A career in international finance gives Marco Salvalaggio an unusual perspective on angel investing. We discussed his favorite startups and pondered strategies founders and angels can use to build better companies.
Highlights:
Sal Daher Introduces Marco Salvalaggio
HappyNest: An App-Based Laundry Service
Cactivate: Ad Placing for Small Businesses
Revizion: Software for Managing Customer Reviews
The Difference Between California and New England Angel Investors
“...You need the Puritanism of New England and you also need the can-do informality of California…”
Marco's Background
“...It was the convergence of my personal life with my professional life that got me to Angel investment because I met a very nice woman that eventually became my wife…”
Advice to the Audience
“...if you have perspective where you understand the whole technology cycle ... that means that you're going to have less waste of resources, that means higher returns…”
ANGEL INVEST BOSTON IS SPONSORED BY:
Transcript of “Fintech Angel”
Guest: Marco Salvalaggio
Sal Daher: I'm really proud to say that the Angel Invest Boston Podcast is sponsored by Purdue University Entrepreneurship and Peter Fasse, patent attorney at Fish and Richardson. Purdue is exceptional in its support of its faculty, faculty of its top five engineering school in helping them get their technology from the lab out to the market, out to industry, out to the clinic. Peter Fasse is also a great support to entrepreneurs. He is a patent attorney specializing in microfluidics and has been tremendously helpful in some of the startups which I'm involved, including a startup which came out of Purdue, Savran Technologies. I'm proud to have these two sponsors for my podcast.
[music]
Sal Daher Introduces Marco Salvalaggio
Sal Daher: Welcome to Angel Invest Boston, conversations with Boston's most interesting angels and founders. Today, I'm really happy to have my Walnut colleague and good friend, Marco Salvalaggio. Say hi, Marco.
Marco Salvalaggio: Hello. How are you?
Sal Daher: Great. Now, Marco was born in Italy but spent a lot of time in London, and he made his career in the financial district in London. He comes from the fintech finance side of things and gives us a very different perspective. Marco also has a foothold-- He lives in Boston, in Cambridge, but he also spends time out in California, in the Bay Area. He has that perspective, the fintech perspective, and the Italian perspective. Anyway, I'm so glad that we finally scheduled, and by the way, we are actually doing an interview at PodSpot face-to-face in Somerville.
Marco Salvalaggio: A first.
[laughter]
Sal Daher: It's been a while since we've had a couple of interviews, but it's the first time for Marco to be in the PodSpot studio in Somerville.
Marco Salvalaggio: Right. I'm an angel nomad because I spend my time in so many different places.
Sal Daher: That's tremendous. Marco, an angel investor is defined by the startups that he or she, and she increasingly she is excited about or is working with. Let's talk about a few startups that you're excited about.
Marco Salvalaggio: Yes, I thought as a matter of introduction, I would indicate how I look at startups that I'm interested in. I think the first element is the founder and the team. I really start from that. I think I've seen a lot of good ideas badly executed.
[laughter]
Marco Salvalaggio: I look for grit.
Sal Daher: You're a jockey, not a horse person.
Marco Salvalaggio: Exactly. That's--
Sal Daher: Bet on the jockey, not betting on the horse.
Marco Salvalaggio: Yes. I try to bet on both, but I think grit, ability, execution, do they have the skill set? I think that's really key. The second thing I look at is, what is the pain point? Do I think it's real? Can I relate to it in some way or not? The third thing, and that's probably because of the way I just look at investments is how much traction do they have?
Have they demonstrated a product market fit, which gives them some dominance in a market segment? I don't care how big it is, but I would like to know that they've gone through that process of optimizing in a particular sector. If those three things are there, then I look at the market size, I look at the investment itself. If those first three things are not there, I generally shy away.
Sal Daher: Your primary screen is founder first, founder came first, pain point.
Marco Salvalaggio: Have they gone through the process of identifying a product market fit where they've reached some dominance of some sort? It could be very small that needs to be scaled, then I need to assess, is that scalable? Is the market bigger than what they've achieved? Have they gone through that process?
Sal Daher: Do you look at biotech at all?
Marco Salvalaggio: No. I'm learning from you.
Sal Daher: I guess biotech is hard.
[laughter]
Marco Salvalaggio: I'm learning from you.
Sal Daher: I'm a Johnny-one-note of biotech.
Marco Salvalaggio: [laughs] I do look at applied technologies, which could be life science applied technologies. I've actually got some thoughts on that front for later on.
Sal Daher: Good. Let's talk startups.
HappyNest: An App-Based Laundry Service
Marco Salvalaggio: Yes. I've selected three. One is called HappyNest.
Sal Daher: HappyNest.
Marco Salvalaggio: What it is it's an app-based pickup and delivery laundry service. You might know that.
Sal Daher: I saw them, and that is such a brilliant thing. I own two laundromats. [laughs]
Marco Salvalaggio: Oh, you do. I'll put you in touch with the-- The founder is an owner also. Maybe you should team up with him. He's an owner of a bunch of laundromats in-
Sal Daher: I own apartment buildings, so they have laundromats in them. It's apartments mostly.
Marco Salvalaggio: -in Rhode Island. He understands the business. The whole idea as and they've been many examples of here is how to make the most of underutilized assets. Laundromats work a lot on weekends, but don't work during the week.
Sal Daher: Very true.
Marco Salvalaggio: I did relate to--
Sal Daher: They work a lot in the evenings during the week, if at all, and during the day, very little.
Marco Salvalaggio: Very little. They have lots of downtime. Incidentally, they're quite efficient machines. They consume about don't, quote me on this, but I think about a third of the energy of a home machine.
