Damien Lane (Episode 1 Ventures): Hire ahead of the growth of your company. Hire business leaders earlier than you think you should do, because you need people with experience of managing 50 people

By Roman Bdaitsiiev

23 Dec, 2020

Damien Lane is Partner at Episode 1 Ventures
Damien Lane is Partner at Episode 1 Ventures

Damien Lane has spent the last 20 years investing in private companies, both in Private Equity where he was a partner with Electra Partners, then at Octopus Ventures where he was a senior member of the investment team. Having made a number of angel investments, Damien co-founded Episode 1 with Simon and Adrian in 2012. While at Episode 1, Damien has led investments in Carwow, Scurri, Touch Surgery, Attest and Zipcube and loves working with early-stage teams of entrepreneurs; helping them develop their early-stage startup into fast-growth enterprises capable of raising more funding from later-stage investors. When he is not trying to help businesses to implement an optimal approach to growth, Damien can mostly be found running around Hampstead Heath or the Coastal paths of Great Britain. Having trained obsessively to run a 2:52 Marathon in 2015, he is now trying to dip below 2:50, in the spirit of continuous improvement. Damien has an MBA from Cambridge University and a Master’s degree in PE from Oxford University.


How it all started? How did you decide to enter the venture investment business?

I always joke I’ve never had a proper job. I worked in banking for six or seven years. It was investment banking in London and Paris, which I don’t regard as a proper job. Then I went to business school, which is not a sensible way to spend two years, but it was a huge amount of fun and I met lots of very interesting people at Cambridge. After that I left there.

I’m a firm believer that life is 85% luck, 10% is taking advantage of that luck and 5% is prayer. I was lucky enough to bump into somebody who ran a business called Electric Partners, which is a private equity group. At that point Electra was just a UK business and they were looking for someone who could help them buy a business in Germany and develop a business in France. I had done Germany level and I pretended I could speak French. So, they hired me to help them do that. None of them spoke any German and they had no idea how good my German was, but it was good enough to get the job anyway. And then I spent 15 years in Electric Partners. We bought a business in Germany; we developed the business in France.

And then I just spent 15 years in a mid-market private equity firm, buying £100-200-300 million companies. I only said that my experience with private equity was bigger. We were buying subsidiaries from big companies. We bought subsidiaries of Shell, PayPal, Pernod Ricard – the drinks company. We bought businesses from the government. And my experience was that the bigger the company that was selling, the bigger the entity was selling, the more opportunity there was to improve the way that business was running. If you think about it, if you are a high flying executive at BP, you are pretty unlikely to be running a business that BP wants to sell, because your career path depends on being successful in what BP loves. You don’t want to work in the chemicals business because they have no interest in it. And when you buy the chemicals business from BP, you can improve it pretty easily by improving your management team and putting really good people in there. It was great fun. We made money for our investors and I made money for myself. Then the financial crash happened in 2007-2008 and raising new private equity funds became difficult. Electra was wound up eventually and I left there.

I was 40 years old and I had been working for 20 years. I persuaded my wife that I should have 18 months of not working. I did lots of traveling, thinking about what I wanted to do and I started doing some angel investing in tech companies. I know nothing about technology, but I think, having spent 15 years investing in private companies, I’m a pretty good judge of whether a person is a backable individual. Maybe we’ll come back to that later because I think that is the key skill that an early-stage investor has to have.

I made three or four angel investments and then I joined Octopus. They were not looking for someone with technical skill, but rather for someone with a bit more financial experience, a bit more board experience, a bit more M&A experience. I worked at Octopus Ventures for two years and I found out that I hated being an employee. I hated having to ask people to take holiday. I hated having a security pass to get into the building. I love the work. I absolutely love venture early-stage venture, because you are working with people who are much smarter than you are and helping them fill in the gaps in their knowledge base. So, I absolutely loved the job. And I met one of the other people who was working there part-time.

It was Simon Murdoch who had sold his business to Amazon. I think he was Amazon’s first employee outside North America and had been a venture investor. He was working for Octopus two or three days a week. He decided to leave Octopus and start a fund, but he was told that he needed to have a partner and when he told me that I saw the 85% luck struck again. I was in the right place at the right time. He, I and a guy called Adrian Lloyd started Episode 1 Ventures. That was in 2012. We raised a £37.5 million seed fund with the support of the British Business Bank. That was a great help to us because we would never raise enough money to have a seed fund without it. We raised £12.5 million mostly from people I’d worked with; Simon had worked with entrepreneurs, friends and family basically. And we coupled together £12.5 million from those people and £25 million from British Business Bank and Episode 1 Ventures fund was launched on September 13.

