What a year it’s been as we’ve all tried to navigate a new normal. While Covid has been a difficult beast to predict and plan for, once again we’ve been amazed by the resilience our founders and their teams have displayed throughout this challenging environment.
The current landscape for early stage companies
The early stage tech sector has delivered another stellar year. The recent State of European Tech annual report highlights that Europe is firmly positioned as a global tech player in 2021, with a record $100B of capital invested, 98 new unicorns, and the strongest ever start up pipeline, now on par with the US. European tech is creating value at its fastest pace, adding $1 trillion in just 8 months.
At Oxford Capital, as early stage investors our commitment to our companies goes way beyond the initial investment. Our aim is to back founders throughout all stages of building their companies from seed stage and beyond, through the numerous ups and downs they will face. But what will this mean in 2022 and what are the biggest challenges that founders are likely to face?
What should founders prioritise in 2022?
1. Surround themselves with the right team
It may sound like an obvious point but it’s crucial for a founder to surround themselves with the right team at all stages of growing their business. At the initial seed stage this may be about ensuring they have the right COO in place, the right developers to enhance their offering or simply the right marketing consultant to really push their growth. From a founder’s perspective they need to consider the culture of the company and their requirements for growth at each stage. In addition to gaining an understanding of where the gaps are in their own knowledge and expertise – a founder can’t be all things to all people.
We believe that bringing in an independent Chair is almost always a force for good, so we encourage companies to seek one from the earliest possible stage. For example, portfolio company, saving and investing app Moneybox recently appointed Laurel Powers-Freeling as its new Independent Chair. While the company has grown phenomenally since launch and now has over £2bn in assets under administration, Laurel’s significant experience will help support the founders as they approach their next phase of growth.
2. Building their mental resilience
This year as our founders have continued to navigate the challenges of building a business throughout the pandemic, we have placed additional focus on nurturing and maintaining their mental resilience. As early stage investors we have adopted a ‘mindful VC’ approach, ensuring that we check in with our founders on a regular basis, don’t take ‘I’m fine’ as an answer and support them through any challenges they’re experiencing that maybe impacting both their personal and professional lives.
As we head into 2022, they will continue to face bumps along the road that may impact their future growth and we will provide support and guidance to enable them to get the best out of their businesses.
3. Consider their impact on the environment and society
Measuring ESG considerations and a company’s impact on society and the environment has never been more important. It’s no longer a tick box exercise at monthly Board meetings – it really matters and a company needs to deliver more than just financial returns. Several of our companies have achieved or are working towards achieving B-Corporation status – these are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.
Our portfolio company, Bower Collective has just been through the process of becoming a B-Corp, the digital-first sustainable consumer goods company has met rigorous social and environmental standards which represent their commitment to goals outside of shareholder profit, putting people and planet first. Significantly, it has provided them with a robust framework for keeping every aspect of their social and environmental responsibility to the highest standard as they grow. A number of our companies are also currently B-Corp pending and should receive their certification in 2022.
By achieving B-Corp status, early stage companies can ensure their sustainable principles remain at the heart of their philosophy as they grow.
4. Funding runway
When it comes to building their businesses, financing risk is often the biggest risk and should be one of the number one priorities for founders. Running out of money can ruin a dream, and this is one of the first things we will start to focus on post our initial investment in a company.
In recent months, commentators have reported a golden age of entrepreneurship while others have talked of a bubble. As we head into 2022 the economic environment remains relatively unknown as Covid continues to impact multiple sectors. So, it will be important for a founder to plan follow-on funding decisions further in advance to help maintain a solid cash buffer.
The outlook for 2022
One thing that 2021 has taught us is that despite a challenging environment, the opportunities for starting a business to address an unmet need or market opportunity have continued to grow and the risks and stigma associated with failure have also reduced.
We believe that more start-ups will lead to more successes in the long term. There will be more experience in the talent pool, more depth of knowledge in the ecosystem and more capital available to back the most promising businesses. By providing support and guidance to our founders through the next 12 months we can help foster this growth further and develop the potential unicorns of the future.
As VCs, we’re aware that the entrepreneurial path is rarely a smooth one, even the most successful founders will face challenges along the way and the pandemic has heightened many of these issues.
But rather than just focus on the potential issues and roadblocks, normalising the conversation around mental health and supporting founders through all stages of growing their companies.
The scale of the mental health crisis
Firstly, let’s face facts – becoming a founder and leading a start-up is not for the faint-hearted. It takes a huge amount of courage, perseverance, blood, sweat and tears. Recent research conducted by 3sixty on founder stress and performance found that 53 per cent believe building a business was one of the toughest times of their lives and 45 per cent were under constant and extreme pressure. The results are particularly stark when it comes to feelings of isolation – loneliness rates in the UK average 14 per cent, for founders, it's 5.5 times that at 79 per cent. Overall, 1 in 4 founders are suffering in silence with their mental health.
