Warner Philips (Rubio Impact Ventures): Don’t just do it because you think there is a market opportunity, do it because you believe it solves a problem that is close to your heart.
05 Nov, 2021
Daniel Saunders is an Early-Stage Investor and Chief Executive at L Marks. He is a technologist-turned-investor and an experienced advisor in applied innovation. He has worked with dozens of global industry leaders, identifying and implementing pioneering technologies. As a software engineer with an MSc in Computer Science, he was previously at Symbian OS, acquired by Nokia, and Global Research and Consulting, acquired by ICAP plc. For almost 20 years, he has designed, discovered, or integrated the latest technological advances into large complex organizations. Immediately prior to L Marks, Daniel served as Chief of Staff for Economic Development at the Israeli Embassy.
My background is in technology, I’m a software developer by training. I spent a few years in finance, then I worked for the government, before L Marks. So, it was a mix of finance, technology, and collaborative government space as well. Stuart Marks, our Chairman and Founder, is a successful entrepreneur, who has built and sold a number of businesses, the most recent of which he floated on the London Stock Exchange before it was acquired fully by US-based INRIX. L Marks was born out of this frustration of people talking a lot about innovation, about transformation, about change, but very little was actually happening or being implemented. As such, L Marks was born with the mission of making change happen through the collaboration process that we’ve developed, for startups, corporations, and investors to work together to address key themes that would end up making that change and embedding new technologies within large organizations.
Programs that we run are very much about identifying challenges and themes within organizations that are open to disruption or just improvement, and then we try to find startups that can address that theme. Because of that, the majority of the startups we work with are B2B enterprise software companies. There are hundreds and thousands of companies that have come through our programs over the years. Maybe, not actually “exotic,” but I’ve seen many exciting companies. One memorable one was a company in Manchester that we have discovered called Howz, and we invested in them too. It is a company that has that wonderful combination of co-founders: one is a medical expert practitioner while the other is a genius software developer. They came together to develop a way of monitoring energy usage within a home and this data gave them information and insights about the mental health of the occupants. They were able to monitor the energy usage of at-risk customers of EDF and patterns of behavior that could mean that they have some medical conditions. What happened is that people who have this Howz appliance in their homes were able to stay longer in their homes – not having to move to a nursing home, allowing them to live their life usually for longer, using this non-invasive monitoring of their daily activity. Another one we have found in Australia, is called Storekat. What they did was something like Airbnb for garages and people’s personal spaces, which made it possible for individuals to rent garages. We brought them to the UK to refocus on the B2B market, optimise selling of warehouse space and warehouse service and integrating them with Wincanton. Together with Wincanton, they’ve created oneVASTwarehouse, and it is a co-warehousing platform for warehouse space owners and their customers to find each other, to distribute the warehouse space for mutual benefits, lowering costs for customers while increasing warehouse space-filling. More recently, we have seen how our programs can address global priorities. Parsyl joined our Lloyd’s Lab to explore and developed a partnership with Lloyd’s to use its tracking system able to monitor the contents of containers, something very important in the case of highly valuable cargo. When the global coronavirus pandemic hit, Parysl worked with Lloyd’s to develop Syndicate 1796 to ensure the distribution of the COVID-19 vaccine.
We run about 70 programs, we discover globally10,000 startups a year for these programs. As we assess and downselect the most relevant applications, we bring approximately 20 to a pitch day. And then from these, we work with 5 to 10 companies in our 10-week collaboration process. The majority of these companies (72% by our latest statistics) go on to sign commercial agreements with the corporate partner. We’ve invested in approximately 40 companies so far, but the most important is the commercial outcomes from our programs.
We scout for startups to enter our programs. We have a brilliant scouting network finding companies. We’re working very specifically to meet corporate challenges and we scout for companies able to meet those challenges and themes. So, usually, we work with teams we discovered.
Every program is different and has its own criteria, concerning the stage of a startup, its location, etc., etc. I should say that we’re pretty agnostic and we can scout and discover a SaaS with a wide range of functions and applicable industries. In recent times corporations are looking more for new technologies and new solutions that can be rolled out sooner rather than later, so it is not the early-early stage companies, but more Series A and Series B companies coming into our programs, and often even later stage. Still, there are some seed-stage companies coming into our programs as well.
Very global! We have run operations in the UK, the US, Japan, across Europe, Israel, Dubai, and South America. We have startups from 80 countries entering our programs. And especially in this new, more digital world we’re living now, there really is no restriction on location.
