Daniel is a Managing Partner of Cathay Innosquare, which is a Fund of Funds based in Paris with nine offices around the world. Cathay Innosquare is focused on the next generation of early-stage managers aiming to become tomorrow’s franchises.
In this episode, Daniel shares with us what the strategy is behind Cathay's global mandate and what the different tech and investing trends are that he has seen over his career.
Daniel is a Managing Partner of Cathay Innosquare, which is a Fund of Funds based in Paris with nine offices around the world. Cathay Innosquare is focused on the next generation of early-stage managers aiming to become tomorrow’s franchises.
In this episode, Daniel shares with us what the strategy is behind Cathay's global mandate and what the different tech and investing trends are that he has seen over his career.
Liz 0:07
Welcome to capital Radio by c*funds. I'm Liz
Lieke 0:10
And I am Lieke, and in this podcast we demystify the world of private equity and venture capital. As a globally active fund placement agency, every day we meet interesting people from all over the world. We want to share their stories with you.
Liz 0:25
Our guests are experienced investors and fund managers that will tell us what it takes to enter the black box of private equity.
Welcome to today's guests, Daniel Bellamy's. Daniel is a managing partner of cafe in a square, a fund of funds and it is based in Paris. Prior to joining the cafe in 2016. He was the executive director and member of the executive committee of BPI, France, in charge of the fund to fund business, and 2005. Daniel joined CDC enterprises as deputy CEO for venture capital funds of funds activities, then he took over the responsibility for investments and expansion capital as well as regional funds. Daniel began his professional career in 1988, with engineering and management positions in the telecommunications industry. Alongside his work as an investor, Daniel is involved in teaching activities on entrepreneurial and venture capital topics at Ash Jose petty, and eco Polytechnique. Welcome, Daniel.
Daniel 1:26
Thank you
Lieke 1:26
Welcome. great having you here. Let's kick it off with the first question, Daniel, because we would like to know, how did you actually get into venture capital? And also, how did this set you up for a career as a fund of funds investor?
Daniel 1:40
Hello to everyone, there have been, I would say three waves in venture capital in Europe, the first one started with managers that have a finance background, those types of manager joined this emerging industry in Europe in the 80s or early 90s. And then, in the 90s or mid 90s, a new wave entered the industry, this wave was composed of engineers, I would say that now we are in the third wave, which is more and more composed of former on top Cornerstone VCs. Actually, regarding myself, I joined during the second wave, as I am an engineer by training at the time in 97. When I entered the industry, my background in telecommunication was, I will say, requested competency given the number of investments that executed in the domain.
Liz 2:35
Super Okay, and so maybe, just for our listeners, you know, we understand you're working in fund of funds and fund of funds on Vista. And so perhaps you could explain the differences for you between investing into an early stage VC fund versus investing directly into the startup companies themselves.
Daniel 2:53
I'm used to say that this is basically the same type of approach, because when you invest in a startup, there are no assets, or at least they go home every night, as I like to say, I would say that for a startup, an early stage startup, there are two key elements that you evaluate the market opportunity as well as the team. And when you invest in an early stage, VC, the situation is quite similar because you don't have any assets either. And the two key elements are the fund management team and the market opportunity. In that case, the market opportunity is about the number of companies being created. But more importantly about the quality and the ambitions of the entrepreneurs creating those companies. And it's also about the competition of the market and the unique position on the fund. Regarding the team. It's about the team dynamics, its insight and its track record wise for a startup, there is another key element, which is the business model, for fund of funds. It's about the portfolio construction principles, which actually express the way the fund manager intends to deliver the value, the return to its LPs.
Lieke 4:10
Yeah, that makes sense. Could you also identify, maybe some of the challenges being a fund of funds investor, and maybe also the qualities that you need to have to be successful in the fields?
Daniel 4:21
Regarding investment in early stage venture capital funds, with a very high number of emerging venture capital funds managers, you need to actually be able to pick the best VCs. And for that you have to go beyond the marketing pitch and the documentation of the fund manager. And you have to really dig into the reality of this one manager. Its ability to attract exceptional entrepreneurs, its ability to bring added value in practice. So this is where you have to get experience to be able to really pick the best ones.
Lieke 5:00
Great. So you really have to get to know these managers really well, as you said, and, what does your process look like?
Daniel 5:06
First of all, the number one key thing is to be able to identify growth and activity where we have a stronger global footprint because we do invest globally. When I mean globally it's in the US, North America, Europe and Asia, we have a team and in those three geographies, we are able to source your investments or opportunities. And then we are going to go through a detailed GDP.
And also a number of interviews, individually and collectively. And of course, we end up this process if promising, by reference checked on the team. And eventually we go to the Investment Committee.
