Interview With Zain Jaffer, Founder of Zain Ventures
Wait is over; in this edition of Founder Spotlight Interview, we introduce Zain Jaffer, a seasoned entrepreneur and investor actively involved in the PropTech space through his ventures, investments, and mentorship initiatives. Desire to support visionary entrepreneurs while investing flexibly across sectors like PropTech inspired Zain Jaffer to launch his investment vehicle, Zain Ventures. Let’s dive in and discover more about Zain Jaffer’s incredible journey.
What motivated you to transition from being a founder to becoming a VC investor?
My biggest motivator as a VC investor is to help other startups the same way our investors helped us during my time as a founder. The funding we raised then was a big enabler for us to succeed. On top of that, the mentorship and connections our investors shared with us spurred our growth as a company and as business people. I think of transitioning from founder to investor as my way of paying forward this support and mentorship to deserving startups. It’s also a very logical next step for many former founders to become VC investors. For one, it’s a great way to stay connected to the startup world and gain exposure to lots of ideas across different industries. Most founders, former or otherwise, adore the pace and thrill of the startup industry — I know I do. Quite honestly, the other reason I became a VC is because of that. It allows me to enjoy the ups and downs of the journey.
Could you tell us more about Zain Ventures and its approach to private investment management?
I established Zain Ventures shortly after my exit from my last startup. During that time, I was fairly experienced with investments in terms of VC and equity but I wanted to diversify and explore other asset classes, particularly real estate. I decided the best way to do that was to establish my own family office, thus the creation of Zain Ventures. Since then, we’ve built a diverse portfolio of investments across stocks, fixed-income, hedge funds, real estate, and private equity. We have over a hundred funds at Zain Ventures, and most are managed by experts we trust.
Our investment management strategy at Zain Ventures is to expend the most time and focus on our passion areas. Real estate and startups are our biggest points of interest so our goal within those areas is to build long-term expertise. In those two areas, Zain Ventures is very hands-on and we choose not to work through intermediaries. We want to personally get our hands dirty and add value. Outside of those, we allow ourselves to free up bandwidth by tapping expert fund managers. That’s how we set Zain Ventures up for success: prioritizing focus areas and delegating wisely and purposefully.
What factors do you consider when making long-term strategic investment decisions for Zain Ventures?
The first litmus test we do when making strategic long-term decisions at Zain Ventures is to check if the move or investment in question aligns with our vision. It has to be within an area of interest and it has to resonate with our core values in some way. It also has to fit in with our overall investment strategy. Say we lack exposure to a certain asset class or geographical region, then any opportunity that’s (1) within our priority areas and (2) allows us to diversify into said asset class or region would be very attractive. I’ll give you an example. We invested in a venture fund called Musha Ventures, and we did so because it was focused on startups in Africa. When we were presented with this opportunity, I thought to myself: the whole point of having an investment portfolio is to gain access to areas you believe in.
Our investment in Musha Ventures allows us to participate in the growth that Africa is going through. Not to mention, my parents emigrated from East Africa so it had a personal significance. Another example is our investment in a climate change fund called FullCycle. I’m very passionate about supporting climate-related causes and solutions because I have kids and I want them to enjoy the same wonders of the earth that our generation had. Beyond our philanthropic initiatives through the Zain Jaffer Foundation with climate-focused non-profits, I also wanted to invest in tech that can mitigate climate change and FullyCyle helps us do exactly that. Aside from those key considerations I mentioned, Zain Ventures also maintains a well-balanced risk-to-reward ratio.
At the time of this interview, I can say we’re in quite an aggressive phase with our investment decisions. We’re more confident to make riskier investments that have higher returns. Our present strategy is hinged on bringing in more diversification. These dynamics are prone to shifts though because of many factors including the state of the market, so we acknowledge that there could be a time in the future when we may want to deprioritize diversification in favor of stability and liquidity.
How does your experience as a successful entrepreneur influence your investment philosophy and strategy?
