The Exchanges

Q Absolutely, and, and that led you into funding itself, did it?

A It did, and, and so just to, um, Talk through that part of the journey. So when I, when I'd sold smarts, it's, you know, it's not an obvious thing. There's no obvious next career step when you, when you build a business and sold one. Um, I mean, sometimes you might think that you would just start another business, but that's, you need the, the right combination of opportunity and people and, and, and so on. So the first thing I did was get involved with something called seed camp, um, which is a program, like an accelerator program here in London. And seed camp is very good at getting companies, particularly from, Kind of the far outreaches of Europe and bringing them into London and helping them get funded and mentored on, on the way to success. And I invested in seed camp as an investor. I also got involved with the mentoring and through the seed camp program, I got to first of all, see a lot of very exciting companies, but also to meet my two business partners, Bo and Anton. And we just found ourselves, uh, first of all, just talking about the same deals and kind of sharing views on opportunity on deals that we could do. And we ended up setting up a vehicle called Charlotte Street, um, which over the years, we, you know, we've, we've done quite a lot of investing. We've had some successes, and we, we now find ourselves probably actively making five or six investments a year,…

AI assessment note: “It did, and, and so just to, um, Talk through that part of the journey.”

Q And, and when investing in a startup, do you have a clear timeline in your head of when you, a desired exit is, or, or is that not at the forefront of your mind when investing? Do you have that strategic plan or, or not?

A That's a good question, and the answer is, is we've got a very, I'll give you a very clear answer, and I think it's probably the right answer for this, um, stage in the company's life, um, and that is no, we don't. And I think, um, it's quite different if you're investing, um, Later stage, if you're investing, say, in a private equity opportunity, then the amount of time it's going to take you to make that opportunity pay off is very important, because every extra year eats into your annual return, your IRR. So if you take five years rather than three years, then you've, you have a much, um, you know, your return to your investors is much lower. And so when you talk, look at that opportunity, you work out how quickly you can, you know, Get into the company, change the management, do whatever you want to do, and flip the thing. In early stage, that's not the case, and it would be the, um, it would be the wrong thing to have any, I mean, we don't spend time looking at spreadsheets and projections. We don't spend time looking at potential acquirers or exit plans. What we like to look for is, is, is the opportunity. So the people, um, we, you know, whoever it is who's running the company, we, it's the key thing is that we like them, that we get on with them, And that we believe that they, um, they're the right people for this opportunity. Um, I think the market they're operating in…

AI assessment note: “and that is no, we don't.”

Q Absolutely, and, and that led you into funding itself, did it?

A It did, and, and so just to, um, Talk through that part of the journey. So when I, when I'd sold smarts, it's, you know, it's not an obvious thing. There's no obvious next career step when you, when you build a business and sold one. Um, I mean, sometimes you might think that you would just start another business, but that's, you need the, the right combination of opportunity and people and, and, and so on. So the first thing I did was get involved with something called seed camp, um, which is a program, like an accelerator program here in London. And seed camp is very good at getting companies, particularly from, Kind of the far outreaches of Europe and bringing them into London and helping them get funded and mentored on, on the way to success. And I invested in seed camp as an investor. I also got involved with the mentoring and through the seed camp program, I got to first of all, see a lot of very exciting companies, but also to meet my two business partners, Bo and Anton. And we just found ourselves, uh, first of all, just talking about the same deals and kind of sharing views on opportunity on deals that we could do. And we ended up setting up a vehicle called Charlotte Street, um, which over the years, we, you know, we've, we've done quite a lot of investing. We've had some successes, and we, we now find ourselves probably actively making five or six investments a year,…

AI assessment note: “It did, and, and so just to, um, Talk through that part”

Q How would you personally value a startup? Do you have a metric that you specifically look at or, or is it?

A Yeah, there's, um, this is, this is not original to me, but when you're in the early stage worlds, um, which is the really early stage world, uh, you know, valuation is, is a bit of a distraction, and, and probably the right way to think about it, and this is what, um, early stage investors should do, is to first of all say, well, how much money does this company need to move to the next, to the next measurable step, and secondly, how much of the company do I, as the investor, need to own in order to, um, to care, um, And those two numbers might tell you that the company needs 250,000 pounds and I need to own 10%, in which case the valuation you can work out is something like two and a half million. So that sort of way of thinking, I think, works in early stage. Once you get a bit more mature, then there are, you know, there are ways of valuing SaaS companies and so on that have, um, cost of acquiring customers and market size and lifetime value of the customer. You can use these metrics to, to value businesses which, um, Um, you know, which have enough evidence and conform to those sort of models.

AI assessment note: “how much money does this company need to move to the next, to the next measurable step”

Q there's a lot of fanfare, and it's quite good to get a, a genuine perspective. Um, and, and moving off then in a slightly different direction, if, if a graduate came to you straight out of university and said, Thomas, I really want to become a VC, I've got all the qualities that I feel are necessary, how, how can I get into the industry? What would you advise them?

