Episode 10: Allen Duan of B Capital Group
On 5 Pillars of Value Creation for Minority Investors

Episode Transcript

Shiv: All right, Allen, welcome to the show. How are you doing today?

Allen: Doing well, thanks, appreciate the time.

Shiv: Excited to have you on, and so why don't we start by introducing the audience to yourself, your role, and B Capital Group and we'll take it from there.

Allen: Sounds good. Again, appreciate the opportunity to speak with you and the audience. So, my name is Allen Duan. I'm a general partner at B Capital Group. We are a multi-stage investment firm where we will invest from seed to pre-IPO, and looking for companies that are driving disruptive technologies based around the world.

Shiv: And in terms of your role, are you focused more on the M&A side, or the acquisition side, or the investment side or more on the value creation and operation side?

Allen: Yeah, so the core of my role is a bit flexible. Being one of the early members of the team. I've played a lot of different hats at the company, but at the core, my focus is on growth acceleration for our companies. So how do we drive value creation, partner with our companies on growth, and quite frankly, leverage our strategic partnership with the Boston Consulting Group, which is one of the core pillars for our ability to help in that process.

Shiv: And when you look at value creation within your portfolio companies, there are five pillars that you look at to realize that vision, right? So can you walk the audience through that?

Allen: Yeah, so as you noted, one of the things that B Capital has done is, we wanted - in this market, when you're trying to differentiate as an investor, it's quite competitive to be the right partner for our portfolio companies. And so what we found were five of the key areas that really stood out to helping our companies were centered around, in no particular order: People and organization - how to help with the team and design and help with recruiting. With capital advisory, everything from venture debt, straight up to equity financings, to M&A and IPO advisory. We have a strategy and operations team that helps with strategic decisions, product expansions, go to market strategy and so forth. We have a team that's focused on BD and ecosystem development - so, combination of our partnership with BCG and other tech partners, as well as direct client introductions. And then the fifth part of our pillar is really around community and events: how do we help foster that environment for our companies to be successful?

Shiv: And so when you invest in a company at B Capital Group, how do you identify which of those pillars are gonna be most relevant to a particular business or which one to start with, or which one would drive the most value for that particular business?

Allen: Yeah, so, great question. So what we like to do is actually during the due diligence process, as the companies try to get to know us, we start to work together on a joint plan. So how do we find the key focus areas, key opportunities, key needs that our portfolio companies have, and match that with the best capabilities within B Capital? And so to your point, it usually is leveraging two or three of the pillars, not all five to start. And then it evolves, quite frankly, and grows over time.

Shiv: Got it. And so let's say you've identified one of these pillars. Let's take people and organization. What is your approach to getting that, or - getting that business to a sophisticated level across different departments or functions so that it's creating the most value?

Allen: Yeah, that's great. And I'll probably use one example from a recent company that was really focused on upscaling their management team. That - they had a great team that was strong in terms of individual capabilities, but how did we get the head of engineering to be a true leader of a technical team as opposed to being the technical architect and individual software developer? And how do we make sure that the team was developed and didn't have any blind spots in how they actually operated as an executive team as they grew to the next phase of their development? And so our people and org team went in, did a lot of consulting and advisory with the company to understand what specific leadership development tools and training that made sense for them, did a team and org assessment for them, where they were really interested in just seeing where there were potential gaps and identifying those, understanding a lot about what they wanted to make sure they maintained in terms of their culture and values and making sure that those stayed consistent. And so, building upon all these different elements in conjunction with the team, formulated a plan and a roadmap for - that involved executive development, leadership and training, as well as recruiting to make sure that they complimented the team as they move.

Shiv: And some of these things take time, right? Like when you're talking about recruiting in additional C-level talent or implementing the right kind of culture, it takes time and effort and oftentimes patience as well to get an organization to the right level of maturity in that area. So how do you look at that as like a trade-off between just rushing to the thing that drives revenue versus focusing on some of these slower burn type of initiatives?

