Investment Banking w Hanif Joshaghani – Ep. 4
Former Investment Banker turned entrepreneur… This is the story of Hanif Joshaghani, CEO of Symend. Hanif has moved on to his fourth startup with the previous being remarkable successes with partial and complete exits. His leadership of Symend is certainly influenced by his investment banking experience.
In this episode, you’re going to hear about what you should know about investment bankers. For example… the value of being methodical, organized and thoughtful about the steps in your financing. It should not be understated. It can mean the difference between a quick, properly priced financing or at worst, not being able to get your deal done. As well, you’ll hear about his experience and strategy with his current fundraising initiatives with Symend.
I particularly liked our discussion around the due diligence process. It’s an inside scoop on how your deal may be viewed by bankers and check writers alike.
Hanif Joshaghani on:
* This is a software-transcribed article.
Cory: [0:00:00] Hanif, how are you?
Hanif: [0:00:02] I’m good, thanks.
Cory: [0:00:04] Thank you very much for taking the time. I’m interested to dive into the experience you have, both on the entrepreneurial pursuits you’ve had to great success, as well as the investment banking past, so let’s get started.
Hanif: [0:00:18] Absolutely, happy to be here.
Cory: [0:00:20] So, the first question I want to get into is Symend. Will you tell us about what you’re building there and where you’re going, and all about that company because I think your past experience at finance has surely influenced what you’re doing now.
Hanif: [0:00:34] Sure, so Symend, what we built is a customer engagement and treatment platform specifically architected to help these very large companies with a very, very large delinquency problem where a huge percentage of their customers are delinquent with their bills every month do a more effective and efficient job of engaging with these customers in a positive way, getting them to engage in that entry them in a way that saves them a lot of money on opex versus call centers and there’s additional ways they have been doing it, but in addition to that, get better engagement, better results as far as treatment which means less bad debt generated, more customers saved, which the plus side of that is less customers turned, and this is especially important for the types of companies that we are servicing like banks and telcos where they are in fairly mature business cycles and turning a customer is very, very expensive because replacing that customer is a zero-sum game of getting some telco to go and get him because there’s not a lot of new growth that is happening in mature industries.
Cory: [0:01:47] Really interesting. What got you into that game? How did you decide to start this company?
Hanif: [0:01:52] Honestly, I’ve had a couple of entrepreneurial stems with some modest success before this, so I had a Capital Market background until up about 2010 and from there, almost opportunistically or by chance, kind of ended up in an entrepreneurial role. I really liked it, and along the way, everything was more opportunistic, like I saw an opportunity and I would add a decisiveness to step into it, whereas with Symend, it was more of a long-term passion project of mine that I have been researching on the side. I had some understanding of delinquency and bad paper based on my exposure to the Capital Market but only periphery, but I also had really terrible experiences with collection agencies all the way back to when I was a kid and we were poor refugees. So, I kind of carried those experiences forward like 20 years and when I was thinking about a passion project that would be kind of like my last rodeo and my mark on the world, I wanted it to be something that had not only build something valuable that I personally felt connected to but had a big social impact, and reducing the impact of – alleviating the impact of delinquency for the at-risk consumers of Canada and beyond is not only something that I’m passionate about, but I really think it’s a social good. These people, once they get into this delinquency cycle, everything gets more expensive, it’s a downward spiral, and if we can save some of those people from that outcome, then I think we are doing something that is not only valuable economically but also important socially.
Cory: [0:03:35] I’ve got a smile on my face because I never thought a former investment banker would have a compassionate view, especially towards [inaudible].
Hanif: [0:03:45] Yeah, we weren’t all bored investment bankers, I guess, right?
Cory: [0:03:49] Hats off to you, hats off to you. What do you say we step into some of the investment banking? Because you had a good career there and now that you are on both sides or you have been on both sides from being a CEO in financing to also being on the investment banking side, let us start off with what segment of the market did you work in investment banking?
