How Diversity Limited's Ben Kepes Built a Positive Angel Portfolio with 40% of Checks Still in Play (Interview with CEO Ben Kepes)

Intro and Guest Overview

Nathan Latka

00:00Started writing his first angel checks back nineteen years ago. First one, the Cloudability 20 k check. That turned out nice for him. In fact, nineteen years later after that first check, he's still got 40% of his checks he's written, call it in play, 40% are dead, and 20% who the hell knows what happened to those guys. But it growing nicely, a lot of diverse investments. And, you know, he's building it really a life he loves. He's

00:18has his own manufacturing company on the side, doesn't wanna run his own thing and like supporting entrepreneurs with right governance, right structure, especially in the early days as they scale and obviously, hopefully, generate returns. Hey, folks. My guest today is Ben Kepes. He is a professional board member and globally recognized technology commentator along with being an entrepreneur. He's building governance, investment, and analysis @diversity.net.nz. Ben, you ready to take us to the top?

Ben Kepes

00:41>> Always.

How Ben Thinks About Investing in B2B SaaS

Nathan Latka

00:42Alright. So my audience is obsessed with SaaS. Walk me through how you think about investing in B2B SaaS companies.

Ben Kepes

00:48>> Yeah. So I mean, great thing about B2B SaaS is the the metrics are so obvious. You know, LTV, CAC, you know, ARPU, all of those sorts of things. And so it's kind of pretty easy to assess a company. But fundamentally, I come back to the same thing, is all around team. So, you know, a terrible team can screw up a great idea, but a great team can pivot off a terrible idea and make something good.

Nathan Latka

01:14And so can you guys tell me the story of the last last company you guys invested in?

SwipedOn: Investing Early and Chairing Through Acquisition

Ben Kepes

01:18>> Yeah. So I invest in a bunch of bunch of different companies. Probably, I guess, one of the highlights is companies I was an investor and I was also the chair of the board of companies called SwipedOn. So that does you know entry management software, building information type stuff. You know, it's a pretty busy field, but they've done a great job organic marketing. They've done a great job of moving

Nathan Latka

01:42You said up SwipedOn the food right?

Ben Kepes

01:43>> Hadleigh Ford?

01:44>> Swipedon.com, yeah. And so great job of moving up the food chain, you're adding features, you know delivering enterprise solutions and road that way. We got acquired by a UK listed company a few years ago and still doing super well. Really cool to invest early, to join the board, to chair the board and to run through the acquisition process and to kind of see how that plays out for the full life cycle.

Nathan Latka

02:19Mhmm. So just it looks like they raised about 700,000, and that's in New Zealand currency, obviously. And I see their seed round was via New Zealand Venture Investment Fund. Was that you?

Cloudability and Siftery: Early Angel Wins

Ben Kepes

02:29>> No. No. I invested myself individually.

Nathan Latka

02:31Oh, as an angel investor. Okay. So so what is diversity.net.nz? Is it a fund structure? Do you have a pool of capital you're investing? I'm guessing a little confused.

Ben Kepes

02:41>> Yeah. Sure. So that's me. So I do a bunch of different things. So I do a bunch of consulting through there. I do a bunch of industry analysis. And I invest directly and alongside of the funds. And also I do a lot of advisory and governance work. That's kind of my holding vehicle.

Nathan Latka

02:59I see. Okay, got it. I just I guess, does that have any connection to the government of New Zealand? Like, are they a big LP in a fund that you're running, or is there any connection there?

Ben Kepes

03:09>> No. So the government of New Zealand has what's called the venture investment fund. So basically, they would co invest alongside credible investors. And so a lot of the deals that I've been involved when evolved with their fund has invested alongside. But but yeah, they're trying to let other people pick winners, I guess.

Nathan Latka

03:29Mhmm. Interesting. So it looks like you're also involved. I'm looking at your LinkedIn profile now. Things like Siftery, which we had on Cloudability. Now you got into all these via the first angel round?

Ben Kepes

03:40>> Yeah, pretty much. So I was the first first investor in cloudability and again, that was super interesting invested. I introduced those guys to Brad and the team at the Foundry, you know, watched that investment play out over time and then they got got acquired by Apptio. And yeah, that was an interesting journey. Siftery is another example, you know, I invested early when it was I can't even remember what it was called before Siftery and watched that

04:11>> proposition because I was an industry analyst and Siftery was trying to kind of disrupt the analysis space.

Nathan Latka

04:19Did you introduce them to Godard?

Ben Kepes

04:22>> No, no, didn't.

04:24>> I mean, knew kind of I knew, you know, I knew the people who knew who's who in the zoo, but they met up and they and they were acquired, which was great. You know, it was a good outcome for the investors, but but great to see that product in a in a in a bigger home, I guess.