Sal Daher: Very efficient in electricity, very efficient on water.
Marco Salvalaggio: Yes. It's a very fragmented industry.
Sal Daher: Completely.
Marco Salvalaggio: You own two, you own three, and so quality control in general of this type of business is quite limited. I relate to the pain point. In fact, the story is when I left business school, the first thing I did when I got my first paycheck was to actually get my laundry done by one of these fold and wash laundry systems.
Industry pain points is a very fragmented market. There's a layered demographic of people that are maybe working long hours, they're working in temporary facilities. here's another demographic of people where the washing machine has broken, or for example, my son played rugby. Once in a while, I got 20 jerseys and 20 shorts that I had to wash, so I had to take them.
Sal Daher: Peak loads.
Marco Salvalaggio: Yes, peak loads. I liked the business model of this of HappyNest. They essentially find a laundry service that's got a laundromat. They say, "We give you 10 ZIP codes, and you own those 10 ZIP codes for us. We will do all the marketing. We will optimize the collection and delivery routes, just like any delivery or whatever, company, and then we split the revenue."
Sal Daher: Wow.
Marco Salvalaggio: They got 200 partners throughout the United States.
Sal Daher: Wow.
Marco Salvalaggio: They're growing very, very quickly. The challenge they have is identifying those markets where the partnership works, and making sure that, once you've allocated cost, you're reaching a positive cash flow for that particular partner. I think that's going to be the challenge going forward is identifying where this model works and where the model doesn't work. So far it's going well, but they've got less than 10% of the ZIP codes of United States done. We'll see how the other 90% goes
Sal Daher: HappyNest. This is very interesting. I will explore this offline.
Marco Salvalaggio: A group of us of at Walnut that have invested in this. I think that's another part of the journey that I've enjoyed is actually learning from other Walnut angel investors their perspective. I think that's a very, very interesting part of it all.
Sal Daher: The due diligence process, you learn so much. When you go to these due diligence meetings with experienced angels, you pick up a lot.
Marco Salvalaggio: Absolutely, and different perspectives. I'm quite analytical. I generally ask the founders for data.
Sal Daher: [laughs] At this stage?
Marco Salvalaggio: I do for two reasons. First of all, because I learned a lot about the founder. Is he sloppy or not? Has he thought about things? I'll spend, probably, half a day to a day going through the data, you understand a lot of how he thinks. Does he think like I would think? At the same time, I'm partnering up with other people that might have a completely different view of assessing the partner, the company, and it's that combination that then creates interesting outcomes.
Sal Daher: There is a danger in being overly analytical. I went through a stage of my investing where I tended to be overly analytical. I tended to be the business consultant.
Go back to my credit training at Citibank and all that and cash flows, and be very analytical. I missed some really, really interesting opportunities because I liked the founders, I liked what they were doing, I said, "I don't like that space. I don't know the space." I missed opportunities such as Lovepop. I should've taken the meeting when Michael invited me. A couple of other ones, where I said, "What do I know about consumers?"
The lesson I learned from that is really talented founders are very few. When you stumble on a really talented founder, and this I learned from Michael, you bet on her or him all the way, and let them figure it out. When I think of someone like Bryanne Leeming, for example, her business was the last business I wanted to be involved with, educational toys. Oh, God, that is such a tough business to get into. Combination of toys and education. Well, Unruly is off the ground. They have these games that create exercise and allow kids to practice their STEM skills at the same time.
Marco Salvalaggio: She's, for example--
Sal Daher: An exceptional founder.
Marco Salvalaggio: Also, she's very analytical and logical in the way she approaches things.
Sal Daher: She's methodical, but what I was saying, I had to not be methodical. She's methodical. That's great, but the danger was, initially, I resisted investing in her. I only invested in her after I interviewed her for the podcast. By the way, you should listen to the podcast with Bryanne Leeming.
Marco Salvalaggio: I will.
Sal Daher: She's really something. It's so much energy, so much focus on this. She managed to get this thing off the ground, but this is after I lost out on things like Lovepop. Pardon for the digression. This has been my experience. I rue sometimes being overly analytical.
Marco Salvalaggio: Sure.
Sal Daher: Anyway, you're right. The founder needs to be on the ball. No doubt.
Marco Salvalaggio: I think you have to be realistic in what a founder can do or what data he has and where the instinct ends and where the data starts. I think as an early investor, you want to empathize with the founder and feel that there's some connection of some sort. I've seen recently a company where I really liked the product, but I just felt like the founder was too wishy-washy and shifty. He was contradicting himself with some of the things that he was saying, and that didn't work for me.
Sal Daher: That is so--
Marco Salvalaggio: It's so disappointing because I love what he's doing, but I'm just saying--
Sal Daher: Marco, you made the right decision because we're not venture capitalists. We're not investing other people's money. We don't have a fiduciary responsibility that we have to be in this space and we have a mandate that we do invest in this space, and if a company meets their prerequisites or anything. No, we're investing in things we like. [chuckles] Angels, first, we have to like the founders, we have to like the space. Lots of spaces I don't invest in because I don't like it. The reason I invest in life science is because I like it. If I like a founder, I'll invest in her or him, even if the business may be doesn't seem to make sense.
It's a completely personal decision, and that's the big difference between angel investing and VCs. VCs cannot do that. VCs have a professional responsibility to their limited partners to invest in the best company that meets the criteria they're supposed to be investing in. Do you want to say anything else about the HappyNest, or do you want to move on to the next topic?
Cactivate: Ad Placing for Small Businesses
Marco Salvalaggio: No, look it up on the internet. The second startup that I wanted to talk about is Boston-based. It's called Cactivate.
Sal Daher: Cactivate.