Liz 5:56
And Daniel, maybe I can ask, following on from what you mentioned, to say that you have offices, you know, all around the world. And you take a really local approach. What was the expansion footprint like? Where did Cathay start? And what are the different opportunities you see in the different markets that you were active in?
Daniel 6:13
Yes, Cathay is as a global footprint because we have offices in different cities around the world, we have offices in Beijing, Shanghai, Shenzhen, Singapore, Paris, Munich, New York, San Francisco, I should add to that, that we have partnerships with fans in Africa, we've got a African invest, in Africa, as well as in Latin, with a CIO, we see usually trend starting in one geography. And we make use of the insight that we get thanks to our global presence to apply the knowledge and insight into other geographies. Today, we see FinTech as a common development across different geographies, whether we are in developed countries or emerging countries, we see also, a lot of things on mobility, of course, on artificial intelligence and effect.
Lieke 7:13
Yeah, this must be very interesting to be present in so many different markets, I can imagine. Are there also challenges that come with having such an international team and so many offices around the globe?
Daniel 7:25
What we do at Cathay is that we are local and global at the same time, it means that when we have an office in the country, we hire people with the local culture, so that we are able to understand the way of doing business and under local trends, at the same time we recruit people having the same kind of DNA, because we have common grounds and values that we share across the different offices and globally. And this is, as an example, the usefulness of drivers, usefulness to each other, to our LPs, to our GPs, and to our entrepreneurs and VCs, very important for us to have a stronger enterprise culture. This is what maintains us together with, again, global footprint and local environments in the EU systems.
Liz 8:23
Absolutely. And I can imagine, Daniel, that was really put to the test over the last 18 months with the increase in you know, I guess, the pandemic and having to work remotely.. Do you think that having such a global team and working across countries really set you up to make that transition easier? or How did you yourself find it personally?
Daniel 8:42
We used to actually work remotely at Cathay, because of course we did travel, but we did also before the pandemic, we also did a lot of remote work, so we were in a way ready to face this kind of situation. And we noticed something important also is that given our global investment strategy, our investment portfolio was very robust, because it diversified across geographies, and also sectors. So overall, for us, it was a very good experience, even if we would have preferred to avoid it.
Lieke 9:25
Yeah. And Daniel, you mentioned that you are indeed quite diversified in terms of geography, and also sector you identified some trends like FinTech, mobility, could you maybe give us a couple of examples of your investments that you feel really passionate about that you really like?
Daniel 9:43
Maybe I will take one, which is that we recently invested in an Indonesian fund, the reason being that, of course, this deal was sourced by our investment team in Singapore which operate in the southeast region and The reason why we pick this manager is because Indonesia is an incredibly growing economy, which is said to become the fourth of five economy by 2030. And the thing is that these economies are digitizing, very very quickly, which brings a lot of opportunities for venture capital. And the team that we pick is very well positioned to benefit from that opportunity, and is also very well connected in Indonesia. So this is one example of the type of investment that we do.
Liz 10:35
Absolutely, I think you need to really see the trend and to invest early to be able to take part in it as it increases, and I think Southeast Asia is an area that is attracting a lot of attention at the moment. So that's exciting to hear about your recent investment. Daniel, I'm curious to hear you speak about so many different regions and sectors, like what does a standard day at the office look like for you?
Daniel 10:59
You know these activities are kind of being a double sided platform manager, where on one side, you have Eddie's on your side, you invest in DBS. So it's turned out, they consist of meeting people, I would say, you meet existing or potential LPs on one side, and you also meet potential or existing GPs on the other side. And this business is all about listening, learning and applying your experience and track record to form the best investment decision that will lead to returns for your LPs, so it's about pitching your LPs and sharing insights on your own business. And it's also basically about meeting new friends every day, listening to the pitch, the investment strategy, and getting the insight onto the market, at the same time conducting extensive and detailed due diligence on the number of new funds that could join the portfolio. It's really about relationships and getting that understanding of the industry dynamics and making the best investment for the LPs.
Liz 12:18
Sure. And out of all the things you just mentioned, do you have a favorite part, Daniel, what gives you the most energy?
Daniel 12:23
You know what I enjoy the most is actually finding unique GPs with insights on the market that we haven't yet identified, that's very similar to direct investment also, people having, at least you think you understood something ahead of the pack. So that's really exciting to find out about those kinds of GPs.
Lieke 12:45
Yeah, I can imagine. And you already touched a bit upon the kind of three waves that you've seen within VC. And you have, of course, a lot of experience in this industry. So we were also wondering, from your point of view, how has the industry kind of evolved over these years?
