ScaleUp Group Chairman, John O’Connell, chaired a dinner for leading Tech VC’s and Entrepreneurs on 28th March 2017 hosted by Silicon Valley Boardroom.

Discusssion ranged from … what’s holding back ScaleUp Growth, leadership, funding, VC perspectives, supporting founder and creating a winnng UK ecosystem.

 

Growth

Less than 1/3 EIS/ SEIS businesses growing at >20%. This is not high enough!

Zach Nelson (Netsuite) said it took $100mm investment to get to same revs. Similar story with Balderton company (Talend?) that IPOd last year. Key question from the group: is that level of funding available in the U.K.??

Exceptions were discussed. Blue Prism is one.  Much more capital efficient and has flown since IPO.

If you want to build a unicorn you set out expecting it to take a long time. No one had heard of Google after 14 years of development!!!

 

Ecosystem

Consensus that we are at least one generation, maybe two behind US, as regards the evolution of the ecosystem

There are more and larger evergreen funds in the US; so it’s easier to scale by raising more from both existing investors and a wider group

Some thought that there are way too few growth investors. Need more eg Woodford, for genuine growth companies that show strong evidence of success and scale ability across global markets and need to be funded accordingly. Some felt that there are too few of these though this wasn’t the consensus view. Others thought that this area is sufficiently well served, but that the problem is more there just isn’t a satisfactory supply of suitable companies for this investor class.

General agreement that there’s actually no shortage of capital for top companies – though not everyone thought this. Some believed that UK and Europe still just lacks capital of US, hence why we see US investors in the big deals

LPs generally don’t take on same level of risk as they do in US. UK funds generally need to do more to attract bigger and more risk aggressive LPs. This is happening slowly but not fast enough.

 

Company Level

NOT having founding CEO should make companies sell later and go longer. They are ambitious and have a everything to prove. Talked about Fairsail as an example, good exit but did it sell too early?

Consensus that younger CEOs (i.e. Mid-early 20s) want to go long. They have nothing (or at least less..) to lose!

Talent is massively important. VCs have to be careful with that.  Don’t want to damage ecosystem (Brexit

Companies wait too long before hiring a CFO. Run with junior finance team for too long

BHAG i.e. Big Hairy Audacious Goals. WE ARE TOO SCARED OF THEM IN UK!! Founder teams need to think bigger and not be afraid to aim high and fail. This was an emotive subject and there was broad agreement!

On the same theme, UK businesses hide their success. They don’t shout loud enough. We as a populous back the underdog too much, instead of being proud of our huge successes and shouting about them from the rooftops.

Head of sales shouldn’t be doing the selling, they should be running the sales team. And definitely nor should the CEO. VP of sales should pick this up, if they don’t, the model isn’t working.

 

How are VCs feeling & doing?

All VCs comfortable allowing management teams to take money off the table. Founders need cash!!! The VCs in attendance were unanimous that they don’t want to see their founder teams destitute and will happily do secondary rounds accordingly, at the right time, of course…

There has been more of an emphasis on capital preservation, which most agree is a good thing as well as being reflective of the wider market

VCs haven’t done a good enough job of generating returns to attract new LPs or family offices. Their words…well some of them anyway…

Also general agreement that funds don’t add enough value. They only provide the cash. They need to do more to help their companies scale with connections and board level input, so they can ride out the bad times, and thrive in the good times.

Funds generally are not specific enough about their investment criteria. They want to see everything so they have a chance at ever deal. Does this mean they just get a lot of chances to say no?

Entrepreneur-driven funds are increasingly common, and are driving a better type of VC investor. Not just CRO and founder expertise but ops and comms as well.

VCs have to recycle talent through the portfolio. It’s incumbent on all UK investors, to make the ecosystem better

 

Did you think we didn’t mention Brexit…

Big danger for attracting talent. E.g. In US you can’t easily get your wife into the country to work even if you get a visa. Do we want that here? Answer: no…

Big danger of U.K. becoming unattractive to talent – so we will be able to scale less easily. Yes you can offshore a lot of it but that’s not really the point, we need to defend the ecosystem we have built and remain attractive to the best talent.

People are coming here to uni , getting great degrees in tech-based subjects, then not allowed to stay. This is the madness of current policy. Big need to change this so people can stay and contribute after their education.

 

When it isn’t working…

All VCs agree they try hard not to lose founders. At all costs. At worst: transition them to another role. Last resort is to lose them totally out of the business.

Bottom line on this is it is very hard to force them out. And when you do manage it, it’s hard to make it a success of what is left behind.

COOs are actually brought in to run the business…!