Marco Salvalaggio: They have a fully automated machine learning-driven system for social media ad placing, which is targeted for small and medium-sized businesses.
Sal Daher: I saw them pitch in Walnut.
Marco Salvalaggio: Yes. I really like the founder.
Sal Daher: Can you mention the founder's name?
Marco Salvalaggio: His first name is Wentao.
Sal Daher: I saw pitch up on it. Very impressive, Cactivate, CAC, Cost of Acquiring Customer.
Marco Salvalaggio: Cost of Acquiring Customer Activated. I relate to this. I claim to understand the small and medium-size enterprise world quite well. It's difficult for an early-stage company to run the business and do business development at the same time.
Sal Daher: Very true.
Marco Salvalaggio: What this company allows to do is to take small and medium-sized enterprises that advertise on social media that have generally small budgets. They use the learning from each of these small and medium-sized enterprises that they have on their platform to collectively get insights on similar markets that they might access so that they can be more surgical in terms of placing those social media ads. It's a pooling of knowledge of small and medium-sized enterprises.
Sal Daher: Using a network. The more SMEs they have, small and medium enterprises they have on their platform, the more knowledge they'll have about what works.
Marco Salvalaggio: What works in a particular market. Maybe 1 SME puts 20 ads in, another one puts 30, another one puts another 20, and all together, they've put hundreds of ads, and that information all put together can allow each of them to make better choices on who to target.
Sal Daher: Now, how does that work with competitors? Do they have people on their platform who are head-to-head competitors?
Marco Salvalaggio: They could, and they might end up targeting similar demographics or similar people. That is possible, but that would happen in any case, but at least they will be targeting the right demographics. We all have a choice of which pizza parlor to go to.
Sal Daher: That's right. Usually, the markets are bigger than the business of any one of these SMEs. It's not as if they're going to saturate a market.
Marco Salvalaggio: No, and you might want to have some choice too. I don't think that is necessarily an issue within the market space.
Sal Daher: What stage are they?
Marco Salvalaggio: They have a few hundred customers so far, so it's quite the early stage. What they found out is that their CAC-
[laughter]
Marco Salvalaggio: -because they've got a CAC too, and they use similar tools to-
Sal Daher: Cost of Acquiring Customer.
Marco Salvalaggio: -to their clients, is not that sensitive. Where they're focusing on is maximizing the capture of the wallet of each of their clients. They've got these clients, and what they're trying to do is--
Sal Daher: Create as much value for the client as possible to capture all the ad dollars.
Marco Salvalaggio: Before they turn on the engine at full speed.
Sal Daher: To expand the number of clients, they just want to saturate their existing clients because of the cost of increasing the clients' utilization of their platform is much lower --
Marco Salvalaggio: I think they verify that the market is there. Now, what they need to do is make sure that they have a revenue model that maximizes the capture of revenue from each of their clients.
Sal Daher: That was the question I was going to ask about the revenue model. What thoughts do they have about a revenue model?
Marco Salvalaggio: Their revenue model, as it is now, is a flat monthly fee. They've got a freemium model, and then a flat monthly fee depending on the services that they do. One of the neat things they can do is allow, on an automated basis, for a company to compare, do A-B testing, compare, ad A versus ad B and see which one ends up in more sales than the other. That module costs more than, say, a module where you're just sending ads to a set of prospective clients. That's the current model.
I know they are investigating other types of models that might yield higher revenue, that might fit better the needs of their clients. I think with SMEs, it's always a balance between simplicity and capturing that additional marginal dollar that actually makes it so complicated, and the client says, "You know what? I'm really going to run away."
Sal Daher: They're interested in a very straightforward-- The first few iterations, they're not going to get it to the nth degree.
Marco Salvalaggio: Right. They want to have certainty. Small and medium-sized enterprises have so much uncertainty often in their business that they want to know that these other things, they know how much they're going to cost to them.
Sal Daher: Great. Interesting. How many people went into this?
Marco Salvalaggio: Just a few. The founders are three immigrant students from Northeastern University. What I liked, the CEO, I think, he's a hustler with good business acumen, but his partners are technologists and data people. I felt that the team together was a well-assorted team. They're frugal. Obviously, we don't know, but I wish them well. [laughs]
Sal Daher: It sounds very interesting. That's good work.
Marco Salvalaggio: They have quite a broad participation of angel investors.
Sal Daher: What other groups came in?
Marco Salvalaggio: A group from California came in, and one from New York. Even the customer base is actually International. It's quite interesting for a small company. It's a digital world, they have--
Sal Daher: It is. The digital barriers are almost non-existent. Good. Do you have a third something that you would like to talk--
Revizion: Software for Managing Customer Reviews
Marco Salvalaggio: I do. This third one reflects a bit of my ethos in choosing companies I want to work with. This company is called Revizion. You probably haven't ever heard of it.
Sal Daher: Revizion?
Marco Salvalaggio: What they do is software for the collection, management, and reporting of customer reviews in real-time.
Sal Daher: Ah, Review Zone?
Marco Salvalaggio: Revizion with a z.
Sal Daher: Revizion.
Marco Salvalaggio: Yes. You've probably never heard of it-
Sal Daher: No, I have not.
Marco Salvalaggio: -because it's based in Kyiv, Ukraine.
Sal Daher: In Kyiv? Wow.
Marco Salvalaggio: It's been a very interesting story for me because this came through Skydeck, which is the California Berkeley Accelerator, of which I am an advisor, and I'm part of the selection committee. We have a cohort of 10 startups that every six months we select, and we've got two programs, one in Berkeley, and one in Europe, in Milan, that captures startups that have a European focus. Here I was, at the beginning of March-
Sal Daher: Of '22?