What industries are you interested in?

We are based in the UK. So, we only invest in founders based in the UK and there are two reasons for that. First of all, our biggest LP is a British Business Bank. They expect us to invest their capital in British companies. But there is one more reason that is more important than that, even if that wasn’t a constraint.

We are investing in very early-stage companies at pre-seed and seed between £250,000 and £2 million. I think this is more true before COVID than since, but you should be located close enough. A long time ago, when I was on the board of a company, somebody told me that a year in startup life is like seven years in a company’s life. It means every week is just absolutely critical and you need to be able to move. The only advantage you have as a startup in a market is your ability to move faster and anything that allows us to help a company move faster is critical. And being a thousand kilometers away from somebody just makes it harder. Then if a founder wants to have a cup of coffee with you and he or she phones you up at 10 o’clock at night, telling you that there is a problem and asking to meet tomorrow at eight o’clock in the morning, you can’t do that. If you’re investing in London from Berlin, Wien or Kyiv it’s just very difficult to be as supportive and helpful remotely. Therefore, we’ve just decided only to invest in UK founders.

Also, we are B2B focused only and we don’t make consumer investments. There are other firms in London who do, who are much better at consumer investments than we are. We focus on B2B and we have two fundamental strategies.

One is deep tech. In our partnership now there are five partners. Three of them are deeply technical. Paul McNabb worked for Cisco, Simon has a Ph.D. in AI and runs Amazon in Europe for a time and Carina Namih, our most recent partner is on the board of the Turing Institute and has had her own high-tech startups. So, we look for deep tech startups and that’s one element of what we are looking for.

And then on the other side, which is the stuff I do, is what we call either marketplaces or enabling technologies. We have businesses like carwow, TRIPTEASE and huboo which are helping businesses to be more effective.

When we are investing in deep tech, we’re nearly always investing pre-product and therefore we focus on the team, why this problem, why now and why this team, because often it can be that business is based around a bit of research that the team has done while they’ve been developing an academic career and there’s no commercial part. Then there’s not necessarily a commercially viable product yet, but we have to believe that the founding team can really build up an interesting product over time for the marketplace and for enabling of a strategy we want to be able to speak to those customers. For those sorts of companies, we want some form of traction. I lead on those investments and what I want to be able to do is to pick the phone up to 10 customers and hear all these customers are willing to say like if this company didn’t exist, their life would be a hell of a lot more difficult.

An example of that is huboo where we invested 18 months ago. It’s a business that helps small online merchants do the warehousing, the picking, the packing and the posting of their goods. It’s basically the whole operational back office for e-commerce merchants. They had about 20 customers and were doing about £2,000-3,000 pounds of revenue a month when we first met the company. And every single customer, not only some of them, said he’s about to go on holiday and it’s the first time he’d been on holiday since starting his business. And the only reason he can go on holiday is that these guys exist. And they were all saying those sorts of things and more than half of them asked whether they could invest which I thought was the real customer love. And that’s what you need because startups are tough. So, customer love is the number one thing for the sorts of things I look for.

Can you name industries you really like, yet will never invest into?

I’ve talked about the consumer. We would just never invest in a pure consumer business, a direct to consumer retailer. We would love to help them with some of the businesses and investments, we would help them be more effective and efficient, but we would just never invest in a Revolut or Deliveroo. When we met the guys from Deliveroo, we’d love to have invested in, but it didn’t fit our thesis. I love Monzo as a customer, but I would never invest in it.

At what stage of the company’s development are you investing?

I would say it is as early as we dare. We’ve invested in companies with one-two founders and no product. For deep tech investments, we are interested in a super early stage. Even if founders would have only a PowerPoint presentation and some good experience. For the marketplaces and the enablers, we’d want to see some indication that the market wants what they are building.

What was the most unusual startup you ever supported?

