How do you become a venture capitalist with no previous VC experience? Our guest this week, Diego Berrio, was able to create a venture career for himself with no previous track record as an investor. When he realized he wanted to leave the world of traditional finance to become an investor after years of running finance at an education software company, he did what any savvy entrepreneur would do and created the opportunity for himself.
In this episode we dive into Diego’s early career, and how his decision to get a second Masters degree in his early 30s lead him on a path to creating a completely new career for himself as an investor. While he was no stranger to the world of finance, he knew that the barriers to raising a Venture Capital fund were high. VC investors convince massive institutions and wealthy individuals to trust them with millions of dollars of their money, and that type of trust typically requires a track record of success as an investor and/or entrepreneur.
As any good entrepreneur, he didn’t let these barriers stop him. Instead he focused on what would give him an advantage, like creating a differentiated offering and building out a deep trusted network that helped him attract other investors and highly sought after investment opportunities. Throughout this episode we also uncover his exact strategy for breaking into this field with syndicates, and the work he’s now doing to raise a $20-$30 million fund in 2019 with his firm BrightSky Ventures.
0:30 Diego Berrio is our first venture investor on the show, and we want to uncover how he was able to position his career to get into venture capital.
1:00 Diego studied economics and finance at the university in his home country of Colombia, and he always wanted to get into investment banking. At that time he didn’t even know that private equity existed.
1:15 What’s the difference between private equity and investment banking?
1:19 Investment bankers do transaction advisory – they don’t do the actual investment.
1:30 Diego started working at a pension fund after graduating college, but soon after had to move home because his dad was sick and he had to help with the family business, which was a Consumer Packaged Goods company importing different products and doing some manufacturing.
2:18 Diego helped the company as a finance manager at 24 years old. He really enjoyed helping the company restructure its debt.
2:30 Once his father was healthy he moved back to Bogota to do a Masters in Finance. That’s when he landed his first private equity job and became the portfolio manager of the first hospitality fund in Colombia.
3:00 How did you get this opportunity? By applying or through a contact?
3:10 His friend knew he was interested in corporate finance and because he himself was not interested in this job, he passed the opportunity to Diego
4:10 At 31 years old after about 6 years in private equity he had a bit of a mid life crisis and completely shifted careers by moving into a finance role at a scaled up education technology company.
4:20 They hired him to help streamline operations and help raise funds from investors. Since they had a socially driven mission they were looking for impact investors.
4:40 That’s where Diego got exposed to how a venture capital fund makes investment decisions.
5:20 After a few years at the company and helping it get to break even, he decided to do his MBA in France with the goal of getting into venture capital.
6:00 What was it about your experience working with a venture fund that made you so interested in VC vs. working in private equity?
6:23 His experience was getting investment from Acumen Fund, a nonprofit fund that reinvests all of its income back into the fund, and they don’t only look for a financial return but also the social impact that their investment is making.
7:31 what Diego loves about venture capital is that it’s not just about the business model but the quality of the team. And you really partner with the startup because you’re with them for 5-7 years.
8:36 So you had a Masters in Finance already and experience working at a tech company. How did you think an MBA would position you for a job in VC?
8:45 For Diego, moving to another country was a way to make a big leap and a career change. Since he studied in a French school as a child, it was a dream to work in France.
9:22 He knew the venture capital industry in France wasn’t as big, but his knowledge of the French language was a differentiator for him. He was always thinking about how to position himself as someone who can add value to an investment firm. His knowledge of English and Spanish also helped.
9:45 Diego ended up getting an internship at a venture firm which had an office in San Francisco, for about 6 months.
10:00 Up until then he assumed he would have to get a job at a fund, build a track record, wait 5-7 years and then maybe start his own fund.
10:20 But at this fund he saw the partners were his age, they had raised a $30 million fund, and it made him feel like he should be able to do the same thing himself.
10:45 After he graduated he started BrightSky Ventures
10:50 Since there are not a lot of venture funds in France, it must have been very competitive to even get this internship. How did you do it?
11:13 He explored the alumni network of his university and found a venture capital fund where one of the founders emigrated from Taiwan to Europe. So he reached out cold thinking they would have some common ground both being from out of the country.
11:50 Cold outreach strikes again! Diego made this opportunity happen for himself.
12:05 What was the first step you took when you started your fund?