Marco Salvalaggio: -of '22. I've been assigned a number of companies to select. We started out with 560 companies, that's like 10. I got this one, and I realized it was from Kyiv. I sent them an email, I said, "You have my solidarity. I'm assuming you will want to delay your application to the program." This was at the time when we were getting satellite photos of the-- What was it? 20-mile-long convoy of Russians who were 50 miles from Kyiv.
Sal Daher: When the Russians were attacking Kyiv directly.
Marco Salvalaggio: Directly. I called them up saying, "I assume that you will want to delay your application six months." This was at the time when the Russians were about 50 miles from Kyiv. I got this email back from the CEO an hour later saying, "Yes, we've had a difficult 48 hours, we've had to relocate our IT team, but in the meantime, we've also opened an office in Poland and we are ready to do business and expand in Europe. We absolutely want to participate in the accelerator program."
Sal Daher: These guys have moxie.
[laughter]
Marco Salvalaggio: These guys tick the first box, the founders have great staying power. I got interested in the product, and I realized that they actually did have a product, they had a business in the Ukraine, in Kazakhstan, and in Poland. Obviously, they had lost all their business or most of their business in Ukraine. When you think of product market fit, generally it's a product that's got a problem. This was a situation where the market [chuckles] --
Sal Daher: Had a problem. [laughs]
Marco Salvalaggio: I started getting interested in them. I've looked at what they have, I've really got to know the team. They've been admitted to the program, and I'm working with them as an advisor. I haven't invested yet because you're not allowed to invest while you're an advisor at Berkeley. I'm helping them expand into a number of selected markets and segments. Their Ukrainian business goes from banks to insurance companies to retail networks.
Sal Daher: Just walk us through exactly how they help with the customer service.
Marco Salvalaggio: Their software is essentially three modules. The first module is collecting reviews and often complaints, and you can do it in a number of ways from QRs, that's an often used method to emails, banks tend to use questionnaires, emails and so forth. They've got a second module. They collect all this information. The interesting thing is they use a number system, so that overcomes some of the language problems so that you might have-- When they onboard a country, they obviously need to have the questionnaires in the right language, but then everything gets translated into numbers. The systems can then work across languages and countries.
They have a second module that is a processing of these reviews. There's generally a customer experience manager. He might need to send a review to someone else in the company or a group, a different group, and so forth, or, and then communicate back to the customer. They have a second module that manages all of that and keeps track of that. They've got a third module that essentially is for reporting so that management can reward or communicate with internally on what the customer experience is.
They've got a number of clients-- They had an established business in Ukraine, and we know that Ukraine is very good from an IT perspective, a lot of companies in even the United States that have used Ukraine IT specialists. All of that works quite well. Clearly, it's an early-stage company, so it will have to evolve and everything, but they have a will to succeed which is unique.
Sal Daher: This is the potential of these companies coming from outside the US that the environment is so difficult. They're like the old story of Superman, he was born in a planet with very, very high gravity or something, and so he comes to earth and he has a superpower, he can jump over buildings. Founders who start out in countries where business conditions are really difficult, when they get to developed markets, when they get to US, everything is so easy. I also like the fact that they've been working across different languages, different markets, Kazakhstan, did you say they're also working in Poland? They have business in Poland?
Marco Salvalaggio: In Poland and Romania.
Sal Daher: You're geared towards onboarding new countries, so you're international from the start. Very interesting, very promising. I hope it works out for you.
Marco Salvalaggio: Yes, for me, it's been a very rewarding journey with them because first of all, we think we have problems.
[laughter]
Marco Salvalaggio: If you think about what a--
Sal Daher: Resets your priorities.
Marco Salvalaggio: -a founder what it takes to succeed. When I speak to them over Zoom, I have regular calls with them, I had one this morning even, they're always smiling, they're always positive about it happening. For an angel that's trying to work with a founder, that's what you want. That's what you want. I think they have something. It's going to be a learning exercise for me too, because of the product market fit uses the P that drops. Here, it's the M that drops. [chuckles]
Sal Daher: Right. Well, Marco, these are three really fascinating, very interesting startups. Let's go a little broader here. Let's talk about your experience being an angel investor part of the year in the Boston ecosystem, and then part of the year in the Bay Area.
The Difference Between California and New England Angel Investors
Marco Salvalaggio: I've observed two things. The first one is that a lot of the stereotypes, cultural stereotypes of Puritan, New England versus the more-
Sal Daher: Laid back.
Marco Salvalaggio: -laid-back California are true. I lived in California for 10 years, then lived in London for 30 years, and then now in New England for five years. I've seen everything. I must say, it's true. I think the weather has a portion to do it. The worst thing that can happen if you're in California is that you become a surf bum. Here, you end up buried in three feet of snow.
[laughter]
Marco Salvalaggio: I think that does have a role. If you look at California, there's just been lots written about it, the amount of social capital. If you look at the Bay Area, it's the most dysfunctional administrative urban area in the United States.
Sal Daher: It's a disaster.
Marco Salvalaggio: Six counties, I think it's 156 towns, and there's really not a cent-- There's only an informal central organization that tries to keep it all together, and there's a lot of informal relationships. Even when I go back and forth, I'm trying to be more prescriptive in the way I look at things and I establish relationships with people. "Oh, don't you worry, we'll deal with that down the road." I think there are some cultural differences. I'm not saying one is better than the other. I would say that what I like about the New England angel investment group is that there is more of a distinction between the role of an angel investor and the role of a VC. There, it's all--
Sal Daher: It's all mixed together. Yes.
