You are a venture capitalist. How would you describe your job?
I am the founder and CEO of Amplo, a next-generation venture capital firm focused on investing in the best entrepreneurs globally – people who are building companies that are changing a small part of the world. I specifically focus on young entrepreneurs in their twenties and thirties, because many of the world’s best companies have been founded by young entrepreneurs. Just have a look at Facebook, Google, Snapchat or YouTube. I was previously working as venture capitalist at large firms until I decided to change sides and to become an entrepreneur myself.
What investments are you most proud of so far?
One of the companies in my portfolio, Andela, was just ranked the most innovative company in Africa. Andela is investing in the smartest young technology leaders in Africa to enhance their skills, paying them to learn and allowing them to be remote developers for global companies. It is an amazing example of rethinking the education model, rethinking where talent comes from. One thing I have learned is that talent is universal but opportunity is not. As long as you can find really smart people and bridge them with opportunities, you can build great companies. That is just one example out of many.
How do you select a company? Do you look at specific areas or do you rather focus on people?
I do have some areas of focus for my investments, for example artificial intelligence or next-generation education models. However, most of my best investments have come in spaces which were not necessarily on my radar. For example, nobody had a taxi thesis when they invested in Uber, nor did I have a close eye on the brokerage sector when I invested in Robinhood. But once an idea is on the table, I try to form a strong relationship with the entrepreneurs and quickly learn about the space.
Is there a common denominator among these entrepreneurs?
Definitely. These entrepreneurs usually have three things in common: firstly, they are not only very skilled themselves but also rely on a very strong team. Secondly, they are forward-thinking, they are innovative, they are nimble and inspirational. And thirdly, the market size they are going after tends to be really large. It takes just as much effort to build a small company as a large company. Just think about it: the guy who owns the restaurant down the street is probably working just as hard as the CEO of Facebook. But the last thing I look for is what they’re actually doing. If it is a great founder or a great founding team with a large market opportunity, they usually figure out the product themselves.
Many of your investments also seem to be guided by the wish to make the world a better place. Do you consider yourself a philanthropist?
I am a venture capitalist, not an impact investor. My goal is to deliver great returns for my investors. However, I think if entrepreneurs are focused on changing the world and building a company that transforms a small part of humanity, then they tend to build better companies. Take Mark Zuckerberg: when he founded Facebook, he did not care about money. He just wanted to build a company that connected all human beings. That mission and that vision allowed him to reject acquisition offer after acquisition offer. First they offered him several hundred million dollars, then a couple of billions – but he turned them all down. If he had just been in it for the money, he would have probably said yes to the first offer. But because he said no, the company is now worth more than 500 billion dollars and, more importantly, has transformed humanity.
So when you are looking for a good cause, you are in fact completely selfish?
Yes, I am. It is pure selfishness (laughs). I want people to solve the most important problems in the world. And if they solve the most important problems of the world, I will look good and they will look good. And we will be able to generate significant wealth.
What kind of companies that match these criteria are currently in your portfolio?
There are a couple. I already mentioned Andela, which uses technology to completely transform education. I am also invested in a company called 1concern, which is using artificial intelligence to help first responders to take the right decisions after a natural disaster. Both companies are tackling real problems of humanity. And if a company is solving a real problem, there is probably also a market opportunity. It is the fake opportunities that do not end up building big businesses.
Why should investors consider moving some of their assets into the venture capital sector?
The answer lies in the alpha. Of course, you can still get good returns with publicly listed companies. But it is becoming more difficult as new companies are choosing to stay private longer and longer. Back in the nineties, it took Amazon just three years until they went public. Now compare this with Uber, which was founded eight years ago: it still has not gone public. But in the meantime, its valuation has grown to an estimated total of 70 billion US dollars. The valuation of Airbnb, another example, is at an estimated 25 billion dollars, but the company has not gone public yet. So if you want to take advantage of this huge growth in wealth, you have to move to the private space. But of course, higher returns also mean higher risks.
Talking about risks: how often have you picked the wrong company?