Allen: Yeah, yeah. So you're absolutely right. It's more of an art than a science with regards to figuring out what the right balance is. I think a few things that help fit the structure a little bit better for us: first of all, we are a - we do invest - we are minority investors and we do look for a longer term hold period. Our funds are typically 10 year funds. And so our hold period can be longer, and making sure that we get the companies the best position as they can be. But as you noted, we always have the near-term quarterly demands of trying to reach certain targets. People and org in particular and some of these broader strategic initiatives we engage with them on though, we do think it's important to figure out what that right cadence is and set the plan. And if that plan requires more time, appropriately account for it, but really be diligent on setting an aggressive but achievable plan.

Shiv: Right, right. And so when you're looking at that, that totally makes sense. And you kind of have to run both of those things in parallel. So when you're thinking about some of those shorter term objectives, how are you identifying the best strategic levers to pull on to either drive increased revenue growth or profitability or just value creation in general? When you're thinking about pipeline and sales and marketing in general, like what are some areas that you see as the most common near term objectives that you're bringing into these different businesses?

Allen: Yeah, so I'll hit upon one topic that's top of mind for everyone, which is around AI, generative AI, and kind of that near term as well as long term strategic impact, right? So on one level, some of our companies - this is an existential question. How do you make sure that your company and the product set is relevant and adapts and really solves the customer need, both near term and long term? So how do we help provide the context and insight of what we're seeing and sharing that back with our companies as we develop a near-term and long-term plan. On the - kind of to your direct question with regards to near-term, there are a set of new tools that have emerged with regards to generative AI that'll lead to much better sales efficiency, lead to better pipeline generation and creation, to a more accurate set of targeting with regards to prospects. We've got a company called Clari that does a much better job of identifying the sales forecasts so that they take in a lot of data to determine whether the forecasts are in line or whether we should be planning for more or less than what's in budget. So, basically, the more that we can do, given our daily interactions with entrepreneurs and new startups that are pushing on the bounds, how do we share that insight and perspective back to our entrepreneurs so that they have the best tools available at their tips?

Shiv: Mm-hmm, and that's what things like AI where it's more top of mind and it's more what's I guess on the cutting edge. But do you have a standard playbook that you're taking your companies through when it comes to ops or sales or marketing or pricing?

Allen: So we do. So more broadly speaking, we have the fortune of seeing visibility across our portfolio companies and some industry benchmarks and data. And so again, as we kind of talked about, during the due diligence process, we start to see where the companies are at. You know, the good news is all of our companies, when we're making the investment, they've got some great metrics of how they're performing. But there often are times one or two areas can stand out where we can say, hey, here's an opportunity. And we then will take the playbook with regards to that area of potential improvement and start to have a conversation with the company for a near-term improvement engagement.

Shiv: Understood. And between those areas, right, because I think almost every company, you could argue, needs help with driving more pipeline or generating more sales or there's more expansion revenue to be had, and so I think that's this point that you made about starting in diligence and identifying those areas and being connected with the investment team and like being aligned on that investment thesis as well. I think it's key. So how early on in that process is the operational side and the investment team inside BCap working together to say, ‘okay, this deal’s in the pipeline. Once it closes, here's kind of what our operational plan is gonna look like’?

Allen: Yeah. So what I would say is one of the benefits of being out of the incredibly fast cycle term sheet issuance period that we faced in 2020 and 21 is that we actually fortunately have the proper amount of time for us to get to know a management team and for the management team, quite frankly, to get to know us. And so I'd say generally as we're preparing for a final IC, we're able to make sure that we've got the functional experts on the team, come in, work with the team, quite frankly, use our value creation team as a part of the sales process for differentiating and understanding why we believe we would be a better or a great investor for them to have on that cap table.

Shiv: Right. And as minority investors, like we work with a ton of PE firms that are - they'll fully buy out a business, right? And so when with the control, they're able to kind of direct the company to go the direction in which they want it to go. But as minority investors, how does that change your approach? Because I imagine that even though you are an investor at the table, maybe you have a board seat, but still you're leaving the decision up to the companies, right? So how does that influence how you're engaged on the value creation side post-close?