Marco Salvalaggio: It's all mixed together. Even angel investors are all hitting for the fences. I definitely invest because I want to make money out of my investments, but an angel investment, I don't have 5 billion or $20 billion behind me that I need to invest because that's my business model. I can invest in a company that provides me with a reasonably good return without becoming a unicorn. Actually, a very good return without becoming a unicorn.
Sal Daher: That's right.
Marco Salvalaggio: That's an angel investor niche that a VC-
Sal Daher: Couldn't touch.
Marco Salvalaggio: -couldn't touch given what the VC industry has become right now, where things might change in the future, but that's where we are now. There, it's all more, one thing, even angel investors tend not to sell until the IPO, which I don't think is necessarily optimal as an angel investor. It's a different thing. I would say those are the biggest differences that maybe simply because investors have short memories, or maybe it's because the Silicon Valley has been so successful in generating these unicorns and this exponential growth, and there's been an acceleration in the growth trajectories of early-stage companies. Maybe that seems like the winning formula, but the past is never identical to the future.
“...You need the Puritanism of New England and you also need the can-do informality of California…”
Sal Daher: If you look back three decades, the Boston environment and the Silicon Valley environment were not that far apart, but the last 30 years, Silicon Valley has taken off, but it is suffering a little bit from governance problems in terms of the political environment that they are in. The cities are falling apart. They're really poorly managed. Not that Boston is such a perfectly managed place, but it more or less functions, you can get around. Despite the fact that the MBTA has been on the fritz lately, but crime is not through the roof. We live in Cambridge. Cambridge is, everything pretty much works. I mean, it's a hassle, bike lanes everywhere, you can't get to any place very quickly, but mostly the garbage gets picked up. The streets are clean. You're not attacked when walking down the street. Uber shows up on time, and so forth.
I mean, one very telling detail, the last time I was in the Bay Area back in 2019, Uber drivers invariably had to live in another city. They couldn't afford to live in the Bay Area. Usually Sacramento, they're like driving an hour and a half or something to get to where they're working. When I came back here, I started asking Uber drivers where they lived and it's like, Revere or Waltham or East Boston, 20 minutes away from Cambridge. Life is much more livable in Boston area, despite the traffic and all that stuff.
Marco Salvalaggio: Despite the winters. Yes. [chuckles]
Sal Daher: The winters, but the thing is they clear the streets, you get places. I mean, we know how to plow streets here.
Marco Salvalaggio: No, that's true. It's amazing how for the size of Boston and the Boston metropolitan area, actually distances are not that big.
Sal Daher: The people, they can live within easy and reasonable driving distance.
Marco Salvalaggio: There's some parts of the Bay Area which absolutely stunning, and very affluent, but it does attract a lot of homeless people. I think that is-- and how to deal with that is a big issue.
Sal Daher: It's an environment where drugs are cheap, where the laws are very lenient. People can live in the streets, so it's open drug scene in the streets. Boston, it's a much harder place for that. Now, another interesting comparison that my wife was commenting on today is, her niece and her husband used to live in Washington DC, and they moved to Colorado. They like to go hiking and do things like that. They said Washington is a place where it's very hard to get out to go hiking. You've got to drive a long time before you can get anywhere that's wild that you can go hiking in. Boston is not like that at all. It's like an hour and a half and you can have all the mountains of New Hampshire and Vermont, the beaches of Maine or wherever you want to go. It's not that far.
Marco Salvalaggio: Yes. In defense of the Bay Area, I can walk 15 minutes from my home and be in the wilderness.
Sal Daher: Yes, that is true. Along the way, you can also get mugged. [laughs]
Marco Salvalaggio: Probably not where I am.
Sal Daher: Okay. Berkeley. Yes.
Marco Salvalaggio: In Berkeley, you might in some neighborhoods, but even there, there's some very nice parts of Berkeley where you--
Sal Daher: Yes, that's very interesting. What I like about the Boston area is the fact that biotech is here, this is the world capital of biotech. Since I'm focused on biotech, I'm like a kid in a candy shop in Cambridge because all the interesting companies are here. Lots of stuff to do. I'm walking down the street and I bump into founders.
Marco Salvalaggio: I also like this Puritanism of New England. I do think it's a--
Sal Daher: There are pluses and minuses. It's censorious, but at the same time collaborative. The puritans, you got to hand it to them. They're good at building institutions. The university is good at collaborating informal volunteer associations and all kind of stuff, they have that ethos, but at the same time they're censorious and priggish, a little bit snobbish.
Marco Salvalaggio: It's like when you do a due diligence, you need a lot of people with different points of view, and then you get the best out of the experience.
Sal Daher: You do.
Marco Salvalaggio: It's the same thing with early-stage companies, you need the Puritanism of New England and you also need the can-do informality of California. They both have a role and they both live off each other. I think my background as being one of living in different places, and I've actually made a living out of being able to speak to people in different countries and persuading them to do business with me, there's lots of value from diversity. I love that aspect of everything I do really, including Angel investments.
Marco's Background
Sal Daher: Speaking of that, since we're talking about that, give me a quick sketch of your career. How did you end up in finance? Where are you from in Italy?
Marco Salvalaggio: I have a British mother and an Italian dad. They met in in New York, they married in New York. They moved to London. I was born in London and at the age of two we moved to Italy and I was there.
Sal Daher: A lot like Marconi.
Marco Salvalaggio: Marconi. [laughs]
Sal Daher: Guglielmo Marconi.
Marco Salvalaggio: Exactly, but my dad's from Venice. I grew up in Venice in the islands. I first had a rowing boat, and then I had a car when I moved to California.
[laughter]
That's my life. I studied engineering and part of a university. I was quite a good student, probably destined for academic career.