Nathan Latka

04:39Yep. No, that makes tons of sense. Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a

05:03second, but you log in, you connect your Stripe account, you see your valuation real time. You can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the

05:27buying of your SaaS company, you're gonna get a different valuation. A VC is gonna pay a different valuation. Private equity firm is different. If you're gonna do a minority sale, that's different. And if you sell the whole business, that's a different valuation. You can see all those when I hover over here. Right? So the teal is what a VC would pay. Yellow is what private equity and red is if you sold the whole thing outright. Now

05:50what's cool about this is this is not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founders share with us on the show. So traction 1,200,000 seed round 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired

06:14the valuation and the multiple. Maybe you're going out right now and you're raising your seed round. We'll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at and what percent that they sold. There's never been a larger dataset of SaaS valuations than what you can get now inside of Founderpath. And we're thrilled to bring it to you.

06:37Alright. We're gonna go back

06:38to the YouTube video here in a second, but if you wanna check this tool out, if you wanna jump in and sign up, you can check it out for free to get your valuation at this link. This link, founderpath.com/products/valuations. Or if you go to founderpath.com and hover over products, click on get your valuation here, and go ahead and sign up to give it a whirl. Again, all that valuation data live right inside the platform. I hope

07:04to see you there. Alright. Let's jump back into the interview. We had Cloudability on the on the show. Now this was way back before they were acquired. This was back when they were doing around 20,000,000 in revenue, and they had only 41,000,000 raised. I guess one good question that would be I think that would be good to ask you is there's a lot of folks that have boards, but they just do a terrible job of using

07:21board members, right, for strategic reasons. What founder have you worked with in the past that is just you think has done a brilliant job at treating you like an employee almost, getting you to do stuff that really helps them?

Ben Kepes

07:31>> Yeah. So what the first thing I'd say is it's super important to know the difference between governance and management, and it's important for board members to understand where that lies. And it's super important for for governors, for directors to to to to be involved, but to be to be hands off, I guess. You know, they say, well, they do say, you know, noses in, hands out. You know the CEO of SwipedOn CEO and Founder Hadleigh did

07:57>> a great job of kind of leaning on me when it was appropriate, but also you know having that arm's length separation. And so that was a fun process. Was a really fun process to walk alongside him from the very early stages to the acquisition.

Nathan Latka

08:11A real story, one that he won't care if you share when you to actually quantify what you mean when he say he quote leaned on you?

Ben Kepes

08:18>> Yeah. So in the early days before I came on board, when it was a very very early product, they had outsourced some development to an individual in Pakistan, I believe. And that these horror stories sometimes happen that kind of kind of went south, that relationship went south and there was this is a long long time ago now and there's a bunch of stuff that happened around you know, threatening to steal source code and out people and

08:45>> rip off software and stuff like that. And you know that stuff is super scary for anyone and so I think that's not example where as a board member you have the opportunity to provide the support and guidance I guess. Mean at the end of the day the CEO probably knows what the right thing to do is and we'll do it anyway, but having someone who you can confide in because the reality is the CEO it's super

09:10>> hard because you can't be completely honest with your your employees because you know, at the end of the day, the buck stops with you. And so your board members, you should absolutely see them as a sounding board. You can be totally honest with and you can have that that super open conversation with.

Nathan Latka

09:24Interesting. And then what about Matt Ellis? Did he use you well at Cloudability?

Angel Portfolio Stats: Checks In Play and Outcomes

Ben Kepes

09:29>> I mean, in the early days for sure. I mean, I think, you know, once you do series A, series B with people like, you know, the Foundry, you know, all changes. And it's kind of hard for early annual investors. I know I've had not with cloud ability but with other companies I've had sort of the email from from CEOs saying, hey, we've done series ABC whatever from now on we probably won't be updating you ever and

09:53>> I won't reply to your emails kind of thing, which is a little bit jarring. That wasn't the case with Matt and JR at Cloudability. But the relationship absolutely changes. But I mean, me, I think the important thing is outside of, you know, I mean, there's a validation that you've done a good job, right? Because they're leaving home, they're growing up, your kids are finally fledging. And it's a good thing, but the relationships in terms of their

10:18>> respect and the friendships, those remain. And so I catch up with JR, Co Founder of Cloudability. I saw him at AWS re:Invent only a few months ago, him and his wife. He's a great guy. I deeply respect him. He stayed at my house in New Zealand and that stuff endures outside of that kind of startup cycle.

Nathan Latka

10:37Obviously, we're only talking about your wins here. You know, I bet you probably had a lot of the angel checks that went south as well. We'll get to those in a second. But for cloudability, there's a lot of, you know, early stage even angel investors, solo funds listening going, how do I get to a JR out of mat? How do I get into the next cloud ability? How did you get into that deal specifically? And if

10:54you can share, what was the check size you wrote?