Daniel 13:05
You know, when I joined back in 97, this industry was almost unknown, at least in Europe, it was an uncrafted activity with a limited number of, I would say, generalist players. Now it has become a global industry with an increasing number of highly specialized and sophisticated players, alongside the world development cycle of innovative companies. So it's no longer because of the competition, which is so intense today about bringing money to components, but it's actually about seducing entrepreneurs, to get into the data to get the ability to invest into the company. And this is also pretty much linked to the added value that you bring alongside the money that you invest. So this has changed a lot.
Lieke 13:56
Yeah, I can imagine. And there's, of course, so much competition also for these great companies, these great VC funds. What are your kind of unique selling points? Or how would you sell yourself to funds?
Daniel 14:10
You know, this is about deep, a long standing knowledge of the industry, the way it works, the dynamics that everyday changing almost, not every day, but very often changing. So this is one point of being able to share common understanding of the industry. And on top of that is actually the ecosystem that Cathay can bring to the GPs, in which we invest in all the startups that our direct investment team also deal with, because we got to believe that this industry is becoming more and more in ecosystem business. And we have a stronger ecosystem that we have built across our geographies, whether it's in China, in Europe or in North America, and this is where bring value.
Liz 15:01
Yeah, great, Daniel, I think the investment proposition there is super clear. And maybe another follow on question to that, you know, we've established that you're working around the world, but with all that's happened and France in the last three years word's, love French tech and the government support on the rise of, say, you know, French tech 120, how much do you now focus on a market that is very close to home for yourself?
Daniel 15:24
No, I actually, from a fund of funds point of view, we have a global forecast. And we are not especially, for the moment, looking for investment in France, where Ryan Valley base currently, we are more looking to extend our ecosystem, I would say, by investing in the highly performing and specialized VCs operating on their own geographies, wherever it's in some drystone Europe, where we have invested in Spain, in Indonesia, or in the US, in the Bay Area, or in around the Los Angeles or in Canada. So that's the way we see our investment strategy from a fund of funds perspective, it doesn't mean that in the future, we will not invest in French funds, of course, but for now, we have an objective to immediately be global.
Liz 16:26
Yep. Great. Very unbiased outside. Yeah, good to hear it.
Lieke 16:31
Great to get some more in depth on all of that. And I think Daniel, we would like to move on now to the second part of the interview, which is also to get to know you a little bit better on a personal level. So what we're doing is we're moving into the fire round questions. This consists of two parts. The first part, we will ask you a couple of quick questions, and we would like you to answer just with one sentence, the first thing that comes to mind, and afterwards, we'll go into the overrated underrated part. But first, we'll ask you a couple of short questions. So are you ready?
Daniel 17:04
Let's try.
Lieke 17:05
What is your morning coffee order?
Daniel 17:08
Coffee, and that's it, one black coffee.
Lieke 17:11
Nice. And if you could solve one problem in the world, what would it be?
Daniel 17:18
Poverty.
Lieke 17:19
Nice. Name three traits that make a successful LP.
Daniel 17:25
Knowledgeable, impactful, not just driven by Britain's I would say donorship.
Lieke 17:34
Correct. And what book are you currently reading?
Daniel 17:38
Magic money, which is a book from the French economist on the impacts of the creation of money by central banks.
Lieke 17:47
Nice.
Liz 17:48
That sounds really interesting.
Lieke 17:49
Yeah.
Liz 17:50
Okay, great. Thanks, Daniel. Okay, well, we'll move on now to the last part of the fire round. I'm going to mention a couple of topics and can you please just tell us what you think only using the words overrated or underrated. So my first question to you is, do you think the following is overrated or underrated? Daniel, tauter?
Daniel 18:10
Overrated
Liz 18:11
What about self driving cars?
Daniel 18:13
Underrated
Liz 18:15
And champagne?
Daniel 18:17
Underrated.
Liz 18:19
Cryptocurrency
Daniel 18:20
Overrated
Liz 18:21
Tour de France.
Daniel 18:23
Underrated.
Liz 18:24
And Silicon Valley.
Daniel 18:26
Overrated.
Liz 18:27
And finally, croissant.
Daniel 18:30
Underrated.
Lieke 18:36
Excellence. Yes.
Liz 18:38
Thank you so much for your time this afternoon, Daniel, we really appreciate you taking a moment out of your day, to share some insights and into what it means to be a fund of funds investor but also, you know, really globally active and in lots of different markets. So we learnt a lot and we think our listeners will too. So thanks again.
Daniel 18:54
Thank you for interviewing me, appreciate it.
Lieke 18:57
Thank you, Daniel. Have a great day.