Sal Daher: That's the analytical bend. [laughs]
Marco Salvalaggio: What happened is, on my senior year, one Christmas, I took a trip to California and fell in love with California. Went back and a professor of mine that had a tie with Berkeley, so I also got ready to go back there as soon as possible. Within a year, I was a graduate student there. I thought I would be there one year, and I was there for 10 years.
Sal Daher: How are they going to keep them down in Pablo once they've seen Berkeley.
[laughter]
Marco Salvalaggio: Yes. It was quite a difficult situation, telling them that I wasn't going to come back. The American university system that I experienced was a complete game changer for me. I went from engineering and to the very good engineering school, but you're an engineer and you study only engineering, and it's siloed.
Sal Daher: Siloed. It's very siloed.
Marco Salvalaggio: Extremely siloed. It's very common in a lot of European countries. That was my experience. I went to Berkeley and they said, "Marco, you're going to have to take 25% of your courses outside of engineering." Shoot, what am I going to do? I had this German colleague of mine said, "Well, you should really look into Business Administration because it's very important." I looked for the program and I found some courses that were quite mathematically oriented, and I fell in love with finance.
I worked as an engineer for a couple of years of British Petroleum. I immediately went back and got my degree in finance, and worked first for a quantitative asset management in the Bay Area, running hedge fund-style strategies. Then I wanted to move back to Europe and I worked in London for Lehman Brothers for a number of years, for 13 years. Built four businesses for them. I say that because it was my first startup experience.
Sal Daher: Experience. In what areas of those businesses?
Marco Salvalaggio: Initially, they were in fixed income. One was a liability management business that they didn't have in Europe, and then--
Sal Daher: Liability of the banks are the deposits.
Marco Salvalaggio: No, these were liabilities of issues of debt. For example, it could be a government that's got a whole portfolio of debt and you want advice on how to optimize that.
Sal Daher: Advisory services to borrowers.
Marco Salvalaggio: Correct. Banks work our transactions. The whole idea was, so the way we would make money will be by then convincing them for example, to manage the debt portfolio through us. We might be buying back debt for them and issuing debts in different maturity, providing some dynamic facets, if you want, to the management of that debt. Then I got into derivatives. Then as I became more senior in the bank, I then started covering clients, public institutions or large corporates, but nothing more different from the startup world.
Sal Daher: Absolutely. What year did you leave Lehman?
Marco Salvalaggio: I left Lehman two years before it went under.
Sal Daher: 2008. At that time, you would not have guessed that Lehman would go under.
Marco Salvalaggio: No. Hindsight is 20/20. I must say that I had a lovely time at Lehman, and I was working with people who were super smart. We had a fantastic culture. I must say, my experience towards the end is that, the customer-oriented business that I was trying to do was under stress because the demands on revenue and return on equity as balance sheets grew and as the size of these companies grew, was changing the business and the character of the business. Hindsight is 20/20, but it's not surprising that they ended up with a bunch of assets that they couldn't sell on their balance sheet.
Sal Daher: Yes. Well, analogous things were happening at Citigroup as well, Citibank.
Marco Salvalaggio: A lot of most banks.
Sal Daher: Biggest pressure for return on assets and not enough attractive assets around to invest in. They went up the risk curve. Citibank had a problem with their management information systems. They're very onerous because they acquired a lot of companies and unlike JP Morgan-- this is a friend of mine who's worked there many years and basically said, their expenditures on maintaining their computer systems were so massive. They have hundreds of thousands of people just maintaining legacy systems, which JP Morgan didn't have. JP Morgan just junked all the legacy systems and rebuilt. When they acquired a new company they would put them on a new system.
Citigroup was running all these legacy-- as a Citibank client, I remember they had a system for this and a system for that. It was a nightmare, it was very expensive, a very high cost basis. They had to jack up their revenues and that's how they got into subprime mortgage back securities and all that stuff, a little hiccup. Everything was priced to perfection, a little hiccup, the whole thing blew up.
Marco Salvalaggio: Mismanagement of liquidity really, that actually created that.
“...It was the convergence of my personal life with my professional life that got me to Angel investment because I met a very nice woman that eventually became my wife…”
Sal Daher: You know, Marco, you're around hedge funds long enough to know that liquidity is an illusion. That liquidity is always present when you least need it, and when you really need it, it's not there. Have you noticed the markets that have always been deep, the US stock market was functioning, 2008, it didn't grind to a halt, but credit the fault swap market is completely mispriced. You could have gotten some unbelievable bargains back then, but anyway, we're going off-course here. Basically, how did you end up in Angel investing? How did you convert over to Angel investing?
Marco Salvalaggio: It was the convergence of my personal life with my professional life that got me to Angel investment because I met a very nice woman that eventually became my wife, that lives in Cambridge.
Sal Daher: Okay, so love brought you to Angel investment.
[laughter]
Marco Salvalaggio: Love brought me to Angel investment. I met in London. I was traveling as a banker three days a week, then I started traveling once a month to Boston and she would travel to London once a month. We went on for three years doing this and it became completely unsustainable in the long term. I said maybe I'm done with banking. I took a year off. I went to the London School of Economics and I studied local economic development. It was toughest thing I've ever done in my life, but I got into study interesting in entrepreneur as a driver of economic development, of employment, technological innovation, and dissemination of technology.
I finished my studies there and I said, what am I going to do, I've been a bank all my life. I'm interested in this. With another colleague from Lehman, we said, why don't we start a company that advises with a professional investment banking bulge bracket firm style, why don't we advise early stage companies. It was fantastic experience. Most challenging thing about early stage companies for me is the fact that, while for large companies you got the Modigliani-Miller Theorem, the value of the assets are independent of how you finance them. It's absolutely not true for startups.