It is a very exciting development. Tel Aviv is a big tech hub, and we’ve done work in the UAE in recent years as well. It is a growing region of innovationand very interesting to the venture capital community. I often say, “Collaboration is an accelerant of the change.” This is something I passionately believe in, whether that is startups, corporates, or governments working together – it’s tremendously exciting. We’re really looking forward to seeing how this will develop. In addition, I have friends and colleagues working in the UAE, and I can see more and more startups coming out of the region.
The investments are being made through our programs. I’m a big believer in companies being revenue-generating and profitable as well. Obviously at the very early stage being profitable is a bit challenging. We also believe in people, in founders who are business focused and looking at how they can be generating revenue and profit – and that’s what we are looking into – where the company has a strategy in place, whether they are looking to generate revenue. For our programs, we find companies that are addressing specific market needs, and we know that those companies are looking to tackle those market needs, and then they work with the corporate partner over 10 weeks. They will be testing the technology in live environments, they will be testing their business model. And through all that we’re able to see that this company has got the right business model, they’ve got the right technology solution, and, crucially, the company has got the right team. We look at whether these people have the aptitude and attitude to grow their business. So, we also look at how a company works with a corporate partner and after that, we are able to make our own decision.
That’s a good question, and I’m sure you have a usual answer of 3x or 5x or whatever x. We have several very successful companies we’d invested in long ago, with 20x, 30x, or 40x, at least on paper, but 3x to 5x is quite enough for us.
We don’t care. We do have some companies where we have a significant stake, but actually, we’re not want to take control, we want to add value. It doesn’t matter to us whether we have a small portion of the company or the larger portion. We are much more about making our investment meaningful and see a company grow. We don’t want to have a majority share.
At the first round, founders shouldn’t give away more than 15-20% of the company. We had taken as low as 1% for our investments and usually, we’re looking up to a maximum of 5%.
There are a various qualities we try and look for. Obviously, you want to have a smart team – a team that’s got the brains behind them to actually develop the software or build their product. But it is also about having realism and understanding about business modelling as well, not just technology. And it’s also about the idea I’ve mentioned before, about collaboration as a driver of change: I believe that teams need to have humility. I like teams that haven’t got all the answers and they are willing to adapt their product for the right customer, they’re going to make changes and listen to advise from other people. I certainly haven’t got all the answers, and I know that my portfolio teams haven’t got all the answers and that working together we should, hopefully, find them, and listen to other advisors. That’s an important key. And they need to have aptitude and attitude – the aptitude to perform and attitude of being open to working with people as well. When we get to sit and work with these people, we see how they can get on with other people and can scale a business in a positive way.
We’ve invested in the companies with solo founders who founded their companies alone but they build a team around them. I’d never invested in just one person by himself. It’s great to have a team of founders, but is doesn’t always have to be the case as long as it is an individual founder with a good team around him or her.
Well starting off with that I’ve never met either of them, but I probably say the latter, if I have to make a decision. Obviously, Steve Jobs was an incredible individual, and to be an investor in him would be an amazing financial decision, but, I think, he wouldn’t be the easiest person to work with. Definitely, it’s based on what I’ve heard and read, so I don’t really know what either of their personalities were like.
Arrogance. Someone who believes that they know exact answers to everything and they insist they are always right – that’s definitely not the way to build a company. Another is about financial models if it is someone who believes that they can build a company by raising money as opposed to making money. I always look at how are they going to be generating money and do they actually have the right sort of business model to do so, or it is just about raising money to get to the next round of raising money. Another thing is do they have a problem for a solution or do they have a solution to a problem? It’s about ensuring they are not just building something unnecessary but have an understanding of the challenges in the market, what are the opportunities, and then what to build to address this problem.
I haven’t ever rejected a company and then regretted it, but I have acted not fast enough on the investment and missed it. And I regret that I didn’t move fast enough or spent too much time on due diligence on a couple of occasions.
Never is a very strong word. We only look to invest in areas where we feel we can add value. So therefore this does preclude us from industries where we do not have the experience nor connections. In addition, we need to always look at the timeline of when we would expect to see a return in our investment. For that reason one industry I don’t see us investing in is the pharmaceutical space where the initial capital required and time to exit is too large for us.
