much faster on that and much and do a lot more so politicians talk a lot but I do wish they would do more practically we've been a big proponent of trying to get them to do things so my concern is that the rest of the world's catching up and catching up very quickly and we need to be doing a lot more to maintain ourselves in that position and the world at the moment is kind of a crazy place yeah very few different ways are going on at the moment and as you're kind of advising the companies you're investing in and also just when you're picking investments.

21:04Amardeep Parmar:How much is that like a macro and a geopolitical risk coming into your decisions? In that instance, right, the UK is remarkably, despite what's going on sometimes domestically, a beacon of stability, which is crazy if you think about it. But if we are perceived as that, we should double down on that, right? So if Trump is going to be doing his usual thing on tariffs and immigration, we should be attracting the best over here right if everyone for whatever reason geopolitically can't stay or can't emigrate to the middle east we should be bringing all those people back to the uk who've left you know the non-dom changes didn't make any sense and still don't mathematically bring in any revenue to the as much revenue as they thought they did so we should be getting people back, getting wealth creators back, and really just doing so much more.

21:59But you should use some of the situation to the UK's advantage, and we're not doing any of that.

22:07Amardeep Parmar:And then when it comes to AI as well, and AI shifting what people think is possible in a short amount of time, and you said about investing in founders who are able to adapt and evolve, does it make it hard to almost pick some companies now? Because before we okay they've got a solid moat but then now that moat like how how does that affect you yeah like you see it all the time oh claude's going to do this so why should we invest or you know opening i'll get there eventually so why should we invest i and i think you're seeing that in some of the company some of the feedback from vcs and i think i think there's a case for like claude doing more and more and more and you can see that in some of the legal use cases that have been pulled out but it's not core if you're Claude or Anthropic or OpenAI or whoever in some of these niche verticals.

22:57And I think that's where there's an opportunity. But at the same time, you need to have the founder needs to be constantly on the pulse of how they can differentiate. Oh, Opus 4.6 came out. I need to be like, why is my product still five steps ahead? Okay, and they need to be on that knowledge curve. at a much faster speed than they ever have been. And I think if they're not, then yeah, sure, someone's going to eat their lunch. And I think that's what you're looking for. You're looking for them to be so sufficiently engrossed in where the latest speed of technology or their team to be that they are already trying to be two steps that can't always be, but at least trying to be.

23:43Amardeep Parmar:And you're obviously using AI internally as well, right? And you said how it's helping you have an edge to be lean as well. how to use AI internally? So we use AI for a lot of administrative tasks deal flow and I think also assessment so just to give you a case in point one of the team, not a coder at all over a long weekend spun out a platform which basically someone can drop their deck in and they get VC style feedback on that deck and then it iterates to a level where you then drop in your call notes with that founder and then it will you know compare and contrast versus the original pitch and see what their responses are like and then alter the view and then it can consistently you know become a very strong tool for for vcs now we use that a few of us already use that in the team and you know we've opened it up to founders to use as well like that's something which he did over a long weekend so that's just a case of like using it for analysis and diligence as well as us using it for sort of more admin-based tasks?