A I'd probably say start a business, because I think starting a business is, I mean, being in the VC world is about new businesses. I think even if you viewed it purely as a exercise in learning, um, you would learn an awful lot. I think it's the right way anyway, though, you know, Starting a new business when you're young and, and you don't have a huge amount of cost of living, you know, your, your lifestyle can be, you can throw yourself into it. I think, you know, you have the opportunity to bring the latest technology to, you know, whatever problems the world is currently facing, um, whatever business problems the world is currently facing. So that's an opportunity which young people have, uh, implicitly because you know the latest tech just by, by kind of being around it. And you've got the, the bandwidth to, to, to give it a go. So I'm a big fan of just starting a business. If that means getting involved in a, a program like Entrepreneur First, uh, or Seed Camp or Techstars, then that's good. Um, but you don't necessarily need to do that if you can, if you can just get going by yourself with, but you know, find, find some like-minded, um, co-founders. Don't do it completely by yourself. That would be my advice. Um, I think there's other routes you can take to becoming, uh, Uh, a veg capitalist, but I think that's the one which I'd recommend.

AI assessment note: “I'd probably say start a business, because I think starting a business is”

Q And, and when investing in a startup, do you have a clear timeline in your head of when you, a desired exit is, or, or is that not at the forefront of your mind when investing? Do you have that strategic plan or, or not?

A That's a good question, and the answer is, is we've got a very, I'll give you a very clear answer, and I think it's probably the right answer for this, um, stage in the company's life, um, and that is no, we don't. And I think, um, it's quite different if you're investing, um, Later stage, if you're investing, say, in a private equity opportunity, then the amount of time it's going to take you to make that opportunity pay off is very important, because every extra year eats into your annual return, your IRR. So if you take five years rather than three years, then you've, you have a much, um, you know, your return to your investors is much lower. And so when you talk, look at that opportunity, you work out how quickly you can, you know, Get into the company, change the management, do whatever you want to do, and flip the thing. In early stage, that's not the case, and it would be the, um, it would be the wrong thing to have any, I mean, we don't spend time looking at spreadsheets and projections. We don't spend time looking at potential acquirers or exit plans. What we like to look for is, is, is the opportunity. So the people, um, we, you know, whoever it is who's running the company, we, it's the key thing is that we like them, that we get on with them, And that we believe that they, um, they're the right people for this opportunity. Um, I think the market they're operating in…

AI assessment note: “and that is no, we don't.”

Q Absolutely the team. Ok. And, and on your own investment strategy, when it comes to investing in a startup yourself, what is it that really gets you excited about the company?

A Yeah, well, as you, I mean, it is the team, so it's, it's the people, um, it's their, it's their passion for the area that they're in, because if someone's passionate about an area, as in they, they, you know, they've discovered something, or they're working somewhere that they just want to stay in, then they will find the right opportunity eventually in that area, if it's there to be found. So I think we like, first of all, them to be people that we feel that we can work with, but also that they are, they're operating in a space that they know, Um, and they know it because they like it and care about it, and those things, it's a virtuous cycle, because as the years pass, the business that they're trying to build, um, has got a good chance of success. If they don't have a natural, if they don't naturally belong in the market they're operating in, then That's a bigger risk, and probably not one that we'd want to take, because the risk of them getting bored, even, is, you know, is material.

AI assessment note: “it is the team, so it's, it's the people, um, it's their, it's their passion”

Q And the relationship between VC and founder is often quite talked about, um, and what side do you fall on? Do you fall on the, it's better to have a professional relationship, or would you rather go out for beers with them at the end of the day?

A I think you can, I mean, you know, in my old life when I was selling software to, to stock exchanges, you know, we had a very formal, legal, professional relationship, and once or twice, you know, that that relationship would get strained, or the, or the, we never kind of got, got to an extremely bad situation, but it was always, it's, it's, it's a commercial relationship. There's, there's, there's two different sides, two different perspectives, often different interests, but at the same time, It's very important, even in that situation, to have a beer with the people you're working with, because that's, that's when you get a chance to kind of, you know, hear your grievances, and also understand the other, other person's point of view sometimes better. So I think in any situation, a professional relationship can sit alongside a, um, a social one, but in, in our particular part of VC, we're, we're at the early stage. So the, the later stage VCs will, um, Potentially have quite aggressive agreements with their companies with lots of, um, you know, first rights to any, to any income or to any, uh, proceeds at their disposal, um, you know, conditions that the company, tying the company down, what they can do, rights to step in if the company's not delivering. It can, it can get quite contractual, and that's fine and appropriate later, later on. We invest earlier on than that, and …

AI assessment note: “a professional relationship can sit alongside a, um, a social one”

Q And, and funding methods themselves have changed rapidly since 2008. Um, Um, we've seen the rise of crowdfunding, um, and one of your portfolio companies, Chilango, recently raised funds through Crowdcube. How do you see the crowd becoming more involved with the future of early stage funding?