Sal Daher: It's all, it is entirely finance-dependent. The path to finance guy. Modigliani-Miller works in the macro economy, when we're talking about private companies.
Marco Salvalaggio: When you're talking about early stage, it doesn't work. That is the most challenging and fascinating part of it, is how you make a business plan and the finance plan work. So that one builds on the other and you progress through the life cycle of a company. That is the most fascinating thing.
We started this company and one of our clients, when they said, was there any stage? Well, why don't you come and-- we had all these funky ideas about risk managing the currency portfolio, and he said, "Okay, this sounds very good, but we are not going to have an outside consultant do this for us. You have to come and join us." So we became head of capital market, part of the leadership team there. We had this early stage journey with them. Eventually, they sold to a big multinational bank. Then once they sold, my wife and I moved back to Cambridge and I was generally accepted in the Walnut Investment Group. In a way, all went from being a spurious activity to being a much more disciplined activity.
Sal Daher: What we have, Arrigo Bodda to thank for that.
Marco Salvalaggio: Yes.
Sal Daher: Imagine in the Italian circles of Boston, you must have connected with Arrigo.
Marco Salvalaggio: It was.
Sal Daher: Thank you, Arrigo, grazie, grazie.
Marco Salvalaggio: Qiuyan was actually the-- she was the catalyst because she worked for a friend of mine that is a local entrepreneur here.
Sal Daher: I retract the congratulations to Arrigo.
Marco Salvalaggio: Qiuyan introduced me to Arrigo.
Sal Daher: All right. Once again I say, thank you, Qiuyan and thank you Arrigo.
Marco Salvalaggio: Exactly. It's actually, it's Lehman diaspora because this entrepreneur here is married to a professor at the Kennedy School of Business, and he's a Lehman alum. That's how it all works. In life, relationships--
Sal Daher: It's so funny though. You look at it from the outside, it's totally mysterious. When you look at-- Oh, makes perfect sense. Yes.
Marco Salvalaggio: That's been when I decide to become more disciplined about it and it's fantastic to be part of a group.
Sal Daher: I love it. I've been with Walnut since 2013. It's going to be 10 years next year, and I just have so much fun with it. Chairing the meetings. I'm in the process right now of, I'm going to chair the July meeting, screening customer clients.
Marco Salvalaggio: It's a lot of fun.
Sal Daher: Screening candidates is tremendous fun.
Marco Salvalaggio: Before that, I did it in a more spurious way on my own. It's not the way to do it.
Sal Daher: It's not at all rewarding.
Marco Salvalaggio: You make bad decisions.
Sal Daher: There's a reason why Angel groups exist. Many eyes looking at the same thing, people see different parts of it. It's judging human character, because it's judgment about the founders really. Good. Marco, as we think about wrapping up the interview, which I think was really valuable, is there anything that we haven't touched on that you wanted to get across to our audience of founders, people who are thinking of founding companies and other Angel investors in the Boston ecosystem, in the Bay Area ecosystem, across the country, across the world, that you like to communicate?
Advice to the Audience
Marco Salvalaggio: Yes, there's one thing that I would like to launch as part of a debate and I just want to give my view on this, and it's come up in a few occasions at Walnut. I think it's a validation. I've tried to think about it in terms of economics. That is, often you hear say, Angel investments, yes, it's a lifestyle, investment style, but on a risk adjusted basis you would never do it.
Sal Daher: Well, I haven't found that to be so.
Marco Salvalaggio: That comes up. I've been thinking about that, and I've been thinking about the role of technology. I mean, Bay Area, Boston, a lot of our investments are technology driven.
Sal Daher: That's right.
Marco Salvalaggio: When you read some of the research in economics, you realize that investments in technology require quite a bit of time to permeate the economy and the population.
Sal Daher: That's right.
Marco Salvalaggio: If evidence of big investments, 20, 30% of GDP but then the impact on-
Sal Daher: Shows up decades later.
Marco Salvalaggio: -shows up. There's a level, there's a maximum level of absorption that the economy can have of technology. You can pump, you can double that investment, but you still get that level of absorption and may move by a small amount, but it doesn't really move by much. So that can result in mis-allocation of funds because we all ought to be over optimistic. We always think that our investments will grow. The founders, obviously the Angel investors think that the investments will grow much faster than they will. So because technology is absorbed by the economy slower, there's a risk in that process that there will be superseding technologies that come on board, that you didn't predict, that you will have a poor product market fit. The question that I think often we need to have as technology investors, Angel investors, -- we are the first, we are the frontline of that -- is, we need to think about not only the technology but also about technological transfer. Often we should allocate more of our resources, not so much to pure technology, but to technological transfer. I think that that also has a social benefit.
Sal Daher: Right. Life science, it's translation. They call it translation, taking stuff from the lab to the clinic, from the lab to industry.
Marco Salvalaggio: That, I think, applies to most technology fields. For example, there's also evidence that technological investment is most effective in terms of productivity when it's applied to sectors which are further away from the technological frontier.
Sal Daher: [chuckles] You mean the construction industry. [laughs]
Marco Salvalaggio: For example, you improve the productivity going from paper to computer than to going-- I have a phone which is five years old. If I got the new one, my productivity really wouldn't go up. My phone calls would probably come through or not come through just as well.
Sal Daher: Yes, exactly.
Marco Salvalaggio: It's the same investment.
Sal Daher: There are areas, for example, in the life sciences-- I'm an investor in a company called RockStep Solutions, and they're doing gangbusters. What are they doing? They're just bringing very basic SaaS technology to the management of pre-clinical trials.
Marco Salvalaggio: Absolutely.