It is both. From a people perspective, it’s a very concerning situation, and we’re seeing how people’s alliances are being disrupted – not by the virus itself, but with how we’re dealing with it. I’ve seen companies that have fallen, failed during COVID, they were companies built on a business model on how the world was operating before. Companies that were building solutions for the communities, which has also changed, have failed. Companies that were building their business on raising money and not on generating revenue, as I said, also failed, because people are looking at making more intelligent investments now. On the positive side, it is a time of opportunity for companies building sustainable business models to grow in this environment. Companies like Parsyl, that I’ve mentioned earlier, which is doing tracking on cargo, built something for the COVID world with Lloyd’s. We’ve invested in Qudini which has a booking in the queue management system which is become so relevant to ensure retail remains safe and practical during the pandemic. The pandemic is obviously a threat, but for the right company with the right attitude, able to change their business model and adapt, it’s a huge opportunity. For VCs, it’s about being smart to do investments and looking for the right team with the right humility, able to adapt to this new environment. If you look back 10-12 years, there was a huge market crash, in which whole industries suffered. But you’ll also see iPhones, Uber, AirbnB – a lot of companies that are at your home screen now. All these companies came out since the crash. This time it is going to be the same opportunity for the new companies.
Not exactly startups, but the three areas I would focus on are from the past 100 years:
The modern computer age of the 20th century, spawned during WWII and the birth of computer science by Alan Turing set the stage of where we are today.
With air travel, humanity literally was given a new perspective of the world. The turn of the 20th century saw the Wright brothers inaugural flight. But it wasn’t until decades later than international air travel became possible. The creation of the Jumbo Jet – the now retired 747 – made international travel become the norm, the world became smaller, and it heralded in a new way of living and working. Finally, the creation of the smartphone truly enabled a world of mobile computing. I started my professional life at Symbian which powered the forerunners of smartphones today. And of course, Apple’s creation of the iPhone in 2007 change the way we look at smartphones and brought about the birth of the new industries we see today in this space
I’ll say Kodak. They have returned in a new form, and now even producing pharmaceutical materials in response to COVID. . Kodak was the global leader in photography And they invented the digital camera, but they chose not to make it mainstream because it would damage the revenue of their film business. It was a company that had an opportunity to change the market, but they chose to stick with how they’ve used to work. They are a fantastic example to the world that if you don’t take charge and innovate, you will ultimately fall behind those that do.
I love what I do – it’s very exciting, and I’m very fortunate to be able to do it as well. I’m seeing startups not just growing and making changes in their industries, but also corporations changing over time, not what they’re doing, but how they’re doing it, and how they’re working. Within these large, old organizations, such as Lloyd’s, which is more than 300 years old, we have witnssed the cultural innovations growing inside them. I’m very very fortunate to be in the position where I’m seeing such great amounts of change. I don’t see any change for me personally in the near future, because I love to do what I do.
It’s having the ability to have foresight, the ability to look at an opportunity and see where it can go. It is a skill, it’s one which you have to have a lot of imagination and a lot of understanding of what’s going on in the industry as a whole and how things can move. It’s also having that empathy, the ability to find the right founders and then to work with them, to understand what it’s like to be a founder. I think, some of the best investors are those have been founders or entrepreneurs or CEOs themselves, who know what it’s like to run a business in different environments and who can support fellow entrepreneurs. A good VC is not one giving money and retiring – they should be there supporting their portfolio. Also, you should be really understanding what you’re investing in, how that industry operates, and what you can do to it.
I’m not sure about any of these games, however the VC business a team sport. It’s not one against another – it’s a team sport where you are all working together to reach a common goal, something like football. Every team member has different skills, everyone knows what their roles are and where they should be at a certain time, it is about passing the ball to the right players at the right time. It’s about bringing the team together and working together for a common goal.
I grew up in London, I’ve studied in Birmingham, at the University there. L Marks was founded in Manchester, and Edinburgh is incredible. But if I have to mention one, I’ll say some of the intelligence that is coming out of Cambridge is incredible, and I would love to see that develops over time.
Build a strong team around you – innovation cannot exist in isolation. Make sure that, whatever you’re building, you’re doing it in a collaborative way, make sure that you’re addressing the market that really needs it; take constant feedback from everyone and everything, constantly test, constantly change, constantly pivot, constantly look at what you’re doing. I guess, the final thing is – make sure that you keep your passion for what you’re doing. It can be very very hard, being a founder, you’re going to face lots of challenges – keep your eye on what would your goal is all the time, on what you’re trying to create, what you’re going to change. Having that vision, having the support around you, knowing that you can constantly change what you’re doing to get there – that what will keep you going.