Matas Danielevicius is the co-founder of Whatnot Startup Studio, a venture studio focused on building scalable and investable corporate ventures that originate from Thailand. WhatNot brings in experienced teams and founders to create and operate corporate ventures and provide support services like legal, HR, and Fundraising.
In this episode, we will discuss methodologies to de-risk the creation of a corporate venture, the role of entrepreneurs-in-residence, corporate sponsorship criteria and much more.
Website URL: https://whatnot.co/
Matas's LinkedIn: https://th.linkedin.com/in/matas-danielevicius-419ab6aa
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Andries De Vos: Matas, welcome! If I think of the venture building process, I see it as a methodology and a capability to de-risk the creation of a business, which is the definition of a risky process. If you had to extract the key steps you undertake to de-risk a venture, what would they be?
Matas Danielevicius: That really depends on the market. Local startups are not capable of producing investible solutions, so a lot of local corporates do their own CDC funds. This ecosystem is being shaped right now. Local corporations are forming CDC funds, and looking for ways to invest their money, but nothing yet is coming out of the ecosystem. Corporates tend to go outside of Thailand and invest in Silicon Valley or China, but once they go to Silicon Valley, they are just some investors from Thailand, so their networks and strength are very limited.
Our proposition is this: why don't we use some of these funds to build a venture in a less risky way and have it managed by a professional team, which we believe we are? We have experience in building the process, we have our own methodology, and we have an in-house team that supports every single step.
We also propose to rely on professional entrepreneurs who have a proven record of building businesses before rather than on a random startup team, which usually, in here, is a group of friends. When working with the startup team that is formed by a group of friends, we tend to see that later on in the development, there are weaker links in the chain, which are not able to produce but still have a big chunk of equity in the company, and it just drags the startup down.
That is a very common scenario: startup teams are formed by groups of friends rather than professionals selecting support, and the teams are not balanced. We see that there can be three marketing professionals or three engineer guys doing a startup, where they have in-depth knowledge of certain areas but no knowledge of business development or brand value. We help declutter that whole mess.
Let's say, we go to the corporates and understand what challenges they have. We see if there is any solution in the market that could help them or if there is a gap, a space to build something outside of their structure, which would help solve their issue and be able to solve similar issues for other corporates in the region. We offer workshops and just general conversations, where we bring people from certain industries to share their opinions in order for us to see if there is something we can help with, and then we come back with the action plan.
This is quite a tricky part because there is no set model. We have to improvise. Corporates have different challenges, different ways they want to work with. Some of them want an all-in solution, i.e. we execute everything and they just sponsor the venture. Some corporates want to introduce their own entrepreneurs, which means we have to work with their own in-house teams and rely on our entrepreneurs or residents to coach them. This also involves a selection process: we have to select and balance the teams from the pool of corporate talent. In some cases, we are able to build the teams from scratch, but to be fair, we rely a lot on entrepreneurs in residence.
Once we sign the contract with the corporation and we know the challenges we are going to work on, the most important bit is to find the right person to lead the project.
Andries De Vos: Give us a flavor of how industrialized this is already. How many have you done approximately in terms of such programs with corporates? How big of a team is employed? What is the economics against this?
Matas Danielevicius: It depends on each corporate individually. We started a little bit over two years ago, and we have already had 5 large corporations that we did innovation and venture building with at different levels. Currently, we have two real estate companies, who have different challenges, and we are scaling the projects. We started with one real estate firm here with 3 venture building projects, each of them had its own budget, and the budgets were decided depending on the size of the issue and the market opportunity. One large corporation can scale up to 10 venture building projects. Each has its own budget and limitations, each has its own opportunities, but we usually provide predictions before we start.
We calculate the cost of the project, the management cost, the entrepreneurs' residence costs, and the facilities- because we all have our own offices and space to run these projects, and we need to pitch project by project. Ideally, what we would see is that would start one project, it could be a launch from around USD 150,000. What we promote is that eventually, the entrepreneur would get up to 60% of the equity of that venture. It is an ideal scheme we are looking into. We would love the corporate to own 20-25%, the entrepreneur to get up to 60%, and the support team, us, and other outside investors could get a share.
Andries De Vos: Do you have restrictions for the corporates? Do you accept any restrictions they impose on you on how this new product or business can be commercialized? For example, you cannot sell to a competitor or, in the governance structure, you ensure this never happens.
Matas Danielevicius: We do get that at this stage. Again, the ideal situation would be working with open ventures, but the ecosystem is just being shaped now, so we have to be diplomatic and negotiate for certain things. We see that once the corporate gets the taste of it, it becomes more and more flexible for the next batches of ventures they want to build.