Hanif: [0:04:13] We did some generalist M&A which was the M&A – investment banking is organized in two ways: one is by product group and one is by industry group, and I started with a product group, namely mergers and acquisition, and from there, I went into the infrastructure and energy group as far as the industry group is concerned, so I kind of work to both of those sides. Before my MBA, those are all things that I did after my MBA. Before my MBA, I still worked in capital markets based on my math and economics background, but I worked more on the fixed income derivatives side doing kind of like complex interest rate derivative type work, mainly for the prop desk of banks or hedge funds, so a little bit of variety.
Cory: [0:05:02] Okay. What was the bite-size you are working on? What was the market caps of the companies you’re with?
Hanif: [0:05:09] Oh, I was working for large banks, so the smallest deal I ever worked on was a $200 million deal, the largest ones were all in the half a billion to multibillion kind of size. It was larger deals that we worked on, right? I was working for the large firms.
Cory: [0:05:28] Right.
Hanif: [0:05:30] Although I will say, size didn’t really, from a person who is like a junior, like say an analyst or an associate or a VP, the size is kind of interesting, but it’s not necessarily an indicator of how much you learned and the experience you have. Some of the larger deals are like, let’s say two banks working on the segmenting quite a bit, and so you are involved, and you see it all, but you only work on a slice of it whereas on a smaller transaction where you are not going to throw as many resources into it, the kind of mid-level banker will get a lot more exposure. So, my best experiences were always on the – the one that I learned the most from and I did the most, and I was the most active work on the smaller size, so 200,000,000 to 500,000,000.
Cory: [0:06:19] Right, and I mean, I would look at that as the kind of small company, I mean, definitely from the American side if you’re too…
Hanif: [0:06:26] Yeah, for sure.
Cory: [0:06:28] But when you are looking at the people, the roles that you are playing there from the analyst to the associate to the VP and up to the director, the one who is ultimately going to call the shots on what they do in the financing or [inaudible] financing, what would you say a CEO needs to know about those roles? How can they make their lives easier so they can make their financing more successful?
Hanif: [0:06:53] So, realistically, it depends on whether the deal or the transaction is a public or a private deal, but what they – regardless of whether the information is coming from a mix of the bank during the public markets or exclusively from the banker, the incredibly – and this is one thing I learned from banking, is being systematic, being detail-oriented, being thoughtful about the steps, being incredibly organized, those things make the ability to assess and make a decision on an investment that much easier, and so from a perspective of an investor, whether it’s a financing or an M&A deal, if it feels like treasure hunting and it feels like you stepped into chaos, well, that’s an indication of how the business is run because there’s a belief about how you do anything is how you do everything, and so obviously, the business has to be very good in terms of its foundational merits, but on top of that, people that step into chaos just won’t spend the same time, maybe you won’t get your deal done or maybe it will take longer for cost you more, or take more of your resources, or you will get discounted on your price, and anyway possible, whether you have a good business or a medium business, I would say being incredibly organized, articulate, analytical, and thorough is very important and that is kind of bread into every banker that I’ve ever known through hundreds and hundreds and thousands of hours of versioning and double checking, and being meticulous, and that attention to detail and that kind of – that strive for perfection and mortar is I think something that exists in banking over and above any vocation I’ve ever seen, and so you can always tell when you’re dealing with an ex-banker when they leave banking because they take everything further than everybody else.
Cory: [0:09:05] When I hear that, what I often think about when doing financing is what you are ultimately giving a user experience.
Hanif: [0:09:13] Yes, exactly.
Cory: [0:09:16] And if I’m a CEO or I’m the finance person leading a financing in a company and I give one hell of the user experience, I’m going to get a better valuation.
Hanif: [0:09:26] 100%, 100%. I mean, if everything is super organized, if every piece of analysis is well laid out and easy to follow, it’s a sales job, right? Like, it’s an analytically-driven sales job and the cleaner and a more thorough, and the more logical, like as far as flow, going from A to B, to C so that people don’t have to take leaps of faith to get to your conclusion, the more systematic that entire thing is, the faster and easier people will get to the conclusion that you want.
Cory: [0:10:09] When we talk about A, B, and C, those systematic steps, when approaching an investment banker, when you’re looking at financings from that perspective, what were those steps?