Allen: Yeah, so it does change the dynamic quite a bit, being control versus minority. And it is a lot more about influence and persuasion. So in some ways it makes our job a little bit tougher in that we need to make sure that anything that we propose or suggest needs to reach the bar that the entrepreneurs and the founders are actually eager and want to engage with us on it. And so it puts an onus on us to make sure that our playbooks are actually valuable, that we've spent the proper time and done our proper research to ensure that anything that we're suggesting or proposing for an engagement or the recommendations that we have are going to be valuable for our companies because they've got limited time as well.

Shiv: And oftentimes they have other investors at the table as well, right? So are you partnering with those other investors and aligning your value creation plans with the other investors as well?

Allen: So, oftentimes we do. And interestingly, I would say more often than not, we've found - and whether it's by design or intention of the entrepreneurs - more often than not, we find that we're - it's actually quite complimentary. Where one of the key areas that we've really leaned in is as mentioned on capital advisory, where we do a lot of work and we spend a lot of time with the other financial institutions that are lending, as well as convert notes and other type of credit facilities, as well as on the buy side, sell side M&A processes. And what we're seeing is that there aren't a lot of other VCs that are providing that capability. And so it tends to be quite welcomed and complimentary to the other capabilities. And so generally that works out pretty well.

Shiv: Right. Have you had an instance where you and the other investors may agree and then the portfolio company just wants to go in a different direction? And how do you go about managing that? Are you bringing advisors to the table? Are you looking at data as a way to educate the internal business? Or how do you get everybody on the same page? Because as a minority investor, I guess there's a lot more stakeholders to manage at that point, right?

Allen: That's exactly right. So for a number of different points that you raised, absolutely right with regards to when you've got a lot of different interests and a lot of different parties at the table, a lot of it is really around making sure you understand the priorities and perspectives of the different stakeholders to ensure alignment. And you're not gonna get 100% alignment 100% of the time. But this is where spending the proper time to get to know the interests of management, of the investor, other investors at the table, and quite frankly socializing it before you actually get to any formal perspective. And I think we spend that time proactively to ensure that anything that we have high conviction in and see value in, that we know what the concerns are and either are able to address them or get alignment around a ‘disagree and commit’ type of approach.

Shiv: And you mentioned your longer hold periods earlier. Are you often sticking around as a minority investor while the other investors may be turning over their investment and selling off their stake? Or are you kind of making those kinds of decisions together with that investment committee?

Allen: Yeah, I'd say that quite frankly, a lot of that is very dependent and specific to the company. I think we look at it in terms of what's the right place and position for the company. How do we make sure that it's the right path and decision for the founder, for our LPs and investors, and also obviously taking in mind the perspectives of the other members of the Cap table.

Shiv: Got it. And so when you're in there, and from your perspective, if you're looking at that 10-year hold period, that gives you some more flexibility, right? Because when you look at growth initiatives, you can take a longer horizon in terms of return and invest in certain things that a PE firm that is investing in a five to seven-year hold period may not be able to do, right? So what are some of those areas from a 10-year standpoint that you have the luxury of focusing on that is more unique to BCap.

Allen: Yeah, so I'd say in general, the focus really is around what is going to have the best long-term value and impact for the company. Knowing that we're likely going to be partners and aligned for a fairly long period of time, how do we make sure that we're putting the right infrastructure and enabling them with the best tools and capabilities? And so that's where I'd say our approach with regards to people and organization as one. And then the other side that we haven't talked about, the other pillar that we haven't talked about is around the strategy and operations element, where a great example is we will work with our companies on a go-to-market expansion and or geographic adjacency. How do we actually think about having our companies go into the APAC region and how can we figure out both the strategy, help make sure that they're thinking through the right tradeoffs around development capabilities, technical capabilities, in-market presence, ability to serve their customers in-market. How do we help them think through that plan? And oftentimes that's a two to three-year rollout if you talk about a new region and market and we're happy to make the investment with them to make sure that that's being built out in the right way while also leveraging B Capital's global presence directly, as well as our partnership with BCG.

