Joyce Liu - Educating us on Venture Debt!
/Joyce and I met at the lovely Taylor St Baristas (her go-to meeting spot) to talk about all things venture debt! We met at Dawn Capital's Young VC Christmas drinks and I was incredibly excited to interview her and learn more about this relatively opaque asset class. Joyce was born in China, studied in the UK (Manchester) and Canada (Ottawa), has worked in the US (New York, Los Angeles), and is now based in London as part of the founding team for Columbia Lake Partners, a pan-European venture debt fund established in late 2014. She started her career in investment banking and worked on the buyside financing buyouts of mature companies before she jumped into the world of startups. As an entrepreneur-investor, Joyce is incredibly passionate about working closely with visionary founders and technology investors. Enjoy reading about her exciting journey to date!
Meet Joyce
Current Job Senior Associate, Columbia Lake Partners
First Job Summer Analyst, Statistics Canada
Go to meeting spot Taylor St Baristas - Bank
Necessary extravagance L'Occitane hand cream
Favourite productivity tool Yesware
Favourite place in London One of the many parks in London on a given weekend
Female inspiration in business Sheryl Sandberg
Top networking tip Figure out what motivates someone the first time you meet and then build a relationship by discussing what they are passionate about. Spend most of the conversation asking questions, listening and absorbing.
Most interesting tech firm in London right now Sparrho (female founder!)
The Journey
Tell us about your banking beginnings
I was born in China, moved to Manchester England when I was 5, to Ottawa Canada when I was 9 and upon graduation from university (Richard Ivey School of Business, Western University) I moved to New York, joining JP Morgan in 2009. I spent three years there and the best way to describe my experience was a "love-hate relationship"! I worked in sales and trading for a year before that group became divested and sold to an insurance company, Pacific Life, after which I joined the leveraged finance group where I worked for 2 years. The love was the privileged position of working with industry titans (I met Mike Milken the "Godfather of junk bonds" and advised Steve Hazy who pioneered the airplane leasing model) and worked alongside incredibly smart, driven colleagues, learning about the inner workings of financial markets. Downside was I basically lived in the office working 90+ hour weeks - there were nights where I would go home at 3.30am, shower, nap for an hour next to my Blackberry before getting back to the office. I am grateful for the experience, but couldn't see myself living the life of the Managing Directors I worked with - it was terrible work-life balance!
What came after banking?
I wanted to get much more into the "nitty gritty" of a business and I ended up joining Ares, a global alternative investment manager with ~$92BN in AUM, in LA financing buyouts of private equity and growth stage companies. Ares bought a venture debt provider (BlueCrest Capital) which shared an investment committee with my group, and also had a sidecar vehicle that did co-investments in B2C growth stage companies in partnership with a fund in the Valley, and I found these businesses so much more interesting. Rather than focusing on operational synergies and "financial engineering" the balance sheet, I much preferred the excitement of working with young teams and understanding their growth potential. So I started looking at venture and was advised to go & work in a startup first to really understand the mindset of entrepreneurs before transitioning to VC.
Tell us about your startup experience!
Through a friend of a friend I was introduced to the founder of TRULY Experiences. Jack had bootstrapped the business initially and when he raised seed capital from EC1 Capital and others, he asked if I'd be interested in working as a Data Scientist. So I moved to London to be an entrepreneur and took a 90% pay cut in the process! I focused on customer discovery, SEO, and also did some corporate sales. We had customer data in Google Analytics, Zendesk, MailChimp, and Excel spreadsheets and I was responsible for generating a holistic picture of our customer base. We migrated it all to RJ Metrics in order to easily derive insights and start testing hypotheses on customer profiles I created. We decided to recreate our Google and Bing Ads when we moved domain names. My training on SEO was a 500-page Advanced Google Adwords book. I knew nothing in the beginning, so it really was an invaluable learning experience. About 4 months in, I met Craig at a C100UK Thanksgiving dinner I organised just as he was setting up Columbia Lake Partners. I was really impressed by his vision for the fund and decided to join shortly after.
Venture Debt
Venture debt for beginners ...
If you think about a company based on its maturity cycle - early stage companies carry so much uncertainty they only have access to the highest form of capital in terms of cost which is equity - the rationale being that people are willing to hopefully generate higher returns for that commensurate risk. However, there is a time point when there is a certainty around breakeven point and companies begin to be able to access bank financing. But with a startup, traditional banks do not know how to finance them (i.e. asset-light, negative equity) and also young businesses in the short-medium term typically do not generate the revenue targets bank desire (no M&A fees, hedging, etc.), that is where venture debt comes in to play. Equity funds typically ask for ~15-30% of your company in exchange for 12-18 months of capital runway and all the other network/operational support. For entrepreneurs looking to accelerate growth plans and desire more capital cheaper in between financing rounds, venture debt can be a very attractive complement to equity. In addition to monthly payments to pay back the loan, most venture debt funds will take warrants, an option to purchase equity typically exercised during an exit event, which usually ends up amounting to 1-2% equity on a fully diluted basis. Venture debt helps companies get to that next valuation milestone at low dilution. It's all about optimizing cost of capital for high growth, scaling businesses.
Tell us more about Columbia Lake Partners
Columbia Lake Partners ("CLP") is an experienced team of investors providing growth loans to European technology companies. Our transactions range €1 to €5 million and we partner with Silicon Valley Bank to write larger cheques. Venture debt only really started in the late 90s in Europe with Kreos Capital being the incumbent player. Other recent entrants in our space include Harbert and Boost, along with Silicon Valley Bank who have been very active in the US for many years. Despite this, only ~10-15% of all VC-backed companies in Europe receive debt financing, which is a marked contrast to the US where there are at least 10-15 funds and banks options for founders. It's no surprise that over 60% of Bessemer's portfolio companies have received debt financing. That is why CLP got started - with the belief that venture debt is underutilised and underserved in Europe.
CLP's investment thesis in a nutshell?
The business should have a predictable nature such that it can service interest and principal payments, and its intrinsic value should be worth at least the value of the loan. A venture debt candidate is typically at the scaling stage - they understand who their customer is, have built a great product and team around it, successfully executed go-to market strategy in a given geography and vertical and therefore know their cost of customer acquisition, and just need more money to grow - they are in the 'add water' phase. Columbia Lake Partners is trying to educate the market - both entrepreneurs and VCs - in venture debt and make it as transparent and efficient as possible. Our term sheet is online along with regular blog posts about venture lending.
What does your role involve?
I'm involved in all aspects of the fund: from origination and building relationships with VC funds and founders to the diligence of potential investments to portfolio management and fundraising.
Women in Tech
What advice do you have for women looking to start their own business or enter the investing landscape?
- Be transparent
- Be honest
- Work hard
- Get to really know the people that matter
What business support networks do you really value?
What tips would you share with female founders looking to raise finance?
- Do your homework. VCs are all very different and even the partners within each fund have niches, so build your strategy with that in mind.
- People want to work with passionate visionaries. They typically generate great investment returns due to a "grittiness" and ability to figure it out when times are tough. So love what you are doing, be passionate about your product and customers, and hopefully you have personally experienced the problem that you are trying to solve.