Hanif: [0:10:21] Having – so, I mean, the first step in any kind of M&A or financing process is having really good finance – I mean, and we are talking now small, medium businesses really, really solid financials and a strong connection between those financials, articulated at a granular, easy-to-follow way to a financial forecast that is sensitized and is articulated with reasonable assumptions that can easily be followed around how the financials, which are backward looking, are a logical bridge to the forecast and why that forecast makes sense, given the assumption, and if they can get to those conclusions easily and they accept them, then everything else from there is supporting documents, right? And so, relying on a very well laid out, easy-to-follow data room of supporting documents, that’s also super key, and making that job easy – and it’s not just about getting the deals done. It’s the cost at which you get the deal done because it’s not just bankers that are in financing – there’s lawyers, there’s accountants – they all charged by the hour and their costs are not insignificant, and so the difference between a $20,000 legal bill and a $200,000 legal bill is just order and being well – and good execution. All your documents are a class, it’s going to cost you a lot of money by the time you’re done.
Cory: [0:11:56] Yeah, I can’t argue with that because I’ve seen – well, I’ve been fortunate to have seen both sides of that. When we used to do our models, one of the things we’d always just religiously stick to his for example, making it very clear when you are modeling out, what were your inputs and what were your hard codes, and what were your formula? So that there is –
Hanif: [0:12:17] 100%.
Cory: [0:12:19] – I never anything buried in. What other tips like that would help anyone who’s preparing for a financing or ready to walk into [inaudible]?
Hanif: [0:12:27] Make your models – great sensitivities that are easy to track and make sure that you link them up to your supporting assumptions, and then don’t make any one cell too formulaic, like if A+ B+ C equals D, All those four variables on separate line items, so when somebody is staring at it, they can see the math instead of having me to dig into a single cell with a huge formula in it, and then try to follow through all the linkages and dependencies, because that becomes a very, very difficult to follow and people don’t understand how you got to your conclusions again. So, yeah, it’s having your assumptions outside of the model, so that you can sensitize on them and you understand what the assumptions are, making sure that the output has no hard codes in it – that is super key, but then the other one is just don’t take a massive formula and plug it into a single line. Break it down into its components, so that it’s easy to track, and these [inaudible] because as the business evolves and you try to change the plumbing to reflect some new reality on a financial basis, then rewiring it becomes a lot easier as well. Of the more complex you make your formula and your model, the more difficult and inflexible it becomes for future use.
Cory: [0:13:49] What about stepping outside of the models and some of those assumptions? The pitch of the presentation and the materials that you use, and your experience, what are some of the best materials that you saw that you looked at and you’re like, yeah, this makes sense, yes, I’ll get behind this?
Hanif: [0:14:06] Generally speaking, things where a valuation was justified by more than just your forecast, like why the assumption in your forecast are reasonable, tying it back to research, tying it back to [inaudible] market, and then as far as valuations are concerned, tying it back to relevant precedents and comparable companies. All of those things make sense.
The other thing that made any kind of valuation believable is track record. So, if you are able to lay out how you basically – let’s say in the past, laid out to try to achieve something from a forecast perspective and you are within a certain small confidence [inaudible], that lends credibility to what you’re forecasting now, but whereas if you have huge volatility around what you expect, obviously, that implies risk and risk creates a bigger discount factor.
So, I would say those things. As long as it’s easy to follow and as long as you are talking to the right investors, that becomes how believable is the forecast and do I believe in the team? And so, that’s another huge part of it, is like playing out in a very organized way who is the team that’s going to execute on this stuff, and do they have the wherewithal to do so?
Cory: [0:15:30] When taking those materials, you mentioned that for example, institutional investors were going up to find those investors, I’ve asked this question to another guest: how do you go about or how would you go about finding a lead investor? And, I think this would be interesting from both your perspective now with what you are doing with Symend as well as in the past when deals came to you looking forward for leads.