Shiv: So that's a great example to go a little bit deeper on the strategy and operation side. So let's say we are talking about geographic expansion into APAC, how would you go about that with a particular business to help them expand into that type of a region?

Allen: Yeah. So, great question. So we start with - so the core is really understanding what their objectives are and their strategic imperatives. So really thinking through what is it about the market expansion that they're looking for. Do they want to actually leverage the technical and sales and business development talent in the other markets and regions? Are they trying to expand and adapt into different types of multinational conglomerates that are headquartered in other regions? How do you think about their long-term goals and where they want to be as an organization, and how do we make sure that those long-term objectives are solved and then develop out a plan and strategy? From there, we then have, through the experience of a lot of the partners and employees at B Capital, we actually do have a lot of relationships in-region. And so how do we make sure that they're connected through a mix of people that can help them hire the right team members in, develop the right set of channel partners, make sure we're thinking through the legal, accounting, finance, thresholds and requirements that they're going to need to take into consideration, so there - and who are some vendors that they can actually be working with in partnership as well. So we try to broaden out and make sure that it's a comprehensive recommendation with near term tactical solutions.

Shiv: Yes, a lot of it seems like connecting the companies with the right people and the right resources across whatever function you're looking at or industry or vertical or market or geography that you're trying to expand the business into. Would you say that's a big chunk of where the effort’s going is getting the right people connected or people in the right seats?

Allen: You're absolutely right that that's a big part of it. What I'd say though is probably even more important than that is really asking them the questions that they might not have been thinking about. So we've got a playbook that really is quite thoughtful and comprehensive around making sure, hey, have you considered these elements of your international expansion and the implications? So even minor things of like, hey, when you've got a customer success team, and you've got customer support needs, will you have the coverage in regional time zones that these account managers need? And will they be able to address regional specific issues that come up? Are you prepared for that? Is it designed to be able to make sure that you're actually gonna be successful when you go into market?

Shiv: Right. And it's almost like a diagnostic at that point where you're trying to ask them the questions and then - and build the strategy against - based on whatever work that they've done internally. So that makes a ton of sense, which brings me to your BD and partner ecosystem. I guess that's another one of your pillars. So talk about how that connects to the strategy component in terms of getting those relationships in place to begin with.

Allen: Yeah, yeah. So again, a core part of it is getting alignment with the management team early on to understand, hey, let's jointly agree upon a plan and a program for how we can be most helpful. And so in some cases, it's primarily around, hey, help us get integrated into a number of your events and introductions - a fairly light touch. And we've got a fairly robust ecosystem of key partners and clients that we keep a good dialogue with and can loop our companies into those events. Other cases oftentimes we’ll actually set and agree upon a certain industry vertical or geographic market that we want to expand into - a great example of a recent company was going into media and advertising agencies. So we've got a - we had - we worked with them on everything from developing the pitch and materials and positioning specific to the industry, and then lined up direct connections and introductions and meetings, pulled in a BCG senior advisor into the process to help with that perspective, a former CEO of a media agency, and really made sure that it was a highly valuable, impactful program for our company.

Shiv: Awesome. And when you were talking about some of the geographical expansion stuff, I guess both of these are pretty intertwined. And then the fourth pillar, of capital advisory also is, because we've talked to some other investors and when they look at geographic expansion, obviously, things like channel partners are a way to get in there. But another is just to buy a company in the region that already has these resources in place and already has those relationships. So maybe talk a little bit about that side of where you're able to add value.

Allen: Yeah, that's a great point, Shiv, because that's quite frankly in today's environment, what we're seeing a great opportunity to drive inorganic growth, particularly for international expansion, but more broadly, and where we actually do spend time with the team to set out an M&A strategy. So our companies in today's market are oftentimes in a really good position where they've got both cash and the ability to raise some capital that allows them to pick up some great assets that allow them to enter into a market very efficiently and effectively with a great team. And so we've been spending a lot of time doing a proactive market landscape assessment of where we have what we call a ‘Six M's’ matrix that we look at for finding the right opportunities for the company. We proactively identify potential targets for the company and do a scorecard essentially of what the pros and cons for pursuing any one or multiple acquisitions.

