Emanuele Levi (360 Capital Partners): Our history of finding successful companies that we have been able to support since their very early days and have worked with for many years speaks for itself
08 Oct, 2021
Nick Kingsbury is Partner at Amadeus Capital Partners since 2018. His current investment focus is on cyber security, artificial intelligence and B2B software businesses. Nick started his career with a UK software house before setting up his own software and consultancy company sold to Staffware in 1996. From 1999 to 2007 he moved to the investor side of the table as Global Sector Head for Software for 3i plc. Since 2007 he has advised and invested in several technology companies including two public companies, Accumuli and Objective Corporation where he remains a director.
I spent most of my career actually on the other side of fence: I was a software engineer when I left University. Then I set up my own company and I run it for about 12 years. It was a software and consulting business. We sold that in the mid-90’s to a UK software company. I stand there for 3 years, and that group grew very rapidly, went for IPO. That was Staffware, ultimately it was sold to TIBCO for a couple of hundred millions. It was very exciting. When I left Staffware, I was looking around and thinking that I was going to start another business, but I saw a job advertised with 3i Group; at the time they were the largest VC in Europe. And I thought, that sounds quite interesting and while I’m thinking about what business I’m going to start, I can spend a few months with 3i. I haven’t got an MBA and I thought that working for 3i would be a well-paid MBA. I took the job expecting to stay there for 12-18 months, but it was almost 8 years. A sort of jumped over the fence at that point in 1999 into the investment world. My role at 3i was a sector head for the software industry. At the time 3i got offices all across Europe, in the most capitals, also in the West and East coasts of the United States and Singapore for coming Asia – more than 150 investors worldwide. I provided some strategy and communication around software investing. After I left, I did some Angel investment for a while, helped out with another VC fund, C5 Capital, focused on cyber security, became a board member for a few companies, and then one of the founders of Amadeus invited me in for a coffee. I’ve got surprised that she’s asking if I’ve interested in joining the firm. I thought it was a fantastic opportunity, so I jumped in it.
I was in the board of a business called Loot which was a near bank targeting students. I met the founder when it was just him co-founder, and a PowerPoint deck. We raised about $13M in total and it had about 50,000 active accounts. I loved the business, I loved the CEO. Unfortunately, I think, we’ve been just a little bit late to the party. Also we’re approached from one of the high street banks to acquire the business and that distracted everybody. But in terms of the business that was fantastic for several years and a great fun to work with the team.
It’s both. I get a steady flow of firm business plans. To send a plan through cold contact is always going to be really hard and it has to be truly exceptional to catch my eye. It’s much easier if it’s some sort of connection with the VC, whether we know people mutually or whatever. To have a recommendation is far more effective. I do get approaches – and many approaches, probably 1 or 2 or 3 a day, but that’s a hard road. If there is any introduction, I would take it more seriously and spend a little more time on it. As well I do spend some time in outreach, looking for a interesting businesses. It’s quite hard to find businesses if they’re not fundraised, especially now, in COVID days, when there is no conferences and you don’t get the same sort of serendipity of bumping into the people up at a coffee table. There are lots of accelerators that are doing really good job of both developing propositions and businesses but also providing showcases for investors. I’m very keen to participate in those.
One of the mistakes a lot of entrepreneurs make is that what you’re trying to do with the first engagement with an investor or customer is trying to get them excited about what you’re doing. That’s not necessarily about how clever the platform or the team is. You have to tell a story about how this piece of technology is going to improve the lives of the target customers. It’s that story that gets people excited. You might tell it and why it makes sense. That storytelling is really important, not just a matter of reciting the facts about the business. Also, entrepreneurs are often proud of their businesses, but they need to explain everything about the businesses. And what you’re trying to do is excite the audience efficiently enough that the audience wants to have a more detailed session with you.
It ia a combination of 4 key factors. The first is the uniqueness of the solution or the technology. Amadeus is a DeepTech investor, so we do like things with solid IP and outstanding technical teams behind the product. Then we look at the market size and is this solving a problem large enough. If successful, can we build a really large business solving this problem? The third piece is around the team, of course: we look at the individuals, their energy and the drive, their backgrounds. Also, if we’re going to invest in this business, I’m going to spend 5-7 years with these people, speaking with them a few times a week, so the relationships with an entrepreneur is critical. We invest in early-stage, seeds and Series A, so we want to get involved and help the businesses. And the fourth thing is how plausible the team is at connecting with potential customers. If it’s a B2B type proposition, will this team be convincing the hard-nosed business buyer from a corporation that they might be trying selling to. You can get quite bright enthusiastic entrepreneurs, but be not sure that this is going to play out well when they actually go to corporate customers and find how difficult procurement is to deal with them; it is about customer empathy and connectedness, how convincing are these people going to be when they engage with the target customers.