In the beginning, if we look into local corporations in Thailand, they are very conservative. Usually, it would be a family business. It is a challenge, which we trained ourselves for years, to negotiate and to prove them things. It still takes time, but we see that - and COVID was actually one of the reasons - they are forced to innovate. As we would see before 2019-2020, a lot of innovation was more of a theater performance: organized events, debates, accelerators, big awards ceremonies, a lot of pitching competitions and media attention, but the scale of the startup is still nothing to be compared with Singapore, Malaysia, or Indonesia. Now, because of the pandemic, the core businesses are suffering, so they have to find ways to solve their issues, ways to improve, stay competitive and actually stay in the market in general.
These Dutch real estate companies that we are currently working with, two large corporations, and oil refinery corporations - their core businesses are being attacked heavily, so they have to find ways to change that.
Andries De Vos: On the USD 150,000 side, what is the deal after that? Is the plan for the corporate to keep financing it or to find external funding?
Matas Danielevicius: We would encourage them to find external funding as well, but some of them would rely on funding the ventures themselves, especially the more conservative ones, which have their own entrepreneurs - they tend to want to keep more power in their hands. However, we would argue that in order to make it more successful, we would negotiate and try to convince the corporate that the venture has to be funded from outside as well.
Andries De Vos: Do you have stage gates between the discovery, the MBP, the company formation? How structured is this? Is this bite-sized when you sell it or is it in one bulk?
Matas Danielevicius: We sell it as one bulk, but we go stage by stage. At each stage, we have drop-and-go options as well. If we sell a venture building project, we promise certain outcomes like product-market fit, and we usually divide it into 6 steps. We have market gap analysis, RND where the development starts, branding, marketing, and through to the market and business development stages. Each stage has its own structure and map, and each stage has the option of drop-and-go, where we evaluate with the corporate if it makes sense to continue. If you want to continue, our job is to make sure that the entrepreneur is able to push it further and to convince and prove with data like consumer feedback that this is a valid idea and it could potentially work (they need to find examples in the market in or outside of Thailand). It is a lot of research and competition analysis, and design thinking - empathize, define, ideate, prototype, test, and repeat. Each stage goes through the same process where we sort the problem we need to deal with, consumers (B2B, B2C, etc.).
Andries De Vos: It is already a challenge to get alignment in early-stage startups of the group of friends, let alone when you have vested interest and corporate politics in the board room. As you are selling this to the corporates, what are the signals you are looking for in the corporate? What are the criteria for the corporate sponsor? How do you determine if the corporate will actually sponsor USD 150,000 and support the venture?
Matas Danielevicius: To help us to decide whether to turn down, first of all, we just do not jump into a venture building project. We have workshops that we offer before that, so we tend to know the theme, we tend to know with whom we will be working, who the decision-maker is, how many management layers we need to go through to convince the corporates to make certain decisions. The higher we can pitch, the higher we can get feedback forward, the better for us to decide if the project would actually work.
In some of the cases that we had, we tend to say that we are going to innovate outside of the corporate structure, which is a much faster way because of the corporate management layers and things like that. But once we start doing it we get stuck into the corporate vehicle because each decision has to be made by the supervisor and the supervisor's supervisor, and then it has to reach the CEO at some point, who is a very busy person, so feedback and decision making slow down and we become just another business unit in the corporation, which is exactly what we do not want to do.
One of the core things is that we still need to negotiate the power to make major decisions and find a way to get feedback as fast as possible from the corporate side. It also depends if we work with inside teams or we just build it outside.
Andries De Vos: There's a huge debate going on right now in the consulting industry and, to a degree, in the venture building industry about whether you can be sector-agnostic in the space. Is having a methodology enough to add value as a framework, as a facilitator or do you need to start adding domain-specific expertise to the process? Where do you guys sit on that?
Matas Danielevicius: I would argue for both sides, but we tend to see that it is quite a universal process. We work with the food and beverage industry, oil and gas, real estate, because the challenges and things they want to solve cannot be directly related to their core business. They are willing to expand opportunities, and we just see that we better find the people who would help us with domain expertise at certain levels but we still do the whole process of building a tech company, our solution outside of the environment. Then, it’s up to us to recruit the right people to push it forward and to give us the knowledge.
This is also one of the reasons we are part of the Knowledge Exchange, which is an innovation center here in Bangkok. We collaborate with them as well, so we have access to university talent and research and the center's network, so it's easy to get government support for our projects. We can rely on the pool of talent coming out of technical universities.
We as venture builders try to be ready to sort out these issues, but I wouldn't say that we would not work with certain industries at this point. If we are capable of building the team and finding the partners to execute the plan before we jump into it, of course, we will work with any industry.