I think the most exciting from a technology point of view is a business called CloudNC, which has developed software to effectively translate CAD design into a piece of software that determines the best path for a CNC machine to use when they’re actually making the parts. So, you can design a gearbox for a car using CAD software. And what has happened traditionally is then an engineer looks at that CAD design, writes the instructions for the CNC machine to drill here, then there and drill there, which is extremely slow. The guys who write the software instructions are incredibly expensive and the designs that they produce are sub-optimal because they are humans. And you know that humans are sub-optimal.

Guys from CloudNC have built software that automates the translation of that CAD design into a design that produces the strongest possible gearbox with the lowest amount of waste and that solution works automatically. It means that it has huge, profound implications for the whole CNC industry. In the aerospace industry, if you have a whole fleet of aircraft operating and it’s a 10-year-old aircraft design, they are no longer making the parts. At the moment you have to hold a big inventory of those parts because it’s a very complicated process to make one part. Now you could phone these guys at five o’clock in the right head and make an order. And they can put the software in the CNC machine, which knows what needs to be done. It can knock out the part and have it back to you the next morning. Just think about all of the working capital that’s tied up in that whole value chain. You don’t need inventory. The design and production of new parts are accelerated dramatically. That’s probably the most unusual startup for me. If they can commercialize and come up with a business model properly, that could be an enormous business, totally transforming manufacturing.

What are the requirements for startups as an investor?

Because we are investing so early, a great founding team is the number one thing. And you’re going to ask me what a great founding team looks like. Founders are 80%.

Then, do the problem that they are solving or trying to solve is really big? Most of the companies that we see are run by good and smart people with great ideas and great insight into the market. But I just don’t believe that the market is big enough to build a really big company. I need to believe that the market is big enough so, that if they can win that, the business will be huge. I’m investing in a company with two people and maybe no revenue. Can it be a billion-pound company?

If you think about our fund, we are going to have 20 companies and over half of them will lose money and 10 companies have to produce £200 million. Do I think it can be at least a hundred million pound company?

Can it be a hundred million pound company? Am I really excited about working with the founders? And if both of those answers are positive, then I would invest.

What do you want to see in the company’s product?

The honest answer is No. Because we’re investing so early, the product inevitably is not going to be the finished product. And again, it comes back to the founder. Do I think the founders can listen to customers’ feedback? Do I think that they can develop what the MVP at the moment may be? It may be very rudimentary, very simple to do, people may already like using it, but are there other things that you could do with that product? Do I believe that the people sitting in front of me can turn that into something really big? Do I believe the family team is capable of doing it? It’s less product and it’s more customer feedback and excitement and the quality of the founding team.

There are also customer interviews when you could pick a phone up and people say: “It’s a nice product. It’s pretty useful, but I wouldn’t invest in that company”. What I want to hear is: “It’s absolutely amazing! Only last week we used it and it helped to reduce our sales time by 25%. In fact, I’m about to tell anyone. I’ve got to move from BP to Shell and the first thing I’m going to do is I’m going to go see my new boss and tell him that I have to start using this product because it’s totally changed the way that we work here”. That’s the sort of level of excitement you want to hear. And that’s less product to me. It’s more how they have really found a real problem and are they capable of help delighting customers. You want delighted customers, not happy customers.

What qualities you are looking for in teams?

Someone says: “I can’t tell you what corruption is, but I know it when I see it”. The same thing is with the founders for me. I need to feel really good about the individuals in the team almost within the first 15-25 minutes of meeting them. I need to get a feeling in my stomach that I’m really excited about working with these people. And the reason why I think that is important is I hope that when the team is hiring the next group of employees, or when they are talking to customers, they need to be the sorts of people that really good potential employees are going to get excited about and the sort of people that really valuable customers are going to get excited about. And if I don’t get excited about these people as individuals, how are they going to convince a fantastic developer to leave the very highly paid job at Google, Revolut, or Deliveroo and come to join a really early startup with no product, no revenue and pretty high risks. They need to be really compelling people. That’s the first thing.

The second thing is, particularly in the B2B space, they need to have a real insight into the problem that they are trying to solve. A great example of that is a business we’ve just invested in that is called riskbook and is a re-insurance marketplace. Both founders have spent at least 10 years in the insurance industry. One is a reinsurance broker and the other one is a reinsurance underwriter. They really understand the problem that they are trying to solve. That is particularly important in B2B and less important in B2C. Maybe, that’s one of the reasons we focus on B2B.

