Venture capital and business advisory firm Archetypes Solutions focuses in the industries of workplace health and performance, meaning largely benefits and HR services and technologies, with a model that is a combination of advisory and venture. It advises companies that are around $100m in revenue on product strategy, software development and growth at large, which represents sales enablement as well as marketing. Their investment strategy, says CEO Chetan Bagga, is to invest in the most promising vendors of their clients.
"What's unique about what we've built is that it's an engine that brings investment deal flow by looking at your clients' RFPs and helping them grow in the regular course of their business, and it gives us access to some deals that are outside of the common venture continuum," he says.
Bagga says he came up with the idea around 2013 when he had some capital he was looking to deploy.
"At that point, really just operating like a small family office, if you will, and was not finding much deal flow out there — call it table scraps off of table scraps — and just tinkered with a couple of different ideas," he says. "I've always been sort of an infrastructure geek and thought that instead of using the pitch process to source deal flow, what if we used the RFP process? And just went from there."
Bagga says the company has optimized for about a third of the companies that it's investing in. In those investments it's looking for reasonable but significant negative controls to make sure that it has board seats on all the companies that it's working with as well as a significant say around raising money and who's going to be getting equity issuances from a team perspective.
"We're very active participants with our companies," he says. "With our 11 portfolio companies active today, we talk to most of them multiple times a week, and some of the ones that have rolled off of a more active involvement we talk to at least once a month and do our best to be creative participants in their in their ecosystems. I think that we've looked at that component of what we do as very important, taking good care of our operators and giving them the resources that they need to be able to grow is to everyone's benefit."
The company has deployed about $30 million a year, a number that can vary based on conditions. When making acquisition decisions, he says they're trying to find deal flow that's off the beaten path.
"A lot of those companies are similar to our clients: they're fiercely independent, looking for ways to grow and are open to partnership. So, we've matched that signal really from the beginning of our deal flow process because like attracts like, to a certain extent here, where the clients we're working with some of those same cultural markers of independence, smart decision making, growing without taking on onerous outside capital — those are all things that we've matched for throughout the process."
Bagga says most deals that they're looking at have about 3,000 hours invested before they get in.
"That's not that we're spending 3,000 hours poring over the books of a single asset," he says. "This is more getting to know the space, a few companies in the space, getting to know the various operators, different players, and then being able to design a growth path alongside the companies we invest in. We have a good runway and that gives us the comfort to get into deals where we have minority stakes. Obviously, there's some unique risks attached to that but we have enough time to underwrite that and the consulting practice also subsidizes that."
Bagga spoke at the Philadelphia Smart Business Dealmakers Conference about launching Archetype Solutions and its unique approach to investing. Hit play to catch the full conversation.