24:56Amardeep Parmar:So I had a technical background, right? So then last two or three weeks of analysis using claw code, because I thought I'd wait until something was more stable, because things replant and lovable were where they were before. It's been up a website, but then the underlying code behind it wasn't necessarily the greatest. So now we're starting to use a lot more as well. And I think the interesting thing too is working out what is it that needs a human versus what needs a like you can do with AI and it's okay and how is that shifting for you because obviously you said like you've got the four people who've been there from the beginning and then you've got another few people who join the team too how do you think about that mix of who you need in a team and who as you're looking to invest and you're looking to support a VC because one of the things I've realized from now the stage we're at managing a VC fund is a lot more work than just the deal flow right and how do you think about that in terms of like if you go this if you go like for another fund in the future and it gets bigger or whatever it is what's that kind of good mix in that team and the people you have beyond just the original four why did you hire for those roles too so i think there are certain roles which align themselves much more to human instincts and human then so the platform role so darcy for example who's head of our platform and shaka who's our platform fellow their role is non-investment so their role is investor relations with Kevin I but also linking the portfolio companies a should be doing something and be of C &D have the same clients maybe there's some cross-pollination that can go so thinking a little bit like that and always being at the back and call of our portfolio founders so that is something which is a very human interaction and our founders like the human interaction now yes on analysis and on deal flow you that a lot of it can a lot of it a lot of some of the analysis can be automated but not all because again you've got human intuition on various things um so i don't see us necessarily expanding the team massively at all if in future of in future funds um i just think us getting more and more efficient like in the first fund you know from kevin i having to do pay slips to like you know crazy like this is 2018 right so like base admin now that can be automated more and more frees up more of our time so you can be more efficient with the time you have and therefore you probably need less people rather than let's just scrap three people that's just not a not how we work and b we actually value the input an ai can only give you certain insights on a company once you spend a lot of time with the founder the interaction human to human provides a very deeper different and detailed view which i don't think ai could ever give you and then that's what it falls to like what excites you most about the period even right now in the next few years like some of the companies in our so The fun one is it all pretty much deployed and there's some clear winners in that one and we're now sort of harvesting that portfolio.

27:59Fun two, very actively deploying and some of those companies are cutting edge of AI in different areas and watching them grow from 1 million to 5 million in the space of a year or 5 clients to 25 clients or whatever it is, you're like, okay, that's the excitement that we're seeing. That's what's very interesting at the moment. so I think watching the growth of Fund 2 and how that plays out and I think the quality of founders in our in our grouping is also lent itself to I think they are internationalizing much more quickly so two three of the founders already moved to the US for example of our Fund 2 I mean none of them are series A yet and they're already moving out there with traction which is great so I think it's just the speed of everything and you've got to stay on the ball so yeah it's It's not easy, but you've got to do it.

28:52Amardeep Parmar:And certainly in the long term, right, what would you love to say you would have been able to achieve with outward? I think the fact that we were a very honest and very loyal and very good partner to our founders through thick and thin would be on their journey. And hopefully many of them will have successful outcomes is something which I think we'd look back on and say that was great. And I think they would look back on and say, you know, I wouldn't have it any other way if you guys were on my side. I think if that ends up being true, then I think we'd be very happy and very proud. And then with the name Outward as well, so before we get to wrap up questions, why?

29:39So we actually thought about the name a long time. And, you know, the obvious names we thought had all gone. and so we worked with someone a marketing team to come up with like different and the first suggestions were you know awful like really awful like you know like black granite and and you're like oh how is that but then along the way that team came said what about this this was free outward and I was like and all of us were like what it's simple it's expansive it stands for something we can do something with that and we were surprised that no one had taken it so i think it was fortuitous that it happened that way but we stumbled upon it and we done a second

30:26Amardeep Parmar:we could copyright it and off we go so rough up question time now we have three asians in britain you think are doing amazing work and you want to shout them out yeah sure so i mean without being past my co-founder Kev so I think that would be an interesting interesting podcast for sure it's about how we set it up and his backstory before that I would say actually one I mentioned is Samir Janeja who runs SoftBank's investments in the Europe and in India his backstory also quite where he's based here I think he would be okay I mean he's seen many cycles so I think it would be a good one and then swati bhagava who runs a uk-based business called pouring pounds which actually underneath it is india's largest cashback and coupon website um so i think those three would be quite interesting guests for you awesome and if you want to find out more about you more about outward where should they go linkedin and also outwardvc.com and is there that the audience could help you today?

31:32No, I mean, like if there's good deal flow, we're very keen to see quality deal flow, whether from any community or any aspect. We look at writing anything between 500 grand to a few million initially. So deal flow for sure. And yeah, if anyone wants to, a lot of our companies are hiring. So if anyone thinks they can fit some of the job descriptions that are online, please reach out. So thanks so much for coming on. My pleasure. Any final words? No, I think we covered it all. Brilliant.