I was co-founder of a startup that went from bootstrapping to turning millions in annual revenue. I went through all the hoops of a startup myself, so those experiences have strengthened my intuition as a VC. I’ve made countless investment pitches myself, so I know when I’m hearing a pitch with actual potential and when it’s just marketing speak. I’ve worked with great investors and not-so-great investors as a founder, so I work towards being the kind of mentor I was glad to have then. My time as founder also revealed to me what I feel truly passionate about and those are the areas I choose to invest my finances and time into. I’m passionate about tech and real estate, so now most of my investments are in PropTech startups. I also feel deeply connected to video technology because that was the focal point of my last company. At the same time, I want to contribute to climate solutions and raise more awareness around it. That’s why we marry the two whenever we support climate storytelling through documentaries via the Zain Jaffer Foundation. The way I see it, all the initiatives and ventures I do at present are a confluence of the hardships and successes I experienced as a young entrepreneur.
What do you look for in potential startup investments, and how do you evaluate their potential for growth and success?
Startups are generally a higher-risk asset versus our other investments. I know that realistically nine out of ten of these ventures are likely to fail. With that in mind, my rule with startup investment is that it needs to outperform normal assets and the stock market. The absolute minimum return needs to be 10x for me to consider it a good investment. But the bigger challenge as a startup investor is to forego a startup with good potential — say one that can guarantee a 10x return — to keep searching for one with great potential. So when I underwrite investment opportunities, my biggest question is: at the valuation I’m investing, can I get a 100x return? My goal is to find and support those rare few startups with the potential to go big and disrupt their market.
The best way to determine how big the potential of a startup is through two things. First, How big is the market size?; second, How strong is this founder’s ambition and will to capture that market opportunity? I would say that the founder and the market size are the most important determinants of a startup’s potential success, so that’s immediately what I evaluate from the very beginning.
What key lessons have you learned throughout your career as both a founder and an investor?
One is to under promise but over deliver. I experienced being an underdog in an incubator full of promising tech startups. But we came out as the most successful among those startups. We exceeded expectations because we didn’t oversell what we had to offer, and we committed to doing rather than saying. The same is still true for me now as an investor.I never overcommit to a person or team pitching me. Even when I see huge potential, I hold back from making promises if I still feel even a shadow of doubt. But when I do invest in a company I believe in, I invest all in. My commitment goes beyond financial responsibility and monetary investment. I pour time and energy into the companies and causes I believe in. Another is to accept the inevitability of failure. Founders and investors, we all make mistakes. It could be an unwise operational decision or a bad investment. Whatever it is, it’s part of the process. I’ve learned not to beat myself up for those errors because they happen even to the best of us. And failure is never final. What’s important is what we take away from those mistakes and how we become better because of them.
We saw that you sold the last startup for $780M. Can you share some insights on it?
There was a very holistic deliberation process behind the exit. Of course now, years down the line, the fact that it was a $780M all-cash deal stands out the most, but at the time it was a very layered decision. One of the factors that pushed the deal through was the reputability of the buyer. We made the deal with Blackstone, which as we all know is the biggest asset management company in the world. We were represented by Goldman Sachs. It’s their connections that unlocked the opportunity and paved the way for one of the most lucrative exits our investors have ever come across. So we have them to thank for that. The $780M exit represented a 200X increase in valuation from the first money we raised. For many of our investors, especially the earliest investors, this meant a huge outcome that allowed them to retire or even return their fund many times over. The legalese and terms of the deal also made it an almost no-brainer decision because it was very smooth and very favorable to us. It was an all-cash buyout with no earn-out option, the escrow period was very minimal and the deal terms were clean. It was a risk-free exit.