Andries De Vos: Do you ever feel that this business is becoming easier to run? In other words, are you pushing the business downhill and it just gets gravity and rolls, or do you feel that as time progresses, you need to just keep pushing uphill?
Matas Danielevicius: We have been around for two years, and the first year, of course, was a struggle and we needed to push uphill because we needed to build a case study specifically for what we provide. We had some networks, some connections, so we got our first contract and started to work with the first corporate. To convince, to prove, to get the budget - it is a very lengthy process. Suddenly, last year COVID happened and we had a moment when everything stopped, nobody knew what was going to happen. We kept on improving our own operations and content, working on the tools that we have. After that, we saw more and more interest from local corporates.
At this point, I could say that we are starting to see the light at the end of the tunnel, as now it is not only us reaching out, but the corporates are also getting in touch with us, trying to find venture building solutions. That is interesting, as three years ago the term was something no one used, at least in Thailand.
Now we hear about venture building in a lot of different ways. We see more and more demand, and what is good for us and what helps us give motivation to our entrepreneurs, residents and co-founders is that our current clients are asking for more. This is a really good proof of concept for us as well, because we started with few projects, now the corporates want to add several more, plus we are already thinking about the second batch and scaling the batches, not just duplicating them. It gives us more confidence, helps us hire better talent.
Andries De Vos: Typical agency makes around 50% project margin and maybe 25% of net margin as a company, depending on the situation, you could maybe stretch it to 30% if it is a good year. If you have a bad year, it could drop to 10%, so you could keep a cash reserve. That is the agency model, it is fairly well-documented, but it is not very scalable. In other words, there is a natural range, through which you can grow that.
Compare that with a product studio or an equity play where it is exponential if you are lucky, and if you are not lucky, it dies. What do you think of your numbers? Let's say, if you take 25% company margin, how much percentage do you feel you are going to take off the top to invest in your side projects? How much are you betting on the fact that your portfolio of corporate support teams will potentially create value? What do you think about your model?
Matas Danielevicius: Your assumptions are pretty correct, as the typical agency model is 50%, something that we would see now. We are trying to decide which direction to take because, in the agency model, we would build the brand value, the methodology and become more of a consulting, training agency that lives from the fees and helps to support our teams and the company's growth. Speaking of our own ventures, it really depends on founders, because we have a couple of ventures on the side and we fundraise for them outside of the structure, looking at them as separate ventures.
As an agency, we do consulting and get fees, we are a corporate venture builder, that is why we position ourselves in that way. We build startups as a service, so we are service providers, we help to find the talent, execute, hire teams, and we do it all for a fee. That is how the model works.
Andries De Vos: Do you give yourself a minimum size for agency and afterwards it doesn't matter anymore, it lives a life of its own and you won't push harder for growth, because you can maximize your time on other ventures? Or do you want your agency to continue growing and become a huge system so you have more freedom, but then building that system means more investment?
Matas Danielevicius: Of course, we see limitations of the growth, so we would probably look into the regional scale and find local partners in each market, and then consider each market individually. Some models might work in Thailand and not work in Singapore. It is building the brand value that is important to us, so we want to be recognized as a venture builder. Each individual market could have its own structure that would be built depending on who we would partner with. I'd say we would need to find strong local partners with their own networks in those markets. It is probably more of a creative agency scale, where you bring in the methodology, the expertise, the talent, and the pool of clients you have been working with in different markets, and then find local partners who can help with their networks to introduce the methodology or certain assets that we have.
Andries De Vos: You mention a lot about entrepreneurs in residence. What are the traits you are looking for in them, especially if you expect them to run a new startup? What are the characteristics that you would consider a red flag?
Matas Danielevicius: This might sound stupid, and I don't know how the corporates would react, but if we click, we click. That is the key.
The person has to be someone we feel confident about, but that, of course, consists of many different things. First, we would like to get applications from people who have a track record of building their own ventures. Whether the ventures were successful is secondary, we want to have someone who has already tried. That is what we call the entrepreneur in residence.
Usually, we get applications from people with a corporate background, someone who has been working in corporations. It is not a red flag, but we would investigate that applicant much more than someone who says they have worked on their own three startups and nothing came out of it. The latter is someone who did the research, raised the money to start the business - this is what we are looking for. We need the hustler, someone who would be doing work, we do not want only strategy. It has to be someone who buys lemons, cuts them, and makes lemonade when they decide to sell lemonade. It is also university projects, internships, something in which people are proactive. We also try to see how applicants see themselves, what aspirations and dreams they have, what they want to learn from the venture building processes. We just want real people, and the rest we can help with.
We want entrepreneurs to be entrepreneurs. If they need legal help, we provide that, if they need methodology and tools, we provide that, but we need someone who says "I know someone, I can call them!" or "I'm going to do the research!" when they need to get something.