Hanif: [0:15:56] It depends on the size of the company and what you want that capital to do for you, so if you’re just looking for silent money like a huge – the bigger you become, the less strategic tackle becomes generally – not always, like if you are Uber and you are taking money from the Chinese government, that is still highly strategic, for example, but generally speaking, the more seasoned the business becomes, the more the strategic things and that they need to achieve are achieved operationally and they rely less and less on their investor to get them those things. What earlier in the company’s development, the capital has to come with strategic value add because you are looking for capital – you are giving up a piece of your business, you want to make sure that the capital gets X return on it, so for every money that you put in the ground, you want to make sure over three years, you get $10 back or something like that over 3 to 5 years, then you better make sure that the people you bring into the table are going to skew the numbers in your favor as far as the probability of that outcome, and so being like, okay, what are the things that are going to drive success? Is it getting into my verticals better? Is it a Rolodex? Is it experience building a scalable sales organization? Is it access to markets that I don’t have without him? Like, whatever you think the underlying conditions are that allow you to go from today to a 10X, you target the investments, not just the funds, but also the specific partners that are going to help you achieve that, then you go from that perspective and target investors, and make sure, whether this is an independent size, in my opinion, that you always vet the investors. They are going to vet you, so you’ve got to do it the same way to them, not just on the deal that they have been successful on, well, you got to get a list of all their investment, and you decide who to go talk to, so that you talk to the ones that went sideways as well because like any relationship, the test is when things get hard, not when things are shooting through the moon.
Cory: [0:18:02] How much energy should CEOs put in long-term relationships with investment bankers?
Hanif: [0:18:08] I think it’s pretty important, honestly, like again, the analysis and the analytics that they give you, and the sport and research and some of these other things, those are all kind of like price inventory stuff, right? Like, you can’t really – I mean, amongst the really big banks, they can’t really tell a significant difference in the quality of that work product. What really matters from an investment banking standpoint is how good are they at running a process, managing it, bringing the right investors to the table, creating price tension, and giving you sound advice on which way to go in which investors offer to accept? So, I would say that their experience in the vertical or the markets – so, if you are selling a public equity round or something, then how big is the trading book? How bigger the institutional relationships that they have? And things of that nature, so how adept at they at raising your capital, but then also, how good are they supporting the company after you raise the capital? So, that would be on the public side.
And, on the private side, it would be their Rolodex into the markets and their ability to execute. So, those of be the things.
The analysis, like the modeling, forecasting, putting the decks together, they all hire really, really smart guys and it’s hard to tell the difference, honestly, between the quality of the work. It’s the senior execution capabilities that I think make the difference.
Cory: [0:19:40] So, on the public side, you mentioned something interesting there. How big is their pup? How much horsepower do they have in their trading, and specific to some of those areas, how would you quantify that? What kind of questions will you ask as a CEO of a public company?
Hanif: [0:19:57] You would need to look in your space, right? Like, how active have they been in trading the names on their desk of comparable companies or sector-similar companies, and then that would be one part of it. So, how active are they on the trading side, thinking institutional order, supporting transactions, things of that nature, so that is one side of it.
How well-covered is their research in that space? That’s another part of it, and more importantly, just historically, host offering, has their trading desks supported trades, right? And provided liquidity and broad volumes to the name or to the issue? So, those would be the things that I would look at.
Cory: [0:20:49] Excellent. I think those, perhaps, are questions that are surely at the table, but sometimes maybe not ask or just overlooked in haste of getting the deal done.
Hanif: [0:21:00] Yeah, absolutely, like sometimes, people would cut fees or do whatever just to try to win a deal, and executives see the dollar signs and they go with someone that doesn’t have the same depth and infrastructure to provide the follow-up support to do the issue, and then the stock changed because it wasn’t a deep enough support for it. They are not good in that whatever the case may be. So, not looking at just the fees, but looking at – I would rather pay up for a more deep banker versus a thin one.
Cory: [0:21:39] I see where you’re going there, and paying within a sentence of perhaps a lower valuation or paying in a sense of fees?
Hanif: [0:21:48] Fees. I would say market is going to set the evaluation, typically, if people normally set the valuations in the way that is supported by the market, and if they sent it to high and the market is just going to lay into it right after, right? So, talking fees and also, I’m talking about valuation, both of those.