Personally it’s, at least, 300-400 going through the business plan. The vast majority of those results are sending a note back saying this isn’t for us, and I always give reasons as to why not, could it be because of the stage, or too busy space, etc. If it looks like there’s something here then we make a 45 minute call, when an entrepreneur can explain the business and I can get to know the entrepreneur to degree and figure out whether is this something I want take forward. So if I’m seeing 10+ businesses plans per week, I probably take 4 or 5 presentations. There’s, probably, in the course of a year, I will take seriously 15 or 20 – that I’ll have a number of calls with the with the management team and they hit my list of deals I’m actually working on. And then I’ll do a couple of deals a year.
I’m a software guy by background and tend to gravitate towards software places. Historically I’ve done quite a bit of deal in Fintech. My first deal with Amadeus was B2B software, called DirectID which is focused on using open banking standards in data for enhanced identity verification. What I saw there was a great team, they had good early traction, and the market was absolutely exploding – and it is. I’ve done a lot over the years in Cyber Security (I guess, DirectID also can be put into that bucket). Now I’m looking at another deal which is another cryptography proposition – security B2B software, the company called brytlyt. They have a next-generation database that runs on GPUs, and that’s the fastest SQL database on the planet. I think they have some absolutely unique IP that is allowing them to get the step-change in performance. So, they passed the test of unique IP, the management team is very very strong technically, they have a great technical team back in Poland to backup the UK-based office. And, of course, with the explosion in data everywhere and in every way, so we can see that the ability to do real-time analytics will face increasing market demand. I’ve looked at many AI propositions, typically B2B solutions. These days you have to be quite careful, because most businesses use AI to some degree, and you need to look for something really unique and solving a problem in a different and better way. One of my recent investments is in Altana; they take data about global physical trade from many many sources, mash it all together, and do very sophisticated entity resolution and provide a knowledge graph on global trade, both for enterprises wanting to do supply chain risk assessments and also to government and border agencies looking to check whether the right customs duties have been paid on consignment. Having looked at the technology I came to the conclusion that the tech was quite exceptional in the way they architected it by collecting all the different data together and making it searchable. Also, I did straight slightly with an investment in a fantastic company called XYZ Reality: it’s an augmented reality helmet for construction with ultra-high precision. Most augmented reality is great but it doesn’t give you millimeter accuracy, and this one does, and when you’re on a building site you can see the world around and also a hologram of what should be built in front of you, like pipework that needs to be put in the right place. It’s a real game-changer for the construction industry.
We focus on seed and early Series A. Typically we like to see some sort of a product that’s working and in use with customers – it can be 1 or 2 customers or 10 or 20. Still, my colleagues invest in companies that don’t have a product and don’t have customers yet, like quantum technologies which is far away from having customers, but is a fabulous proposition for us. We’re investing from £0.5M to £2M of the initial investment, normally alongside other investors and normally we don’t have to lead investments rounds.
I’m a part of the fifth Amadeus early stage fund, that is focused principally on the UK. We do stray outside the UK, if there’s a really good reason. It may be an exceptional management team where for some reason the connection with the UK could be established, like customers in UK or plans to put the team in the UK. We have done 3 non-UK investments – in Spain, Paris, and in New York. I do look at opportunities that are coming from the US, but you always go ask a question, “Why have you picked the US business?” In the case when we invested in the New York business, we had a very close connection with the senior team, they hadn’t raised institutional funds, and we got in before they gone out for an institution round. That’s why we knew why there wasn’t any local investors in this business yet.
It’s really hard to invest in a short period of time, if you meet the founders for the first time. So, in most situations the answer is several months. There are exceptions. and it’s around the connections we might have to the team. In the US example it was, probably, 3 months, because we had that connection. It was an intensive process, as we knew we need to move quickly because we cannot preempted a wider funding round. I was leading that one so I had technical sessions, commercial sessions, went through the finances – all that was crammed into a fortnight. The legal instrument we’re using was safe note, so there wasn’t a usual lawyer wrangling to go on, and the whole process was probably 3 months. If there isn’t a connection, we need to get to know each other, and it’s hard to do over compressed time frame, particularly at COVID era. This week I’m going to meet a team who I started speaking to half a year ago, and I would have to catch up with them because I like what they’re doing and it’s an opportunity for me to see how they have progressed since we spoke, how good they are in meeting their own plans. Staying close to business you get to know the people, you get to see how they operate, what they’re doing, is that working or not in the marketplace. We were first engaged with a cryptography business, I think, in February and are going to complete this investment by the end of November (this interview was taken in early November of 2020).