The other thing is also about the founding team. I want to work with people who don’t need my help, but who wants it. I want to work with people who I think will be successful anyway, but who recognize that they don’t know everything and who I think I can help maybe a little bit with knowledge and help them be more successful more quickly. Most of the entrepreneurs I work with are not particularly financially experienced. A lot of them have never run businesses before, done cashflow forecasting, hired people, or managed people before. I love when founders say they can’t do this and that, and that’s really where they need help.

And then I have my final test. I have two daughters. One is 20 and one is 19. I always sit and think about the founding team: would I love one of my daughters to go and work with this team. Do I think they would learn a lot? Do I think it would be an experience that they would come in if they worked for two years for these people, would they learn a lot? It not necessarily would be great fun, because the best founders can be really demanding. But would they come out more experienced and better people? It’s an unusual way of thinking about founders, but I find that helpful.

Investors prefer to work with teams. But have you ever supported a one-person startup or family business?

Yes, I did. And I regretted it. I would never do it again. It comes down to the founder’s ability to attract really good persons. Some founding teams are equal – 50/50, some are 70/30. Huboo is a great example of that. The chief executive of Huboo, who was the founder, identified that he didn’t have all the skills that he needed to build the business he wanted to build. He teamed up with somebody who fills that skillset. And I just think it’s really unusual. I’ve never met a founder who could do absolutely everything. And even if I did, I would still want them to be able to attract really good people. If they are working on their own, there’s no evidence that they are able to do that. I wouldn’t do it.

Speaking about the family business, I think it’s definitely a question you need to talk about with the founding team. If it’s sibling or life partners and they’ve been together for a long time, you could say that they will survive the ups and downs of a rocky relationship. But in the legal agreement, you need to have real clarity as to what will happen if that is not the case and if somebody decides to leave the business or leave the partnership for any reason. You need to be really clear about what happens to the shares, you need to be very clear about what happens to the company going forward.

It is not a red flag, but it’s something we would always want to discuss with the founding team to understand and agree upfront what the routs would be if that relationship didn’t work out. That’s the kind of formal answer to the question.

The reality is, I would say the number one reason for failure in very early-stage startups is founder fall out, or one founder decides he’d rather go and just get a regular job working as a developer at a big established company. This startup thing is too much like hard work and in reality often if a founder team splits up, that makes it really hard to recover from if they split up during the seed stage. If they split up having raised Series B, then if you’ve got enough money and enough resources to replace those skillsets, if the founders fall out with each other six months after you’ve given them a million pounds, which lasts 18 months, you’ve got six months to sort out that relationship between the founders and then six months to make enough progress to raise the next round of funding. It’s pretty difficult.

How big is a check you usually issue?

Our average check is £1 million and we always want to be the lead investor or co-lead investor. We are happy to co-invest with other funds and angel investors whom we think we can help. There are a lot of investors out there who invest in loads and loads of companies and take small stakes. We are at the other end of the spectrum. We want to probably only make eight or nine investments a year and our portfolio is very concentrated. We want to own between 15 and 20% of a company when we first invest in it. And because we have a relatively small portfolio, it means that we can really focus on helping those companies. We have people in the team who helped with hiring. We are big believers that company culture is very important and helping founders when they are a team of two or three, to figure out what do they want the culture of the company to be like. When you’ve got 10, 20, 50, 100, or 250 people, you’ve got to figure that stuff out straight away. That informs every single hire that you make. If you think about Revolut as a company culture, it has a very distinctive company culture. It’s hard riding and very tough. And it works for them because they are very clear about what their company values are. If you get that wrong very early, you can get away with it when there are only 10 people. But when there are 250 people it’s a very difficult thing to manage if you’ve got people with different expectations of what is the company culture.

What percentage of ownership of a company is fair to take for investment?

Our target is 15-20% in the seed round and we will nearly always follow our money into Series A and sometimes follow on into Series B. Normally we are preserving that our ownership stays the same.

What multiplication of your investment do you expect on exit?

We have a £60 million fund which is the current fund that we are investing in. Basically, that means we are going to be investing about £50 million. Our target return for investors is between £180 and £200 million. We want to make three times our investors’ money. We have to find a way of turning £50 million into £200 million that is four times on average. Our assumption is that half the companies will return nothing. Then we need successful companies to be at least 10X and ideally 20X plus.