I have picked the wrong ones enough times to learn from them. And I actually learned more from the wrong ones than from the right ones. It is important to have enough winners to compensate for the losers. And you have to make sure that your losses are not catastrophic. So when you have a loser, it is important to cut it off. This is not an easy task because these are personal relationships. You have this entrepreneur who has put his or her life, blood, sweat and tears in this company, and it is almost working but not quite yet. So you have to decide whether you want to put another good dollar after a bad one, or whether you just cut it off, which will likely lead to job losses. So it’s not an easy emotional decision, even though it is probably the right rational decision.
There must be some people around who do not really like you...
It is not that bad. It is important to be very transparent with your investments. When dealing with an entrepreneur, I clearly communicate my expectations and ask them to define the milestones. As long as we are on the right course and we hit these milestones or get reasonably close, I’ll continue to support the company. The startup companies are aware that I do not have an endless supply of capital. And any future investment decision will be weighed in the context of all the other possibilities. So I am pretty transparent about that.
What is the usual success rate?
In the venture capital business, on average seven out of ten companies fail, two return the money and one is a home run. Luckily, my own track record so far has been better than this average.
With your investment in Robinhood you have also taken aim at the financial industry. What fundamental problem did you want to solve here?
Robinhood is a result of the ‘Occupy Wall Street’ movement, where many folks in this country were becoming disenfranchised with the banks. One of the problems, which the founders of Robinhood detected, was the lack of market access for ordinary people, as the brokerage commissions were eating up their small assets. So they said: let us rethink financial services for millennials by creating a commission-free brokerage. Robinhood is now the fastest-growing brokerage company in the market, processing more trades per day than many of the large incumbents. And it works without any marketing expenses, just organically by word-of-mouth.
Artificial intelligence is another big topic in the financial industry. Do you think that robo-advisors are about to replace traditional wealth managers?
This is absolutely possible. If you look at the last 20 years, the financial industry has already gone a long way. Historically, access to stocks was not easy. You couldn’t just go online and buy stocks or other securities, you had to call a physical broker to process the trade. And it was not easy to do research on the stocks. Then brokerage moved online. And now, people are starting to realise that humans might actually not be good investors. Warren Buffett once made a famous bet with a hedge fund manager, predicting that the S&P 500 would outperform this hedge fund over a period of 20 years. And he was right – the market significantly outperformed the fund. So, by just investing in the S&P 500, you will most probably beat most active investors. Now, if you still prefer active investing, I think that algorithms and big data will outperform most hedge fund metrics.
But aren’t you the living proof that human intelligence still beats the robots?
Well, I think that artificial intelligence can add value to the public financial markets. However, in the private space, where venture capitalists operate, human intelligence will probably prevail. Picking companies is just half the work. It is equally important to work with the companies. Robots cannot make introductions to the people. They cannot stay up late on a Friday night and help an entrepreneur think through a problem. They cannot understand that something may work for one company but may not work for another. There is no decision tree you can follow in the venture capital business. The same probably applies to the very holistic, people-focused wealth management business of Julius Baer. That’s why I think that neither you nor I are going to be out of the job soon. But nevertheless, artificial intelligence is a trend that is going to transform a lot of industries, including banking.
About Sheel Tyle
Do you remember President Obama’s famous trip to Cuba in March 2016? While the media’s attention was on politics, behind the scenes Barack Obama organised a roundtable on venture capital markets, led by Sheel Tyle. At the young age of 26, Tyle has established himself as one of the most influential venture capitalists in Silicon Valley. He is the founder & CEO of Amplo, a global venture capital firm that helps build companies that matter. He is a member of the board of directors for Andela, most recently named the #1 most innovative company in Africa by Fast Company. He was previously the co-head of the seed practice at NEA, the world’s largest venture capital firm. As an angel investor, he has invested in the seed or Series A of Casper, Flutterwave, Mark43, Robinhood, and others.
Sheel Tyle graduated from Stanford University in three years, at the age of 19. He is a World Economic Forum Global Shaper, and was on the Forbes 30 under 30 list in 2013. He holds a J.D. from Harvard Law School.
The interview with Sheel Tyle was conducted during an ‘Innovation Camp’, organised by Julius Baer in September, where clients, relationship managers, researchers and senior executives of the Bank exchanged their views with the young venture capitalist on new technologies and their impact on finance and investing.
The interview is intended for information purposes only and constitutes neither an endorsement nor an investment recommendation.