Because we’re investing early and we’re investing in big technology and propositions with unique technology in large markets, that should give us the opportunity to get substantial outcomes for the successful businesses. We would like to see the potential for a 10X-20X returns or more.
When we’re going to investment opportunities, there are 2 things I look for. One is what’s our share is going to be, and we like to have at least 10% and ideally 15-20%, because we’re going to get involved and not going to be a passive investor, so we do want to make sure that we have an appropriate amount of equity in the business. The second thing is – I look at the management team and I want to make sure the management team has a good incentive. They should feel like this is their business, and when there is a successful outcome that they benefit from it. That’s really important. When you come into a business where one of the managers has a very low percentage, you have to figure out what’s happened and you’re going to make sure, if that person is really important, that you may keep him or her in a team, like giving a really good option package to take them back up to somewhere where they should be. You have to be careful about situations where the founding partners had left the business and still hold a significant equity, it may be uncomfortable. When we get involved, there’s going to be another 5 to 7 years of hard work, and you want people to benefit from that. When things go well, everyone is celebrating, and if things not going quite, everyone puts their shoulders to the wheel.
When you are looking at the founding team, you’re thinking, “Can these people do the job that’s required?” You need somebody running a business, someone building a technology, somebody selling to a customer at the marketplace. You’re also looking for ability to tell a story and excite their audience around the proposition, because it is incredibly important. It’s not just about raising funding (that’s the least of your worries), it’s around getting customers excited and bringing in the best possible hirers to the business. To do that you have to inspire the candidates and get that message across that this is seriously cool proposition, so whoever you talking to me thinks, “Wow, I wouldn’t be bothered!”
Yes. It’s always a little bit of a worry, and quite quickly you need to make sure you hire the right people around that individual. You’ve got to work really hard with an entrepreneur to make sure as you filled out the team and have people who are capable of operating the business if they’re not around. Everyone needs to take a break from time to time, and if you’re the only one who can make decisions, it’s the bad place to be. I think only if this person can Inspire fantastic people to join them on the journey and build a team over time.
To work with Steve Jobs would have been incredibly difficult. If you like on the day today how would your life be easiest? It’s probably would be with Steve Wozniak. Ultimately, Steve Jobs was a stupendous leader – in the same way as Elon Musk and incredibly difficult to work with at times as well. But he has such a committed vision, as Jobs did, that one way or another these guys are going to succeed. I think the simple answer is Jobs, but it would be very uncomfortable.
The team dynamics and is one of the issues with the COVID era. If you have got a team at the meeting, rather than only a founder, you look at the team dynamics, how does the CEO lets his management team speak, and does the CEO lets the others do their piece. It’s a danger that if the CEO is overbearing, the managers get frustrated or CEO will end up hiring sub-standard managers. You want to see a CEO who encourages the voice of the people around him or her. That’s a sort of a red flag and I’ve seen that tensions within the team. Another red flag is when you’ve got in a hot new space, hot new tech, like blockchain or quantum computing, you can get so tied up with this new tech that you forget what are you trying to do, what problem to solve. You’re throwing in technologies because they are cool, not because it is solving a business problem in a profoundly better way – it is better, it is faster, it is cheaper. Sometimes, when we ask, “Why do you think you’re going to be doing 5 million a revenue in 3 years,” we hear the answer, “We’ll hire 5 salespeople and each of them will sell off a million.” But the world is very different, and selling is incredibly hard, particularly for early-stage B2B business. You do have to have a well-thought-out plan. Just because your business works in a spreadsheet, it does not mean that it is guaranteed to work in real life. That’s the other issue.
Yes. Once I was involved in putting a syndicate together to a business and we were told that the round was going to be a certain size, something like a £1M. I was putting £300K in it, and the total round was about £450K, so my bid looked a little bit silly. I took it back, and the business was doing very well. I have regretted that I didn’t have enough confidence in the time. But this is a part of the game: I rejected some fantastic businesses and some of them go onto be stupendously good – I’ve just perceived it not be right for us at this point in time. The other challenge when looking at business is that sometimes VCs get a bad name for being unresponsive.