A Yeah, I mean, it's a good question. Look, honestly, if I'm raising money, um, so if I'm the one selling the equity, um, especially if I have a retail product, and I'm, and I'm happy that that product is mature enough to, you know, To, to be really pushed out into the market. If those things are all true, then I'm quite a fan of, of, of crowdfunding, because I think the price that you will get for your equity will be high, as in you get a good valuation. I think the marketing that you get by using a platform, um, which I think in a number of cases, you know, has been very helpful, helpful to companies. I think that, that's a good thing, and I think it also creates a A set of, kind of, champions of your company, so people who own those shares. Um, so that's, I guess, that's a good thing. I think, though, as an investment, um, vehicle, as in, if people are thinking about this as an investment, I think it's probably going to end in tears, because early stage investing takes a long time, uh, and that doesn't mean a few years. It means, sort of, five years, six years, 10 years. I mean, companies take a long time to actually, an overnight success takes a long time.

AI assessment note: “I think, though, as an investment, um, vehicle... it's probably going to end in tears”

Q Absolutely the team. Ok. And, and on your own investment strategy, when it comes to investing in a startup yourself, what is it that really gets you excited about the company?

A Yeah, well, as you, I mean, it is the team, so it's, it's the people, um, it's their, it's their passion for the area that they're in, because if someone's passionate about an area, as in they, they, you know, they've discovered something, or they're working somewhere that they just want to stay in, then they will find the right opportunity eventually in that area, if it's there to be found. So I think we like, first of all, them to be people that we feel that we can work with, but also that they are, they're operating in a space that they know, Um, and they know it because they like it and care about it, and those things, it's a virtuous cycle, because as the years pass, the business that they're trying to build, um, has got a good chance of success. If they don't have a natural, if they don't naturally belong in the market they're operating in, then That's a bigger risk, and probably not one that we'd want to take, because the risk of them getting bored, even, is, you know, is material.

AI assessment note: “it is the team, so it's, it's the people, um, it's their, it's their passion”

Q And the relationship between VC and founder is often quite talked about, um, and what side do you fall on? Do you fall on the, it's better to have a professional relationship, or would you rather go out for beers with them at the end of the day?

A I think you can, I mean, you know, in my old life when I was selling software to, to stock exchanges, you know, we had a very formal, legal, professional relationship, and once or twice, you know, that that relationship would get strained, or the, or the, we never kind of got, got to an extremely bad situation, but it was always, it's, it's, it's a commercial relationship. There's, there's, there's two different sides, two different perspectives, often different interests, but at the same time, It's very important, even in that situation, to have a beer with the people you're working with, because that's, that's when you get a chance to kind of, you know, hear your grievances, and also understand the other, other person's point of view sometimes better. So I think in any situation, a professional relationship can sit alongside a, um, a social one, but in, in our particular part of VC, we're, we're at the early stage. So the, the later stage VCs will, um, Potentially have quite aggressive agreements with their companies with lots of, um, you know, first rights to any, to any income or to any, uh, proceeds at their disposal, um, you know, conditions that the company, tying the company down, what they can do, rights to step in if the company's not delivering. It can, it can get quite contractual, and that's fine and appropriate later, later on. We invest earlier on than that, and …

AI assessment note: “we try to keep them quite social.”

Q And you mentioned the American gung-ho attitude a bit. Do you think that's what's responsible for the extremely high valuations we've seen of tech companies recently?

A Yeah, I mean, it's, you know, it's, it's a good question. Um, I, I think You know, we all know, at least know, in theory, about what happened in the dot-com boom, and I think if you look back at some of the stories around 1999 and 2000 and so on, some of the companies that were getting funded and the business plans or lack of business plans, there was a culture that said the whole world's going to change, we don't know what it's changing to, um, and it doesn't matter. So we just, you know, companies were valued on multiples of revenues, the You know, they're valued on, on very little, um, real substance, and at the time, there was plenty of people saying, oh, this can't last, but, you know, nobody really quite knew, um, what was going to cause that bubble to pop, if anything, and then eventually everyone said, hang on, you know, the emperor's got no, no clothes on. Now, this time around, I'm not sure that's what's happening. I think, um, let's say Uber, um, I'm kind of horrified at the, at the valuations it's achieved, and yet,

AI assessment note: “Now, this time around, I'm not sure that's what's happening.”

Q And you mentioned the American gung-ho attitude a bit. Do you think that's what's responsible for the extremely high valuations we've seen of tech companies recently?

A Yeah, I mean, it's, you know, it's, it's a good question. Um, I, I think You know, we all know, at least know, in theory, about what happened in the dot-com boom, and I think if you look back at some of the stories around 1999 and 2000 and so on, some of the companies that were getting funded and the business plans or lack of business plans, there was a culture that said the whole world's going to change, we don't know what it's changing to, um, and it doesn't matter. So we just, you know, companies were valued on multiples of revenues, the You know, they're valued on, on very little, um, real substance, and at the time, there was plenty of people saying, oh, this can't last, but, you know, nobody really quite knew, um, what was going to cause that bubble to pop, if anything, and then eventually everyone said, hang on, you know, the emperor's got no, no clothes on. Now, this time around, I'm not sure that's what's happening. I think, um, let's say Uber, um, I'm kind of horrified at the, at the valuations it's achieved, and yet,

AI assessment note: “Now, this time around, I'm not sure that's what's happening.”