Cory: [0:22:06] Right. Well, what is your take on pricing? So, I mean, we can go and look at comparables and draw your analysis out for setting a relative price to go to market with. Do you side with going high or going low to market? I mean, is there a strategy there? Is it [inaudible] battle, what do you think? How should we –
Hanif: [0:22:29] That’s a good question. Again, I think it depends on whether it’s a private deal or a public deal. Are you having VCs compete or private equity firms compete for something? Or, is it going to public markets? But generally speaking, you don’t want to go too high because what you want to do is get a lot of people to opt in for it great price competition, and let the competition drive it out instead of you, but you don’t want to discount them too much. There’s no competition that you’re going to [inaudible] yourself. Generally speaking, The [inaudible] will set the prize, but if you are smart about it and you price it right inside – if you soft shot it, have some conversations, understand the precedent, market just slightly below that and you have a good banker that could bring the right people to the table, then sometimes, just out of spite, they start outbidding each other and you end up in a situation where it gets driven up, or if you price it too high, you don’t get the same price tension and you don’t end up in the same place. The worst outcome would be you don’t get it fully sold and you have to price it down. So, I would say it’s always good to be a little more conservative, and if you are being too conservative, if you have the right attention in your financing, then the market will adjust it up anyway.
Cory: [0:23:47] And, when you look at deals, what have been some of the biggest just, almost foolish mistakes you’ve seen CEOs make that you –?
Hanif: [0:24:00] Trying to time the market, the one thing – the two things that I have seen bite people time and time again, and yet even I’m not immune to the greed that sometimes stands in front of us and trying to get cute with the market is trying to time the market, like oh, I could raise now but if I wait a little longer, I’ll have a higher valuation. These things are happening in the business and blah, blah, blah, or I don’t like the price today, maybe I’ll wait six months and go then, or I won’t raise as much today, so that I can manage my dilution, and I’ll hear in and I’ll go with the market again. If the ducks are quacking and you need the capital, raise money and over raise, that’s my general – now, don’t go crazy and triple over raise or whatever, but always raised more than what you think you need because you are going to need more than you think typically, and don’t try to time the market, just do what’s right for your business because I’ve seen more often than not people get strung out because they’re like, oh, I’ll wait until XYZ happens, and then we will be ready, and all of a sudden, even if, let’s say you get an extra turn in value in the market has come off three, you are a net loser, right? So, don’t try to predict the market is basically my advice. Focus on your business and make sure you don’t put your business at risk for a couple of points.
Cory: [0:25:25] Excellent.
Hanif: [0:25:25] That’s the biggest mistake I’ve seen time and time again.
Cory: [0:25:30] So, what I’d like to do is actually switched gears and talk Symend again because you guys are – you are on a huge growth curve as I understand, but you’re also going through some money raising phases, and that being private dollars, there is obviously – you are a smart guy, you’ve got an end in mind. What are some of the parameters around there? What are you looking out right now in your financing for Symend?
Hanif: [0:25:56] Honestly, valuation is a part of it, but the biggest, within a certain confidence [inaudible], say 10%, the valuation stops spattering. If somebody is way off market, if you have eight VCs bidding for it and to guys are like, 30% off from everybody else, they get excluded, right? But beyond that, it’s strategic value add at the end of the day, so it’s like if I’m trying to scale into the US market in banking and telcos, can they walk me into meetings? If I’m trying to fine tune my sales process for selling to huge enterprise, have they done that before? Are the operators, are the members of the VC operators that have scaled companies before? If I’m looking to acquire and triple my team, do they have a deep network and infrastructure to help me on talent acquisition going from A to B aggressively? So, it is all about strategic value add and what things you focus on in strategic value add will vary based on what you think are going to be the things that are going to get you to your next phase.
Cory: [0:27:01] What we didn’t speak about earlier was some of the quantifying metrics of Symend. Can you share some of those where you’re at?
Hanif: [0:27:11] Sure. Well, we started this year at almost 0 revenue, and clear up to almost – by – well, we are close to 30K a month, kind of doing that type of revenue and we expect in six months to be at $1 million a month. All we did a long, long sales cycle to this business, but once you start to kind of land some contracts and gain that credibility and that experience, and the track record of delivering value, you start to figure the pattern, and then start the scale pretty fast. I would hope that by the end of 2019, you have a business somewhere between, say 11 and 15 million a year in run rate revenue, we will probably have a team of about 50, 60 people and we will be focusing on global markets mostly, especially in the United States, but to a lesser extent, UK and Australia, and some other places like that.