Ben Kepes

10:56>> Yeah. I was super lucky. I mean, the check size was from memory was like twenty, thirty k. So not much at all. I was super lucky because I was working in the valley, living in New Zealand, working in the valley as an industry analyst. I went to all the shows, I put on shows and so I had fantastic deal flow. That's totally not the case for other people. So you know, one option is to get involved

11:18>> in an angel network. I'm not so big on that because it's kind of douchebaggy. Just just swim in the waters, just go and meet some folks, go hang out at open nights, go to go to pitch days or whatever and get to know people because it's about the relationship is the key thing. And so, you know, you might not have the fantastic deal flow that I've been fortunate enough to have. You know, individuals may not have,

11:40>> but just swimming in that sea, you start to get an affinity and start to pattern naturally.

Nathan Latka

11:46So how many angel checks would you say you've written over the past ten years?

Ben Kepes

11:50>> I guess somewhere between 1,500.

Nathan Latka

11:53Okay, and how many of those just went to zero?

Ben Kepes

11:57>> Probably so there's probably 40 still in play. Would say I've been super lucky. So probably 60% of the ones that have had an outcome have been a positive outcome, 40% have been to zero.

Nathan Latka

12:12Positive outcome would mean you at least got your money back?

Ben Kepes

12:16>> Yeah. Yeah.

Nathan Latka

12:17Yeah. I mean, you've gotta have ones like Cloudability though that are doing, you know, five, ten, 20 x your money back hopefully though. Right?

First Angel Check and Marking Up Illiquid Holdings

Ben Kepes

12:24>> Yeah. Overall overall, I'm I'm super lucky. I've got so so say 40% is still in play. My portfolio is in the positive even with those still in play. So so I've done I've done I've done well. And let's see what happens with these other ones. Right now is a difficult time in the sector, so we'll have to see what what shakes out.

Nathan Latka

12:45What year did you write your first angel check?

Ben Kepes

12:48>> So it was Cloudability was my first deal and that was whenever they started. So that's like nine, ten years ago, I guess.

Nathan Latka

12:56Yep. Okay. Interesting. And so you got 40% still in play. Now those founders that are so big, they don't give you updates anymore. How do know what to mark them up at? How do you go? What's my 10 k? What was my 10 k? What's it worth now?

Ben Kepes

13:08>> Yeah. So like I'm not a fund for a fund. Obviously, you have to keep on top of that stuff for an angel. Don't don't invest anything you're not prepared to lose when you do invest, really enjoy the ride, but you you kind of paying for the ride. And if you have an outcome at the other end, that's a bonus. And so I don't think about that money. I don't, you know, I don't yeah, of course I

13:28>> track it. I have a spreadsheet and all that sort of stuff and I have some crazy stuff around what I think it's actually worth and what I might realize. But that isn't isn't real until the money hits the bank. It's it's not real.

Nathan Latka

13:39Did you get in Canva?

Ben Kepes

13:40>> Nope.

Nathan Latka

13:41No Canva. And can you name the company that maybe you don't you the founders don't talk to anymore because they're so big, but you think it's gonna be your biggest win?

Ben Kepes

13:51>> No, I've had some big ones which have been in percentage terms which have been kind of invisible. So a company called StorReduce that sold to Pure Storage, you know, no one's ever heard of and whatever but in percentage terms it was super good. I'm you know, like so Canva, know, if only I had been in there, there's another company in New Zealand that does kind of, you know, democratizing share trading and you know, I talked to

14:21>> those folks super early on, I was a mentor, I had a program they were on, I just didn't didn't kind of work for me and they've done super well but you know, you can't be in everything and it hindsight has twenty twenty vision, right? You always say, oh, well I should have been in that one. Well, yeah, maybe not. Who knows at the time?

Nathan Latka

14:39That's right. That's right. Very interesting. Okay. So any itch to get into the operating side and stop investing and maybe launch your own SaaS company?

Why Ben Prefers a Portfolio Life Over Founding a SaaS Company

Ben Kepes

14:47>> No, so the thing for me is that I like having a bunch of things on the go. So I'm on maybe 10 or a dozen boards. I own my own, I do own my own manufacturing business and another sector, I do a lot of analysis. And I think for me is that when I'm only doing one thing, you know, you know what business is like, especially early stage businesses, they're up and down and sometimes things are

15:06>> going really badly and I kind of that's all a bit depressing and the great thing about having a portfolio of stuff is that there's always something doing well and so it kind of evens that up for me. So no, wouldn't go and start my own thing now. I'm kind of, it's a young person's game. I don't, I want balance, I don't wanna work twenty hours a day. I mean, I do work a lot. You know, was

15:26>> like 04:00 this morning to record this call. So I'm happy to work a lot, but I also want some balance and optionality. And the reality is that as a SaaS founder, no matter what people say, you don't have that balance because you have to focus because it's a short life cycle. And in order to scale to the level to see the outcome, to be hustling.