Shiv: And as a minority investor - and I keep coming back to this point because I'm trying to understand the dynamics and even just for the audience's benefit - how does the M&A strategy get affected from your position versus just the business deciding to go this route and how the capital is allocated for a bolt-on or add-on acquisition?

Allen: Yeah, so it's a great question because, again, probably more art than science. It's really centered around making sure that the company is incredibly convicted in this process so we can present the opportunity and we can lay out the framework and we can actually even help with identifying and starting this process. But unless the management team and the company, and, to a certain degree, as you noted, the board, is aligned that this is the right approach for the company, it's not gonna go anywhere. And so we make sure upfront that we have that alignment, that we get that - not just CEO - but executive team buy-in that they believe that this is the right thing for the company, and make sure that we present the rationale for why we think it's going to be accretive and valuable

Shiv: And then from there, you get into the capital allocation or formation side of it, I assume.

Allen: That's exactly right. So, you know, a lot of times the capital allocation and the quantum that we're looking at really depends on what the end target looks like, because in some cases it may be a little bit larger than originally planned, or smaller. And so you need a different capital balance in order to invest and make sure that acquisition goes through effectively.

Shiv: Excellent. Yeah. And then the last pillar worth touching on is you'd mentioned community, and given the number of companies that you've invested in and how many of them are high growth, I assume that drives a ton of value creation within the portfolio. So why don't you talk a little bit about that?

Allen: Yeah, that's exactly right. So definitely don't want to shortchange that pillar because it is such an important one where, oftentimes, much as we think we're adding a lot of great value, oftentimes our entrepreneurs really actually do want to talk to each other and are happy to share best practices, things that they've learned, vendors that they've worked with in the past that have been effective for them, and hearing firsthand from other entrepreneurs and founders who either are facing or have faced similar challenges or dynamics is the best solution for our companies. And it builds the community and sense of camaraderie that is often quite important for our teams.

Shiv: Yeah, and we've seen a lot of PE firms do, you know, like annual summits or revenue summits for revenue leaders or have like an internal slack group and all of that. But how are you bringing some of the best practices from one business - like maybe one of your businesses is world class at demand generation and another is world class at revenue ops. So how are you encouraging that type of cross pollination? Because we found that part is harder. It's like, you may get people together for a little while. But really bringing something that's world class from one company to another takes a lot more effort.

Allen: Yeah, yeah, so I'd say there's a couple of things. One, we basically - when we start to see something that is consistently a challenge or a question that our companies have, we immediately try to figure out, is this something that is gonna be useful for the majority or a good number of our companies, and how do we make sure that we actually present the best information, whether it's best in class from our portfolio companies or from outside? And so as we're seeing the demand and interest from our companies, we then will spin up either a workshop or a webinar in order to ensure that they're getting access to that best in class learning. So whether it be trying to engage with folks from How to SaaS to other key partners that we work with, we think that that's one part of it.

The other part, quite frankly, is - we actually did - because we wanted to take another level deeper - we did launch a program called B Circles, which has been incredibly impactful, at least from our, the feedback from our entrepreneurs, where they found that having this community - and we have a targeted program for a limited number of months, but it is over a period of months, and it is commitment from the CEO or an executive at the firm to be a part of - we have a third party that actually curates and talks through some of these top issues and questions that the companies are facing and they work together on solving and understanding what the opportunity is. Again, trying to keep B Capital and our perspective as more supportive rather than ones that we're sharing and expressing an opinion on.

Shiv: That's awesome. I mean, I think a lot of PE firms should take note of that. And I think those are some initiatives that a lot of them should potentially adopt as well. As you're bringing in all of these five different pillars into your companies, obviously over time, the business evolves, right? And especially given that you're inside these businesses often for 10 years, there needs to be like a regular check-in. So an evolution of whatever you've came up with in the past needs to change. And so what does that process look like? How often are you getting replugged into a business and resetting the table and re-strategizing or updating the strategy at least and setting up the organization for its next phase of growth?