I would have said “construction,” because it’s so so game-changing. The reason I’m nervous about construction generally is that it is an industry that is project based, so you can pick the largest construction company in the country and in 3 years they’ve got no work, because all their products are finished. They tend to be a little short in terms of investing in technologies. I don’t like businesses at selling SMEs because I think it’s a hard work and the customer is not technically literate too often and it takes quite a bit of time, but when you do get the deal, its value isn’t worth that much.
Not really. If there’s a proposition selling into the Travel and Hospitality industries, unfortunately, I won’t touch it, because I think travels can be challenging for many years – not for months. What we are seeing is an acceleration of digitization of business processes and processes used by businesses to engage with their customers. In terms of B2B, I’m relaxed. There is a couple of other perspectives. At the end of the day, we’re investing for 5-6-7-8 years, so the fact that we may have some turbulence for a few months is a little bit of a blip. When we look at the portfolio (and we did portfolio review very early on in the COVID time), it was one company that was badly affected, but the vast majority was rather unaffected. Something like 2 or 3 companies more were affected in the short-term because they had labs and production facilities, but all of those are reopened now. We take a long-term view, and COVID is less relevant in that sense. The other factor is getting to know the management team, and that is harder in COVID, and while Zoom is fantastic, it’s less good in observing team dynamics, subtle human behaviors. Usually, I go to the company, meet the team, and hang around with these people – I get a feel for the business. Given that we so focused on the UK, it is still possible to meet up. Now my colleagues meet the management teams in the park and go for a stroll which is a great approach. Anyway, we were for business with a number of deals over the last few months and continue to invest very actively.
I have to put ARM as the whole model where you don’t have to fabricate your own chips, just design them and get somebody else to make them, was a ground-breaking innovation. You should add Intel here as well. I had to say Tesla and its totally radical approach to building cars, vertically integrated, having a structural advantage over many of their competitors. I hadn’t seen a profound advantage of a software company over the years.
The biotech company Theranos that was a complete fraud.
I set up my own company, and building that business was an incredible buzz and gave me incredible personal satisfaction: aside from family things, it was the greatest point in my career. What I’m doing now is a sort of doing that by proxy: working with early-stage companies, and you get involved in half a dozen of them, helping them building fantastic businesses is incredibly exciting. I get a great buzz from that. Before I joined Amadeus I was doing that, I was mentoring early-stage businesses, did some Angel investing – it is a drug I’m addicted to. I’m struggling to see my talents been used on other things. It’s also hugely important for the country and for the economy because we work with innovative technology businesses that will make a real difference.
I think the analogy is stronger with card games. In chess, everyone starts with the same pieces, and it’s not the case here. With businesses, you have a hand up to you, and you have to play it as well as work in the course of the game to acquire the right cards, so when the time comes you can play that card to your advantage. Talk about management team: they say that you better invest in an A-Class management team with a B-Class proposition, then vise versa, because the A-Class management team can improve the proposition, as the really really good player can do with his or her cards, improving initial hand and using it effectively as the game goes on and hopefully get the stamp so yes you want to have a hand. If you haven’t got a hand full of aces, you still can win, if you’re a nice player.
The first thing: Be able to rise above the day today and the business and to see the business as others will see it – customers, investors, etc. Take a long-term view of the business and what you’re doing. We all tend to get consumed with short-term events, so make sure you have a high-level perspective. It comes back to what are we doing here, to the storytelling, and what is the fundamental problem we’re solving. If that gets damaged by your day-to-day struggles, you’re going to lose a lot along the way. The second thing is: Try to hire people that are better and smarter than you. Insecure managers tend to hire people who can’t challenge them, and that’s a road to mediocrity. The third thing is: In the tech world and the startup world everybody is obsessed with funding and how much you raised. You can have a very successful business that’s worth a lot of money, but don’t raise much. I’m on a board of Australian company Objective Corporation which is quoted in the Australian stock exchange. When I got involved, it was like AUD50M, now it is AUD1.2B. The CEO owns over 66% of it because he didn’t raise a lot of money over the years. You can build a business without raising external money and still be incredibly successful. Obsession about fundraising tends to make you think not so much about building revenues and having profitability. If you can achieve profitability, then you’ve got your destiny in your own hands. If you’re not possible you’ll always be beholden to investors.