What is your due diligence procedure and how long does it take you to cover the whole way from the first meeting with founders to contract and check to sign?

Our record is three weeks and three days from the first meeting to money in the bank. The median is about six weeks. And I always say it to myself, to the founders and my partners. If you meet a company on Monday and you absolutely love it, you have the first meeting on Monday, you ought to be able to say, that this is such an exciting opportunity you want everybody to meet them this afternoon. And then you want everybody to meet them again on Tuesday. Then you want the company to give you 10 customers that I can speak to. And that normally takes the longest, because you need to arrange times and references and stuff like that. That’s takes time. The legal staff is so easy. If you all sat together in a room and said no one is leaving until these legals you can do that in 24 hours. There is a lot of wasted time in the whole process. The difficult thing is arranging the customer interviews and the references for the founders. It’s not difficult itself, but it just takes time because it’s not fair to ask customers to change their arrangements just that we can speak to them and founders or so. That’s the thing that normally takes time.

How many projects do you consider per year?

I would say roughly the numbers are about 2,000 proposals a year. About 500 of those are worth meeting and of those probably only about 40 get second meetings. The whole partner group means about 25 of them. Then we make probably 12 offers funding and end up doing 9 or 10 of them. The ones where we offer and don’t complete, it’s nearly always because somebody else is faster, propose higher evaluation or better terms.

How startup teams usually find you? Do you wait for inflow or scout for interesting ideas and perspective teams?

We don’t do any kind of sector research at all. It’s all inbound, but we have relationships with a large group of angel investors who we hope when their angel investments get to a point where they want to raise venture money, that they will introduce to us. As our portfolio grows, more and more of our founders recommend us to other entrepreneurs that they know in their networks. These are probably the two biggest individual sources of good opportunities.

We also have relationships with accelerators, seed camps that are not accelerators, an early-stage investor entrepreneur, First Techstars, all those sorts of places. We see a lot of things from those investors.

Also, we receive a lot of cold emails. In the UK context, if I were an angel investor in a B2B company and that company was trying to raise £1 or £2 million, I would always recommend us plus four or five other investors. I think we all see 80-90% of the investments that get made in that space. That is our sort of internal KPI. What proportion of all the investments they get made between £12 million do we see? And we reckon we see about 85% of them.

I am quite happy that my LinkedIn inbox is permanently full of people who are raising money. 90% of it is not right because it’s outside the UK or it’s B2C, but I’m always happy to get emails from entrepreneurs I know directly.

I read inbound messages personally. I know some firms outsource that stuff. I just think it’s really important to do it by yourself. Our investors are paying us. They’re not paying us a management fee so that I can get a 22-year-old assistant, who has never done any investments in his life to look at things and decide whether something is interesting or not. They pay me to do that. That is the number that is valued. I use Fundstack CRM system.

What conferences do you find really useful?

I think most startup founders attend too many events. Too many early-stage founders are advising other founders. Seriously, they should be focusing on their own company and not helping other people’s companies. They shouldn’t be talking at conferences and other events until they’ve actually built some example of a business. Just build a product that people love, hire fantastic people and maybe once they’ve graduated and they’ve built a decent-sized business, then go to conferences. There are exceptions to that. There are some businesses where you need to do that kind of thing. For example, for guys that touch surgery, it was important for them to go to medical conferences and build credibility in this space. But most businesses spend far too much time doing that sort of startup conferences.

What are your red flags?

There are sometimes red flags when it comes to cap tables or ownership stakes. Particularly in the UK you quite often see university spin-outs, where the university owns 50 or 60% of the company already and the founding team owns only 10% or 20% each before we invest. And you can see in the future the founders will end up with 5% or 6% of the company and there is no incentive for them or the incentives are misaligned. That would be a big red flag for us.

Another red flag is more around founders and the chemistry between them. Typically, the first meeting is with one person and normally with the chief executive. The second and third meetings are with a wider team. If you see a three- or four-person team and you just don’t like the interaction, the chemistry between them, that would be one thing.

