It’s a truism of investing that you should invest in great people. In fact, we believe it’s most importantly about investing in great founder CEOs.
So like most VCs, we believe our job is to find those A-star founder CEOs working on a big disruptive idea with the right timing to be a market leader in their space and then just back them.
But what do A-star founder CEOs look like? There are a few that everyone can spot. They are supremely confident. They have charisma which carries their team and investors along with them. They know their space and strategy inside out.
I’m thinking of founders like Theo Saville of CloudNC (where we are investors) and Tom Blomfield of Monzo (where sadly we are not). Most investors feel the same about founders like these but that is then reflected in the valuations they achieve in their funding rounds.
Having worked with over 60 companies and their founders over the years, I’ve found that there’s no blueprint for all founder CEOs who will be successful. At Episode 1, we also love to back founders that other investors have passed by and then help them to achieve the results and recognition they deserve. Partly there is a satisfaction in helping these founders, partly it’s because we can invest at good valuations and so make great returns for our LPs.
The best outcome is when these deals turn into home run companies. I can think of three examples to share. The point of sharing these examples is that I believe you can’t have a simple “A-star or not” checkbox approach to selecting founder CEOs or you will only invest in the Theos and Tom Blomfields that everyone wants to invest in.
Firstly Torsten Reil was founding CEO of Natural Motion. I invested as an angel back in 2001 when Torsten dropped out of his PhD at Oxford University to start the business which used neural nets and biophysics modelling to create more life-like character movements for games and movies. Back then he knew nothing about business, had never hired anyone or sold anything before, and although his long-form business plan was very well written, he was easy to underestimate. As a result, the valuation of the first round was tiny.
Over the subsequent years, Torsten hired really well on the technical side but struggled to hire a sales team that really worked until he learned how to sell multimillion-dollar licence deals to US multinational companies himself. Then he hired and trained a successful sales team.
He raised several VC rounds from Balderton in London and Benchmark in the US, and the VCs helped the company pivot to become a mobile games developer. Finally, the way he organised games development teams to rapidly originate new mobile games was extremely impressive, and the business was sold to Zynga for over $500m.
In our Episode 1 fund 1, our most valuable investment so far is in Carwow – the service to help consumers buy a new car easily and cost-effectively. Founder CEO James Hind was easy to underestimate too back in 2012 when Episode 1 was starting out. In pitch meetings, he had a lean back inscrutable manner and his pitch deck was distinctly average, you could even say poor.
We liked his unshakeable confidence and there were some signals that he had great persistence. The company had started as a car review service and they had survived for over 2 years on the “funding” from renting out a spare room on Airbnb. They had just started selling new cars and were at about 10 car sales per month earning just over £1000 a month in revenues when we first invested.
James has surprised and impressed us over the years. Personally, he is a can do, rapid execution person. The team has grown from 2 to over 200 now. He has hired carefully and fired decisively when someone wasn’t right or failed to achieve close to their targets.
He has also become an expert fundraiser with the 2017 round raising over £25m at a very healthy valuation from Vitruvian, Accel and Balderton.
My third example is Jonny Britton of Land Insight where I am an angel investor. Their Saas product enables property developers large and small to research land in the UK quickly and effectively. From a map you can research all the parcels of land, look at all the planning applications on each, find owners and Land Registry information quickly.
I knew the problem personally as I had tried to research land near where we have a holiday home in Cornwall. Jonny’s pitch deck was poor back in 2015 and he and his co-founder Andrew were both shy, quietly spoken individuals. Although others at Episode 1 considered the deal, my colleagues passed and I thought rightly so if I’m honest. However, I wanted the solution to exist so I invested as an angel.
The first two years after investing were quite painful. It took a lot longer than expected to develop the product sufficiently to sell to customers for real money, and when I and the lead angel Paul shared our concerns with Jonny and Andrew they tended to meet the comments with silence or defensiveness.
During 2017 though three things happened. Firstly Jonny proved he is excellent at hiring across all functions and especially at hiring effective salespeople. Secondly, the product by then had enough features and usability to be achieving strong product market fit – customers were buying and using the software every day.
And thirdly, we worked with an executive coach who helped us all understand our different personality styles and how to communicate effectively with each other.
The only funding the company has had so far is the first round of only £360k and yet Land Technologies is now profitable at about £5m ARR, growing fast, and has some very exciting plans about a number of potentially very lucrative revenue streams they can add to the business. They are a prime candidate for a very valuable Series A round, but they’ve decided they don’t need any funding to more than double the team and revenues this year, and that raising a Series A would distract them from growing the business.
I now realise that Jonny was a “diamond in the rough” founder CEO. He is extremely resilient and persistent. He is very ambitious and although our personality styles are very different, I now respect him hugely.
So in conclusion, I think in investing, asking a simple question like is the founder CEO a superstar CEO can be very misleading. If the answer is yes, you could be onto a Theo Saville and a competitive investment round. If the answer is you aren’t sure, then you could still be onto a great founder and a great investment.
And in my next post, I’ll discuss thoughts on how to reveal the potential winners others may overlook. Part 2 coming soon…