Cory: [0:28:18] And, when you think about a long run financing game, especially with some of your public market experience, would you consider, would you look at the public markets as a means to IPO or RTO?
Hanif: [0:28:32] Not today and I will tell you why because the tiny horizons of the current like, if the markets today are very kind of risk on, risk off, right? And so, our business right now needs to think not in terms of quarterly as the monthly earnings and reports, and I mean, for some issues like the weed business where they need actually to raise the amounts that they need – they need access to retail capital as well, and that retail institutional capital does not participate as aggressively in it, like weed, like junior mining, things of that nature, when institutional money isn’t as active, I understand why there is a venture exchange but for stuff like ours where A, we need the strategic value add and B, we don’t want to be exposed to the ebbs and flows [inaudible] and the illiquid stock of a public issue ones, then businesses like ours typically don’t go public until you’re at least half 1 billion valuation on the low end, and more typically, at least $1 billion valuation.
Cory: [0:29:33] Gotcha. I mean, I’ve seen great success in companies who have used that public venture capital on the venture, but like you say, it’s been resource place who have been well marketed and well supported, it’s been cannabis companies have been able to leverage public venture capital where I can see case.
Hanif: [0:29:53] Yeah, absolutely, and we need the strategic value add, honestly, like our board which is all our investors, the VCs, they are seasoned veterans that have all built multibillion-dollar companies, and they are important; they have been very helpful in helping us get this business to the scale it needs to be, and we are not even halfway there, so.
Cory: [0:30:14] What has been the best process you have found to develop those relationships? Because I mean, like any of these –
Hanif: [0:30:20] Develop them early, yeah. Rapport is everything, credibility is everything, and those things are developed over time. So, I always say like, start talking to your A investors when you see the company and talking to us B investors when you do your A because if you have regular touch points and they see that say, in like – say, I’m sitting here today and I’m not going to raise for a year and I talked to a VC and say, I’m going to do A, B, and C this year, and at the end of the year, he has seen that I’ve done A, B, and C, he sees that I have capability, then they are investing in people as much as the idea this early, and so building that rapport is super important because at the end of the day, once you are raising money, you need an investor to believe in what you believe about the future, and that alignment on the future requires them to believe in you, and if you can build that over time, it’s a lot easier than trying to build that over a couple of meetings.
Cory: [0:31:20] So, just in looking at time, to wrap this up, what would be the advice you would give to both pre-public or public CEOs or even go on after venture? What are some of those touch points that what you would wrap up, those two or three touch points you would say they have to know and have to do?
Hanif: [0:31:41] Have a handle on your business ventures because regardless of who’s looking after your financing or who you are evaluating for which avenue, you are evaluating for financing, being very, very strong in terms of the key, whatever those metrics are that drives success and drive the performance of your business, knowing what those metrics are, knowing how they compared to the industry, knowing where you want them to go and having a well-articulated plan, or not like super convoluted indents, but if I do A, B, and C again from today or tomorrow, and being able to have a strong [inaudible] to those types of things, that is really what sets people apart. It is people asking financial questions, run rate questions, metric questions, and you have to say, “Oh, I don’t know,” and then we go look it up, and if you are not well articulated and the key value proposition points are not things that you can, at your fingertips, bring them, then you’re not going to come off a strong. At the end of the day, people value your value proposition and the value of your business and if you’re able to articulate that – and people form first impressions pretty quickly, and so if you are able to, in a small amount of time you are given with a specific person, if you are able to, with strength and confidence articulate those things, it goes a long way to kind of reserving your interest and making them want to dig in further.
Cory: [0:33:12] Well, Hanif, thanks so much for your time, looking forward –
Hanif: [0:33:15] You’re very welcome.
Cory: [0:33:16] Yeah.
Hanif: [0:33:17] Very welcome, thank you for your time.