And another one for founders is an inability to take constructive criticism. There are ways that you can ask questions to see whether a founder will take feedback and think thoughtfully about feedback and respond thoughtfully. Sometimes some founders basically just say: “No, I think you’re wrong”. And I’m wrong more often than I’m right. That is true. But there are ways of telling people that they are wrong and you could tell people that by explaining something in a different way, rather than just telling people they are wrong. That will be another red flag. In terms of post-investment, at that point there are two extremes: you spend a lot of time with the company helping them, or you spend no time with a company helping them. The reason I would spend no time with a company helping them would be, if I was wrong about the founder in the first place and it transpired after I’ve given them the money that he or she was not responsive, not listening to advice from me or everybody else they were talking to.

I’ve had one experience when employees and ex-employees would contact me and complain about the way they were treated by a founder. That’s only happened once in 10 years of investing in startups, but that was a red flag. And there’s nothing you can do about it because you are a minority investor and the founders control the company quite rightly. All you can do is say: “Listen! You are not listening to me. It’s a waste of your time to even speak to me. It’s a waste of my time to speak to you because you are not listening. Good luck! And let me know if I can help at some point in the future”.

What are the most common areas of weakness in startups?

I think every founder is human. I just don’t think there is one that hit me. In the deep tech space, the question we always ask ourselves is: «Okay, these people are really smart, they have a Ph.D., two Ph.Ds, three Ph.Ds… Can they hire really good people? Those sorts of people can normally attract other really smart technology people. But are they capable to hire really good commercial people? If you’re a professor of quantum computing from Imperial College, the challenge is that you are fantastic in that space and you may understand the problem really well, but you are unlikely to have run a company. Profit and loss, cash flow, forecasting, all that sort of stuff. Those sorts of founders tend to need more help around.

They may not really have hired or managed people before. Managing researchers is a different thing to managing sales forces and commercial people in marketing and all that sort of stuff. Different founders’ weaknesses emerge at different stages of the process of the company. Having a company of 10 people is just enormously different from having 50 people. It’s a totally different way of managing and that sort of stuff. There aren’t as many founders as there are weaknesses and they all have different ones. And that’s one of the great things about what we do. It is at least three parts of psychology and one part of financial.

Have you ever rejected a startup and then regret it?

Do you know Bessemer Venture Partners in the US? Have a look at their website. They have what they call an Anti-Portfolio and there are all the companies they could have invested in but they didn’t. There is a very funny story for each missed deal: Airbnb, Apple, Facebook, Google, Tesla… Of course, they can only do that because the ones that they did invest in were also very successful. I’ve got a very successful auntie portfolio.

Our immediate reaction was we all really liked it. And then the more we thought about it, the more reasons we came up with not to do it. You can always think of reasons not to do something and I think we should have trusted our initial gut instinct about whether to do something. As a group that tends to be our big weakness. If we have a very good collective sense of whether something is worth doing, but the second, the third, the fourth and the fifth time we talk about it, it’s really easy to find reasons not to invest in something. And we were too intellectual about it.

Our first fund is seven years old. Fewer companies have failed than we anticipated. Not as many have failed as I thought would. I think that’s a lot to do with the fact that there is so much money in an early-stage venture. There is always somebody who will give a company another half a million pounds to give it another go and another go. Just because the investment environment has been very positive in startups, particularly in the UK, over the last five or six years, not enough companies have failed. We are far under 50%. There are 25 companies in our first fund. And we’ve had three companies so far where we’ve lost money only. We sold them for less than the cost. And I see no reasons to regret it.

Has your VC approach changed after the COVID-19 started?

The whole way the deal process works has changed because online conversations are not conversations face-to-face and one of the important things, as I’ve said again and again during the interview, is that relationship and that feeling of excitement about founders. And I find that much more difficult to do over a Zoom call than I do face-to-face. That’s on the downside.

From a founder’s point of view, it’s much more efficient. A founder can sit in her or his bedroom and meet eight or nine venture funds in a day. Just have 45-minute meetings, have a 10-minute break for a gin and tonic or glass of vodka, and then have another 45 minutes, another 45 minutes and another one. Whereas in a previous life you have to walk for us in the center of London, Local Globe in East London or Kindred in West London. And you could probably only do three or four meetings a day. Now, if you’ve got the stamina you can do 10 meetings in a day. So, you can do all of those first meetings in two or three days. You’d be pretty tired at the end of it, but it’s a much more efficient process. We’ve all adapted really quickly to the new way of working.