12:29 Diego knew that nowadays capital is a commodity and you have to differentiate somehow
12:45 While Diego was getting his MBA he had the chance to build a network of aerospace engineers and executives at companies.
12:51 They were veteran entrepreneurs and CEOs of companies that are now very big. From $50-500 million Euro in annual revenue.
13:19 He talked to them and saw that the big players like Boeing have venture teams and innovation teams, and he wanted to give these medium size company entrepreneurs access to external innovation. This got them very excited.
14:00 That’s how BrightSky was started. And his first mandate was to show the aerospace executives what the investment opportunities were in the industry
14:40 How did you build relationships with these executives in the first place before starting the fund? Why even go with aerospace executives?
14:54 One of the reasons he joined HEC MBA is because they have this executive committee program for tech, kind of like YPO but in an MBA setting. Once you get in the MBA you have to apply to this specific program which only has 12 spots.
15:25 In this program a group of 12 students meet with a CEO every month for an entire day. The CEO then shares their experience not just from a professional but from a personal perspective.
16:00 These meetings happened 6 times so he was able to build close relationships with them. Since they weren’t the biggest players, they were always looking for ways to stay competitive, so it made sense to approach them with this idea.
16:35 So you essentially had a chance to do customer discovery with them to understand what motivated them, before you ever pitched this idea of venture investing with them.
17:00 Did you meet with them together to develop a thesis to invest? How did you manage the process?
17:35 Even though Diego didn’t have experience in Aerospace, he did develop an interest in it while doing research in the space during his time in the VC internship
17:50 Diego saw the focus on aerospace as another way to differentiate BrightSky because there are not a lot of funds that specialize in those investments
18:00 Were you investing these people’s money or you raised a fund?
18:20 Diego didn’t have the track record to raise a fund and invest for other people so he proposed to do a syndicate where you pool people’s money together but also put money of your own to have skin in the game, giving other investors decision making ability, until a fund is created to do that for them.
19:04 The only expectation he set was that the investments may not be directly aligned with their current business
19:30 How did you start looking for companies to invest in?
19:40 First thing Diego did was look through his LinkedIn to see who he knew who could be somehow associated with this industry. He started mapping the ecosystem.
20:30 France is one of the few countries that has the entire aerospace value chain.
20:50 Diego started reaching out to people he knew but also cold to founders in New York, Tel Aviv and in Paris to set up meetings and tell them about BrightSky.
21:22 How did you decide as a group how much you would invest? And for someone looking to start syndicating investments like this. What’s the minimum do you think that you need to be able to invest to get started?
21:52 Diego says to not think about minimums because otherwise you may never start investing at all.
22:23 He had to find friends and family to invest alongside him like any other entrepreneur in order to come up with the money.
22:33 Their first investment was Loft Orbital and he had to convince people that the company was worth investing in.
23:03 When Diego joins a seed investment round he asks the founders what the minimum investment size is.
23:29 With other investors he had to build trust. Showing the risk and the way he evaluated deals.
23:56 Do you remember how much money you had to pool together to make your first deal happen?
24:00 BrightSky came in as one of the smallest non-individual investors in the round in the beginning, at around $50,000, but promised to invest more in the future if the company met it’s milestones.
24:58 This was a way to protect BrightSky investors from downside but have a common goal to work toward with the companies they invested in.
26:32 In a $50K deal is $10K of your own money enough to put in?
27:00 Sometimes if he believes in a deal he takes most of the risk and invests most of the capital and asks others to commit to following on in the future in this investment.
28:00 Now they invest $200,000 plus
29:00 Now they’re moving outside of just aerospace industry to let other companies have this model of venture capital as a service where they can be exposed to innovation in their space through venture investing.
29:39 Syndication of deals was the way to start, but now they want to raise a fund from corporate investors.
30:00 What size fund do you want to raise now?
30:26 For a first time fund a good target is about $20-30 Million
30:40 What would be your parting words of advice to a young person who really wants to get into venture capital?
31:10 It’s proven that you don’t need extensive VC experience or a unicorn exit to get into it. You have find your angle, build your network, and just jump in.
31:33 If you’re really interested you’ll learn it all. 32:19 Diego has very talented friends who want to get into VC and they can’t seem to find a spot for themselves, but like anything else it’s a numbers game. You have to keep pushing. If you can’t find a spot, create your own spot.