Being the founder’s best friend

Tom Wallace and Serge van Dam first met at a marketing workshop in 2018 run by New Zealand Trade and Enterprise when Wallace’s cloud-based commercial property management company Re-Leased was about to make its first marketing hire. 

Van Dam is an experienced marketer, high-tech company founder, director and investor (not to mention regular Caffeine columnist) and when Wallace decided a year or so later to put together an advisory board he approached him for his marketing and growth chops.

“I felt we were reasonably under control on the technical piece but the sales and marketing side is always harder. I don’t know of too many companies where they’ve ever found that really easy, so that was to me the most important area where we should get external advice,” says Wallace.

For his part, van Dam, who is typically a hands-on early investor in high-tech startups, thought the market opportunity for Re-Leased was enormous.

“I thought ‘yeah, why not?’ and that’s a bit unusual for me because I wasn’t the first money in the door; the company was already well-capitalised. But I did believe in the market opportunity and I liked Tom and the team,” says van Dam.

The advisory route

Founded in 2013, the company raised US$15 million (NZ$23 million) in a funding round in April 2022 led by San Francisco-based Jones Lang La Salle (JLL) Spark – the venture capital arm of the global real estate leader. Wallace has retained the majority share of the company (50.52 percent) while his father, Jonathan Wallace, holds nearly 21 percent. Van Dam has taken a small 0.56 percent stake.

It had earlier raised around $12 million from local investors, including former Fliway Group chief executive Duncan Hawkesby, Ezibuy co-founder Gerard Gillespie, and Kent Gardener and Paul Kendrick – partners in London-based private equity real estate business Evans Randall Investors.

Because the company didn’t raise a lot of venture capital in its early years, Wallace says there was no need to have a formal board until 2022 when it had grown to more than 100 staff and had institutional capital. It doesn’t disclose revenue, but staff numbers have grown to 130, with offices in New Zealand, Australia and the UK.

The advisory board, comprising van Dam and Dai Williams, ran for three years before van Dam switched to a formal chair role and Williams to an executive one (he’s now global chief revenue officer).

Even for a company at its stage, Re-Leased’s board is still relatively unique, says Wallace, as it really digs into practical ways to help grow the business rather than just going through compliance issues. “Obviously that’s a core foundation but there really is a mix there,” he says.

Van Dam says he’s not a big believer in the divide between governance and management in high-growth startups, though concedes it is different for publicly listed entities.

The fact Re-Leased’s biggest shareholder is the CEO and the biggest independent one his father means it is a bit silly to separate governance and management in a “pure religious sense”, he says.

“My mentor model, which is criticised all over the world, is that my job is to be the founder’s best friend and a best friend is always there on your side and will tell you when you’re talking nonsense in a straight way.”

The value of the board

When asked what value he gained from the chair in both his advisory and formal board roles, Wallace says it has changed a lot at different stages.

In the early days, introductions to other investors or people in van Dam’s “massive network” were invaluable, says Wallace. “It’s really hard to meet and connect with good people and Serge did a great job of getting involved with helping us interview or screen someone or doing checks.”

Now his value is more like that of a referee for the executive team, says Wallace.

“A lot of times when we come up with stuff we will say ‘let’s take this to the board’ or specifically ‘let’s take this to Serge to get his feedback’ because he’s got a wider world view but also he’s got an outside lens looking in.”

An example of that was the employee stock ownership scheme (ESOP) that Re-Leased put together; it wasn’t great practice for the executive team to come up with and sign off its own bonus scheme, says Wallace.

Another example was a recent deal that was five times larger than anything the company had handled before, and Wallace says van Dam provided practical feedback on how to handle the commissions and bonuses that were paid off the back of that.

“It’s good to get that outside perspective of ‘we’re at this stage and this is what we’re doing and these are our problems and is this normal or are we way out and are we doing something completely wrong?’”

It was also useful to get the chair’s feedback on the global economic downturn as many other high-growth tech startups had a drop in their valuations, says Wallace, but van Dam urged them to double down and have the confidence to raise the money the proptech company needed for global growth.

Deal gone sour

“Probably the biggest thing we have really leaned on Serge for was we were two days away from signing a big cheque with an investor but the more we got into it, the less we liked the terms and the way the people were operating under exclusivity and it became clear that they were not a partner we wanted to work with so we wanted to walk away.”

“It was quite a bold call, a gutsy call to make and that would have been even harder to make without working with Serge to give me the confidence that actually we’ve got something here and we will be able to raise the money and operate without this other party coming in.”

Wallace says it’s a warning to other startup founders to consider how much of your company you’re selling to any investor and on what terms because you can’t get that back once the deal is done.

“It’s very easy to get swept up in the future headline that you’re about to see because you’re two days away from your friends calling and saying ‘holy, my God’,” he says. “It takes discipline to look beyond that because no-one really understands about liquidation preferences and all the different things that go on behind a deal which can potentially stack things massively against you and against a good outcome.”

Van Dan says the biggest alarm bell for him was that Wallace was saying he didn’t actually like the people involved in the deal and didn’t want to work with them for the next 10 years. His advice was to back away and find a new investor.

The chair of a publicly listed company who was told by their CEO in the midst of a similar transaction with a major private equity firm they didn’t want to work with them would simply say ‘it’s okay, we’ll just find another CEO that does’, says van Dam. “It just illustrates the false comparison between pure governance for early-stage companies that are founder led and primarily founder-owned and public companies.”

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Future thinking

Wallace says he’s happy with the size of the board – van Dam as chair, himself and his father – at this stage though may reassess in another year. “At the moment I see no real driving need as there are no external forces pushing us to add or change. We like to put our heads down and focus on what’s best for the business and what’s going to help us grow.”

Van Dam says if the company wants to get another significant external investor, they would likely want to see a bigger board with more independent directors.

“Our job is to pre-empt that and suggest the model that is digestible to an adult investor.”

Re-Leased is expected to come close to cashflow break even in this financial year – within the next one or two quarters – in order to have more options when it next raises money.

“We’ll stay opportunistic because there is a lot of opportunities for us and there is some other big things that we’d like to do, but we also believe we can run the core of the business at cash or break even for the foreseeable future as well without trading off too much in terms of growth,” says Wallace.

He says it’s a unique time for startups to break that relationship between growth and head count because of the tools now available, including AI. “We’re perfectly positioned to take advantage of that as well.” Re-Leased’s development team has had a 20 percent uplift in productivity through using AI without any extra cost beyond some licence fees, he says.

“It’s not just about the products that we are building to sell but looking at what’s out there that we can use to rethink the structure of the business and the roles that we hire to scale up. Are we best to hire two very analytical people who can use the latest tools and can have the reach of 20 reps?”

Van Dam says the company also has one of the best data sets in the world around things like commercial leases and rent rates and at some point it will be able to sell the insights from that.

“We will be somewhere between two to 10 times as valuable as we are today when we actually put that to use in an AI context in real time for our customers.”

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Sounding Boards is a monthly series exploring the relationship between board chairs and startup founders.

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