Allen: Yeah, yeah, that's a great question, Shiv. So I think the thing to keep in mind is that we are in constant dialogue with our companies. So, whether it be through the board presence - oftentimes, B Capital's preference is to lead, so we will have a board and board observer seat. But more broadly speaking, we do maintain a continuous dialogue with our companies. And so driving outreaches when we've got information to share, as kind of noted, whether it be gen AI and AI-related, or even latest policies on our annual survey of technology and our annual survey on people and org and compensation, that we have a continuous flow of conversation and engagement. And so we then supplement that with a specific outreach to our companies where on an at least an annual basis we're going out and engaging and saying, ‘hey, how have - how has B Capital been as a key partner to achieving your objectives? Have we really focused on the highest priority areas? And are there things that we should be doing differently?’ And so we do complement the regular engagement with that to ensure that we're focused on the right areas.

Shiv: Awesome. And when you have, let's say, put a strategy in place, whether it's expanding internationally or adjusting your pricing model or changing your sales coverage model, whatever it is, is there a time or have there been situations where you've had to completely overhaul or change course? And what goes into that? Like how - how are you making sure that you're on the right track versus like seeing signals that say, okay, maybe this thing that we thought was gonna be a growth driver for us, isn't, and so we kind of need to change course. So I'm curious to hear how you approach that type of a situation.

Allen: Yeah, so without a doubt, there are going to be scenarios where the strategy or the approach isn't going to have materialized in the way that we had originally outlined. And quite frankly, that is part of the agile process that we ourselves try to adopt. So we look for our companies to be adaptive and agile. And as we see the signals, we then go back and say, look at - Was that the right approach, or was that the right strategy, or is there another approach that we could have taken and either  - and make that assessment. Does it need more time? Or is it one that we should actually relook at the strategy? And so I'd say we've had examples of both, where it was more a matter of needing more time, needing more ability to give the sales team an ability to adopt a certain strategy or new approach. And I've got examples where we did need to revise the approach, where it was - one example, there - it didn't lead to the gross margins that we wanted for the company. And we've gone back and revisited the go-to-market and accounts approach.

Shiv: So that you can bring the gross margin back up. I think that's great. With the way the markets have been going and how previously it was almost like growth at all costs and now it's more of a focus on profitability and sustainable growth, have you seen your approach change in terms of where you're focusing your portfolio companies?

Allen: In some ways, yes, in some ways, no. So, with regards to - what stayed consistent is the approach with regards to making sure we have a thoughtful go to market and strategy approach and recommendation - that is absolutely still the same, where we want to make sure that if we're going to pursue a plan, we get the - it’s resourced in the right way and it's going to maintain or grow gross margins and that it's done so in a thoughtful way. What I'd say has changed is probably been a lot more refinement with regards to approach compared to the growth at all costs where we are really pushing more on which products make sense for which markets. Are there situations where we need to do too much custom work in order to solve for any industry or key players within an industry? And worked with our companies to manage towards their best customers and their best industries and segments to go after. And I think that's probably the biggest shift that I've seen in the near term.

Shiv: I think that's a great insight as well. With that said, we're almost up on time here, so I wanna make sure the audience has a chance to learn a little bit more about BCAP if they're interested. So where would they go to learn more about your firm and learn more about your approach and potentially even engaging with you guys?

Allen: Yeah, absolutely. So, you know, the first place that - the easiest destination is our website. So, www.bcapgroup.com. We are a, as we mentioned, a global investment firm. So we are interested in entrepreneurs from around the world and love the perspective and engagement and passion that we see in entrepreneurs throughout the geographies. So I think that's probably the best starting point.

Shiv: Well, Allen, thanks for doing this. I appreciate the time and thanks for all the value that you provided the audience. So appreciate it. All right. 

Allen: Appreciate it. Thanks, Shiv.