Board Structure Advice for Series A Founders

Nathan Latka

15:48I'm gonna ask you a very specific question. So feel free to punt if it's not relevant to your experience. But a lot of times folks that are raising their series A, you know, that's when a board structure of usually five is proposed. Right? And it's usually structured as three common. The seed investor has one seat, and maybe the new investor has another, or the new investor has another plus a one an independently, you know, mutually agreed

16:11upon position. One one of the things where I've just seen founders get destroyed on this is if is if the verbiage of that board structure says those three seats out of the five can be appointed by whoever owns majority of common. Well, the founder assumes they'll always have majority of common and there are ways that that cannot be the case in the future. And we say you should structure it as you, your name, the CEO. Right?

16:33Not necessarily majority of common. Do would you agree with that advice and feel free to disagree and maybe share an example if you can.

Governance vs Management: Founder Control and Board Seats

Ben Kepes

16:40>> Yeah, so it's super difficult and obviously I'd refer everyone to Brad Feld's, you know, Venture Deals book because there's some great advice in there. And also he's done a book about covenants. It's contextual, right? So if you have a check and the check says, hey, we want these terms around the board seats, otherwise we're not going to give you the check, know, what are you going to do? For sure, it's within the founder's interest that they

17:02>> have the power over appointing the board. And they don't want lose control because hey, they might get fired or whatever. The reality is the right thing for the company is that, you know, the board is independently at some level is independently appointed and the right thing might be to fire the CEO. And so I see it both ways. I mean, I think it comes down to you can spend a lot of time angsting the legal terms

17:29>> and conditions, but the reality is it comes down to the relationship. And as long as there's trust and confidence, then then you're okay. I mean, sometimes the reality is and we've seen it so many times before, it's unusual for the founder to be able to take an organization through to exit or IPO, because it's a different skill set. And it's very important to have that conversation upfront. And I don't think, I think it's really important for

17:53>> founders to realise that at some point they might not be the right person, and they're far better off to embrace that fact than to go unwillingly and if their way of kind of dealing with that is to try and retain control of board seats so they don't get fired, well it's a Pyrrhic victory because the outcome might be bad, they're still in the role, but the outcome might be bad. So I think, you know, for sure

18:19>> it's in the entrepreneurs interests, but there's a bigger picture and it's super important for the entrepreneur to think about that bigger picture and get some advice and mentorship before they go through the the the deal around how that shakes out.

Nathan Latka

18:33Ben, on that note, where can folks learn more from you online if they wanna check you out?

Where to Follow Ben Kepes

Ben Kepes

18:38>> Sure. So connect with me on Twitter. I'm at Ben Kepes. Been there for a long time and on my my my website diversity.net.nz.

Nathan Latka

18:46Guys, there you have it. He started writing his first angel checks back nineteen years ago. First one, the Cloudability 20 k check. That turned out nice for him. In fact, nineteen years later after that first check, he still got 40% of his checks he's written, call it in play, 40% are dead, and 20%. Who the hell knows what happened to those guys? But it growing nicely, a lot of diverse investments, and, you know, he's building it

19:05really a life he loves.

19:06He's has his own manufacturing company on the side, doesn't wanna run his own thing, and likes supporting entrepreneurs with right governance, right structure, especially in the early days as they scale and obviously hopefully generate returns.

19:16Ben, we appreciate you. Thanks for taking us to the top.

Ben Kepes

19:19>> Thanks, man.

Nathan Latka

19:20One more thing before you go. We have a brand new show every Thursday at 1PM central. It's called Shark Tank for SaaS. We call

19:25it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU, CAC, LTV, you name it, they share it. And the buyers try and make a deal live. It is fun to watch every Thursday one p. M. Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at two p. M. Central to

19:51make sure you don't miss any of that. Make sure you click the subscribe button below here on YouTube, the big red button and then click the little bell notification to make sure you get notifications when we do go live. I wouldn't want you to miss breaking news in the SaaS world, whether it's an acquisition, a big fundraise, a big sale, a big profitability statement or something else. I don't want you to miss it. Additionally, if you

20:12want to take this conversation deeper and further, we have by far the largest private Slack community for B2B SaaS founders. You want to get in there. We've probably talked about your tool if you're running a company or your firm if you're investing. You can go in there and quickly search and see what people are saying. Sign up for that at nathanlatka.com/slack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments

20:35for the next thirty minutes. Feel free to let me know what you thought about this episode. If you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We have to counter those people. We got to push them away. Click the thumbs up below to counter them and know that I appreciate your guys'support.

20:53Alright, I'll be in the comments. See you.