At the same time the conversion rate might become much lower. But let’s think about a founder who is trying to raise a million pounds of venture money. Probably he’s got 30 people in London he needs to talk to raise that money. And 20 of them are going to say No after the first meeting. Because that’s what happens. At least he can make all of those people in two days and then he can focus on the ones who might say Yes.

And certainly, from an investor’s point of view we’ve seen no change in our rate of investment. That’s probably because we’ve got nothing else to do. When you’re in an office and you’re commuting to central London and you waste a lot of time talking to each other or that sort of stuff. If I’m sitting here all day I meet the founder after the founder and I can go. Then we have a Zoom call with the rest of the team and the whole process should be much more efficient.

So, is COVID a threat or opportunity for VC?

Fundamentally, for most of the businesses and most of the tech businesses it’s a great time to be a very early stage company. And that’s because the whole move to adoption of tech which has been happening anyway is accelerating.

Look at e-commerce. We can see the whole acceleration of e-commerce and online shopping of all sorts of things. There are lots of events. The events industry is all going online and there has been a whole load of startups in the events industry that probably would have worked anyway at some point, but it’s just accelerated there.

It’s more difficult in a much bigger business that is four or five years old, where they’ve got maybe $10 million of ARR, 200 employees and they are selling software. We have a business that is selling software into the hotel space. Now it’s pretty difficult to get hotels to answer the phone or sign up for new contracts. Actually, if you’ve raised money and received investment in the last 6-12 months, you are in a really good place. If you are a bit further along up there are challenges because you’ve got a big cost base. You’ve got customers where you need to be selling, again and again, every month and your customers are going to wait a little bit. That’s more difficult. But for an early-stage business, this is a brilliant and amazing time, because everybody is changing the way they are working or thinking about things and that’s an opportunity.

It’s so interesting. I had an inbound last week from somebody whom I’d never met and they had taken it to the next stage. They’d made a video about 12 minutes long. It was basically a video pitch. And they sent it to a hundred people and I will meet them in person next week. A lot of people have said “No, not interested”. That’s a really efficient way of using technology to eliminate all the people who are absolutely not interested instead of spending hours and hours going to see them more. It’s really interesting what’s happening.

Can you name three most breakthrough startups in history?

Alibaba has to be number one. Everyone talks about Amazon, but I think Alibaba makes Amazon look like a corner store in the UK. Cardo is an extraordinary story and it took them a long time to succeed. All of the online travel companies are really interested in booking.com.

Your three advice to founders

My number one advice to founders – be very clear about the solution. When you are talking to investors be really clear about what the problem is you are trying to solve and why you are the right people to solve it. Most of the companies that we see at an early stage are focused a lot on the problem and they spend 10 slides telling about the problem. And then they really explain what the solution is or why they are the best people to solve. It. That would be the number one thing.

The number two thing would be to hire ahead of the growth of your company. When you get to 10 people hire people who are going to be great when you’ve got 50 people, not people who are going to help you get to 12 or 13 people. Hire business leaders earlier than you think you should do, because you need people with experience in hiring and managing 50 people. And hopefully, you’re going to get to 50 people really quickly, but you need to have those people in the business before you start hiring those 50 people. If that makes sense.

And the third thing is, make sure you raise enough money, but don’t raise too much. Raise enough money that you’ve got enough time to make progress. But don’t be tempted to raise too much money because that will inevitably lead to you make spending too much and wasting a lot of money. That is a difficult mistake to come back from. If you’ve raised £10 million at a valuation of £30 million and you waste half of it when you come to fundraiser again, it is really hard. I’ve seen companies fall into this mistake really hard because if you raise money at 30 million two years ago, everybody assumes that you’re going to be raising a 60 million or 70 million or a 100 million this time round. If you haven’t made enough progress to support that valuation, even if you’re a good company, you are not going to raise the money because people look at it and it was 30 two years ago. Why is it only 40 now? Even if 40 is the right number now, it makes you really hard. It is weird investor psychology.

What is your favorite city?

I would like to live in Cape Town. I’ve been there lots of times. It’s my favorite place on Earth.

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About the Author

Roman Bdaitsiiev

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