Reza Satchu sold his first startup – a supply-chain software company – at the height of the dot-com boom, for just shy of $1-billion.
Since then, the Harvard Business School grad, who spent 12 years at the private equity firm Fenway Partners in New York, has made a name for himself as one of the crustiest – and best – business professors at the University of Toronto, a mentor for young entrepreneurs, and a savvy investor through his Alignvest Capital Management fund.
And he's got some tough words for Canada when it comes to entrepreneurship.
Q: You moved to Canada from Kenya when you were seven. What was that like?
A: The decision to move to Canada was a remarkable opportunity, and it changed our lives. But at the time, it was difficult. I immediately skipped a grade, so the combination of having a funny accent, being younger, and having parents who didn't have us immersed in the Ismaili community kept us somewhat apart. I think that discomfort led to some confidence in overcoming obstacles.
Q: What did you learn from your dad?
A: My dad started off as a real estate agent and built up his own business. So we saw in a tangible way – moving from a small townhouse to a slightly bigger one – that progression of hard work and taking some risk. That instilled some level of confidence and a strong set of expectations. And we learned not to be scared of taking risks.
Q: How did that pay off?
A: When I decided I wanted to go to Wall Street, I probably got rejected 200 times. Then, instead of going to an established private equity firm, I went to a startup – Fenway Partners. I was the third person there, and it became very successful. I got a taste of being an entrepreneur. My wife and I both had massive loans, but our decision to not play it safe and to get some equity instead of cash was pivotal.
Q: Talk about your first startup, SupplierMarket.com.
A: It was a supply-chain software company focused on procuring direct materials faster for manufacturing firms. Things were somewhat crazed on the tech side when my brother and I started in 1998. I was 29, my brother was 27, and we raised money from Onex, KKR and Sequoia. Neither of us knew anything about technology. How did we raise money from all these sophisticated investors? I like to say they all looked across the table and saw two Indian kids, and just assumed we knew something about technology.
Q: How did you end up selling it to Ariba for $925-million?
A: We had about 250 people, and we were scheduled to go public. The best decision we made was selling. That was against the wishes of the board. Everyone we talked to would say, “Don't sell, go public.” Only with us threatening to resign did the board listen. Now that looks like a good decision. It was not an easy decision, but for us, it seemed absurd not to take that price. There are many more stories of people who didn't take that kind of price.
Q: What are some of the key lessons you taught in your economics for entrepreneurs class at the University of Toronto?
A: One, seek positions of discomfort. Work on your weaknesses. Put yourself in situations where you are forced to get better at them. Only in positions of discomfort do you learn a lot. Two, when I went down to Wall Street, I remember thinking that the kids from Harvard, Yale and Stanford must be much smarter – they certainly acted it. The truth is, they're no better educated, but they have two advantages: massive access to leaders and mentors, and, because of that, massively expanded goalposts. I encourage people to find mentors, so you can touch and feel it, and have a set of expectations that get you there. Three, for Canada to stay relevant, we have to be willing to think and compete globally. Four, I don't believe in fate at all. Very few entrepreneurs would say that whatever happens was meant to happen. I think that's BS.
Q: Why don't we have more entrepreneurial successes here?
A: This is true, not a myth: In Canada, when people fail, you might as well put an X on your face and never come out again. The consequence is that people don't try. But trying and failing is so much better than not trying at all, because at least you learn something.
Q: You helped create The Next 36, targeting young, would-be entrepreneurs. Why start them at the undergrad level?
A: If you look at the 10 largest businesses created over the past 15 years, most of them have been created by people in their twenties – people like Michael Dell and Mark Zuckerberg. The world has changed. You don't need grey hair and 30 years of experience to make something happen. The time to get people on the right track, where we can have the most impact, is early in their careers. We go through a very intense process to pick the people who get in to The Next 36 program, because they're getting more in terms of resources and mentorship. We focus on undergraduates because we want to catch the Canadians whom we can have major impact on and who haven't left yet – because if you're at Rotman or Ivey, it means that you didn't get into Stanford or Harvard. We want people we can truly transform.
Q: What do you look for when investing in businesses through your fund, Alignvest Capital Management?
A: Our business is both starting and investing with people who have vision. The most important thing we look for is the actual person who's leading the investment. I'm looking for someone I can trust. You're going to see 100 business plans that are gonna be pointing at the sky from 0 to a billion. But there will always be lots of bumps in the road, so we're looking for someone who has conviction and a sense of responsibility that, when you take my money, you're going to treat it with total respect. They're going to work their ass off. Why did people invest in SupplierMarket.com? It wasn't just because we were Indian. It was because every single person who had worked with my brother or I, from analysts at Merrill Lynch on up, had invested in us. They said, “We've worked with them, and they're really good guys.” I've got multiple screens on how to evaluate people, but that is what's most important
Q: What's your advice for budding entrepreneurs?
A: You've got to put yourself in a situation where luck and proportionality can impact you. If you're a lawyer and you get lucky, you work 50 hours and make a bit more money. If you're an entrepreneur and you work harder, it could be a complete sea change.
Q: What's the biggest mistake an entrepreneur can make?
A: The death of so many entrepreneurs is because they focus on maximizing their valuation when raising money; they want to raise money at the cheapest price so they can keep the most equity. But you get what you pay for – you're raising money from the dumbest people. We went to really sophisticated investors who were going to keep more equity, but who increased our probability of success. Don't think of it as just a cash investment; think of it as taking on a partner who can be a very important part of the business.