The other side to the decision is that there was already a strong motivation among our investors to sell. With decisions of that magnitude, any resistance would only create tension so the founder is most inclined to follow through. I was very passionate about the company’s vision and as its co-founder, it was hard for me to see it selling early rather than going public. But at the end of the day, it was a question of which offer would create the best outcome for our stakeholders: the investors and the employees. The kind of outcome that Blackstone was offering was life-changing. That was another reason that made it a done decision. Saying no to it would have been extremely selfish because it could have meant depriving our employees of an exit that could cover their medical bills or buy them their dream home or pay off all their debt. We also took stock of the industry and that was an added factor to go through with the deal. At the time, the two routes considered were either to exit or to go public. When we deliberated, we saw that there was too much risk in an IPO. The public comparables then were not great so we had no assurance of getting a good valuation if we went public. We were also acutely aware of the threat of Meta and Google as possible competitors. We had these two sleeping tech giants, so to speak, that could wake up any moment and decide to focus on our vertical. If both or even just one of them had suddenly invested in R&D to penetrate our market, we wouldn’t have had the capability to compete. They would have dominated us. All these factors painted a very clear picture. It was the best decision given the circumstances, and it truly has been a life-changing one for all of us who were part of the company.
How’s your experience with cap table management in your role as an investor, and do you see any challenges in it?
A cap table is a necessary tool for any business dealing with equity investment. In theory, it’s supposed to make ownership and equities easier to track. Unfortunately, there are so many pain points in dealing with cap tables in reality. One big challenge I have with cap tables is the lack of consistency in how they are presented. Some startups use a plain old spreadsheet; others prefer to use software, but even then there are so many different cap table management software to choose from. Our VC fund has made 20 startup investments, which might mean I have to deal with just as many versions of a cap table. Then there is the issue of accuracy and transparency. To be accurate, a cap table also must take into account debt instruments like safes and convertible notes. Convertible note instruments and safe instruments complicate what a cap table looks like. And special terms given to certain investors might not be reflected in the cap table. That’s why I spend a lot of time with founders trying to understand not what the cap table looks like today but what it will look like tomorrow.
If they’ve raised $2 million in convertible notes at a certain interest rate, I need the cap table to represent that clearly. This is important because a company’s financial standing is impacted after those convertible notes and safe investors convert. This equity dilution can have negative repercussions if not managed properly. Not to mention, some investors have an interest rate on their investments. So, if a cap table is six months out of date, those six months’ worth of interest is accrued and the future dilution is not being taken into account and can cause a major financial problem if overlooked. The founders themselves sometimes are unaware that they have such a complicated situation on their hands.
As an investor, I also want to understand what the cap table looks like when all the vested ownership is accurately represented. And that’s where the challenge with transparency comes in. A lot of the cap tables don’t provide a transparent representation of employee ownership. I’ve worked with countless cap tables that present employee ownership through a single line that simply states “Option pool” with a certain fixed percentage. But I know in reality that different employees might have different shares. A CTO could have special terms or have a larger percentage compared to a VP of Sales. All of these factors play a huge role in a company’s future financial performance. So, even if it’s tough work, it’s necessary to ensure that a cap table is comprehensive and accurate.
As a mentor to other tech startup founders, what advice do you typically offer based on your own entrepreneurial journey?
It’s unfortunate but founders are expected to work at a dizzying pace to successfully scale their startup. Sadly, a lot of mentors only take an interest in the professional capacity of founders. It’s often overlooked that founders also have a life outside of work and that they’re humans. Founders sometimes feel shamed for slowing down. I experienced it during my time as a founder, and I see it still prevalent to this day. It’s this unhealthy reality that has somehow become the norm in the industry, and I think we must advocate for a better environment. I make it a point to check in on the mental health and work-life balance of the founders I mentor. A question I often ask them is “How burned out are you out of 10?” It’s quite biased because it assumes that the person being asked is feeling burned out at all, but I think that’s why it works. It forces them to take stock of their headspace, which is something so easily overlooked even by these founders themselves.I also encourage them to find a hobby or an outlet that’s not hardcore.
So many founders work round the clock and then leave the office to “unwind” by hitting the gym or doing extreme sports. I say that from personal experience because I was the same. But when the work you do is already so intense and your idea of winding down is exerting more energy, you’re setting yourself up for a breakdown. You must find an opposite outlet to working hard. Consider activities that don’t require massive physical and mental exertion. Try reading or meditation — or the no-brainer: actually taking a vacation. Ultimately, this also teaches founders to always strike a balance, even in their personal lives. A final word to the wise, especially to other founders out there who might not be used to hearing this: it’s normal to feel tired. More importantly, rest is a necessary part of growth.