Sal Daher: It's just a very simple thing. It's still software eating the world. 11 years after Marc Andreessen's piece in the Wall Street Journal, there are still places where software hasn't eaten yet, and areas like that, I like those investments. I'll write checks in the software space. For me, where I think there's the most promise, where I sit here in Cambridge, Massachusetts, right now in Somerville but I live in Cambridge, is looking for in this massive number early-stage life science companies that I see, looking for those companies that can get somewhere with not a lot of money, that are capital efficient.
Of course, I have founders that are very compelling, that have really strong defensible intellectual property, IP, are in a space that enable an existing business to do a lot better, because you get much faster adoption. If a big existing company, the margins are being eroded in some large business that they have, and there's some little company that can buy and that technology all of a sudden is going to allow them to stop the bleeding or expand their market tremendously or make it much more profitable, that little company is going to be extremely valuable. That's what I look for.
Marco Salvalaggio: Those are the diamonds that everybody is looking for.
Sal Daher: I've seen a few. I've been an Angel investor since the early '90s. I've seen enough companies to create a screen for what I think other companies that look like that. Companies such as Quad Technologies, Sean Kevlahan has been on the podcast. SQZ Biotech is one of those. By the way, SQZ Biotech is a public company now, you can own SQZ as a public company.
Marco Salvalaggio: Don't get me wrong. They're lots of--
Sal Daher: Yes, if you have that interest from the strategic players, it's a shortcut to building a business. Anyway, so from my perspective, I entirely agree with your concern about this technology transfer, translation from science to technology and then to industry. That's the terminology that's used in the life sciences. That is a major problem that we spend a lot of time thinking about but you're right.
Marco Salvalaggio: If we think of the economy at large in terms of improving productivity, it has policy issues, it has investment issues for us.
Sal Daher: It has been disappointing. Productivity growth has been disappointing, for all the technology investments.
“...if you have perspective where you understand the whole technology cycle ... that means that you're going to have less waste of resources, that means higher returns…”
Marco Salvalaggio: From an Angel investment perspective, you can have two contributors to GDP which are identical. One, that doubles the productivity of 1% of the population, and one that increases productivity by 1% of 99% of the population. It has the same thing.
Sal Daher: Same dollars in the--
Marco Salvalaggio: Right. One creates more inequality or productivity, the other one shrinks that inequality.
Sal Daher: That's true.
Marco Salvalaggio: One probably is closer to the technology frontier, the other one is further away.
Sal Daher: You want to be more in that 99, improving a little bit the 99%, the big footprint.
Marco Salvalaggio: I think that's going to overall improve our productivity and create less social--
Sal Daher: From my perspective, looking at the life sciences, what is happening in the life sciences will have a benefit for everyone in the economy.
Marco Salvalaggio: Correct.
Sal Daher: Everyone in the world. What happened with the mRNA vaccines, this is the 10th year of cell therapies. There's a girl who had terrible form of blood cancer with infantile leukemia and she's celebrating the 10th year of remission. Thanks to the first application of CAR-T therapy, cell therapy to stop this particular type of childhood cancer. Emily Whitehead, she lived a long time, continues to be cancer free all this time. She's celebrating 10 years of being cancer free. That is the anniversary of cell therapy, which is massively-- imagine all the people-- and this redounds to everyone benefits. It doesn't create inequality. It creates a better standard of living for everybody.
Marco Salvalaggio: Absolutely. If we want to dehumanize it, which I don't wish to do, but it's a massive improvement in productivity.
[laughter]
Sal Daher: It is indeed.
Marco Salvalaggio: I think we are more impactful than we think we are, in terms of improving the health of our overall economy. I think we need to consider these. I think it will result in better investments-
Sal Daher: To have that perspective.
Marco Salvalaggio: -because if you have perspective where you understand the whole technology cycle, all the way to transfer to the broader population, that means that you're going to have less waste of resources, that means higher returns.
Sal Daher: Absolutely. I don't disagree. I'm on board, except that my focus is a very narrow one in a very small sector, dollar-wise, which is the early stage life science, which I think has potential to be tremendously consequential, a huge footprint for very few dollars.
Unless you have any other thoughts, I thought it might be a good time to wrap up.
Marco Salvalaggio: First of all, thank you very much for having me. It's been a very rewarding process to actually think about these things because one thing is to say them, the other one is to actually think about them and thinking how to present them in a coherent way. Thank you very much for allowing me to do that.
Sal Daher: Well, Marco, I'm so glad that we managed to arrange a face-to-face interview where we can be in the same space in a beautiful late June day. By the way, I walked to the studio 56 minutes from my house to Raul's studio.
Marco Salvalaggio: When you texted me that you were doing that, I looked how long it was going to take. I said, "No way."
Sal Daher: [laughs] You could just have told me you're going to walk here. I will have done somewhere around 27,000 steps by the end of this day. It's unusually high. I usually do close to 18,000.
Marco Salvalaggio: Unless you take a ride back in the car with me.
Sal Daher: Oh, no, no, no. I'll be doing it carrying a microphone back.
Marco Salvalaggio: Oh, that's another 300 calories.
Sal Daher: Transporting microphones. It's not. It's probably like 30 calories, sad to say. Marco Salvalaggio, Angel investor, financier, engineer turned financier. I'm also an engineer turned financier,-
Marco Salvalaggio: I know.
Sal Daher: -turned Angel investor.
Marco Salvalaggio: This was a good time together.
Sal Daher: I thank you very much for making time, being a good sport, for being on the Angel Invest Boston podcast. I thank our listeners for tuning in.
Marco Salvalaggio: Thank you very much.
Sal Daher: I'm Sal Daher.
[music]
Sal Daher: I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.