It’s likely all of these feelings will have been heightened in the current environment, particularly as founders will now have had almost a year of working from home, isolated from their teams and investors. There is nothing that quite beats face to face contact.
What is the root cause of these mental health issues?
One of the biggest challenges that founders face in building a start-up is the overwhelming feeling that they’re ‘always on’ – their business will often feel like an extension of themselves and that constant need to keep delivering is hard to shake off. The Dunning Kruger effect shows that when founders receive VC investment, their confidence can be at an all-time high but this can drop off as they realise how far they’ve still have to go. Often, while their experience grows, a founder’s confidence level often doesn’t recover at the same rate. As a VC we find that founders often need the highest levels of support at this time when self-doubt starts to creep in.
It’s also worth considering that an average VC investment is 7 years (from start-up to exit) and can often be longer. It’s not just a case of coming up with a brilliant idea – it takes years and years to build a business. All start-up companies will face a series of setbacks along the way and that can have a huge impact on a founder's overall well-being.
The Mindful VC – our role in providing mental health support
It is unambiguously in the VC’s interest to take the mental health of their founders seriously because failure to do so can be hugely detrimental to the growth of a business (and the well-being of the founder and their teams). It’s really important that we talk about it openly and set this precedent at the beginning of the relationship, don’t take “I’m fine” as an adequate response. It’s also worth nominating a board member to take on the responsibility of checking in with the founder (so they’re not constantly pestered but feel supported) and conducting some mental health training amongst your own investment team.
Within our own portfolio, we frequently have to deal with life events, both positive (marriage and kids) and negative (illness, bereavement, divorce, shock). We think of this as a form of crisis management. What contingencies need to be in place? How will we build support and organisational resilience? Having a written plan can make the difference. We need to be mindful that founders have a vision and running out of cash can wreck this dream which is a major cause of stress. As VCs, we plan follow-on funding decisions further in advance to help companies maintain a solid cash buffer.
We can also help to put things into perspective for founders, events are rarely as catastrophic as they initially feel and others have usually faced similar issues. By sharing challenges openly, issues can often be resolved quicker.
It is also worth encouraging founders to join peer to peer networks with like-minded individuals and support them in seeking a mentor or coach to provide additional guidance. But perhaps the most important thing to consider is encouraging them to take time for themselves. To gain some perspective, everyone needs to take a break and disconnect from their work lives. Whether it’s taking some exercise, spending time with friends and family, or simply getting enough sleep, this will all contribute to positive mental health.
We know from experience that supporting founders means we can help them sustain levels of peak performance to get the best out of them and their business. Now, more than ever the discussion around mental health needs to be open and transparent.
Five years from now, how will we look back at 2020? Will we have grasped the opportunities that lie before us? David Mott questions the idea of the office and examines new models emerging in the start-up community
As a venture capitalist, I have been in many board meetings in recent months where we have discussed new ways of working and this has led to a social anthropological fascination of the future of work in the start-up community and what the start-up office might look like.
Looking at history, the concept of the office goes back to December 31, 1600 with the formation of the East India Company which set up its administration with rows of clerks keeping ledgers and tracking data.
The format continued largely unchanged for hundreds of years. The invention of the typewriter and copying machines improved productivity and created more admin.
My grandfather worked with IBM when electronic typewriters started to become computers which launched the next major advance in productivity in the office. My Dad introduced me to the first mainframe computer which filled up a whole room and could run basic programmes. And I started my career adding up handwritten columns of numbers with a calculator before we were issued with laptops and Excel.
But despite these technological advances, the workplace had not changed. Some more progressive companies redesigned common areas to look more like cafés offering free food and table tennis – the cynics argued that it was a plan to encourage people to stay in the office for longer. Armies of workers continued to show up five days a week to make the wheels of commerce turn.
The COVID-19 pandemic has changed the rules. The older generations of leaders who have been institutionalised in a low-tech environment over decades of commuting and office routines have been set free and we have woken up to the wonders of remote working. Teams and Zoom, while not perfect, have unshackled us all from the office. Many millennials had already pioneered the way for us by creating an international army of digital nomads, but this was seen by the majority as a way of avoiding a “real” job. But now, we try to learn from them and their experiences. This is good for us all and a huge opportunity to make a historical change.
What is an office for?
What is an office today? An empty building? A skeleton? A relic of the past? Or is it a place to socialise and bond with people who share a common goal and culture? A place to connect and exchange knowledge. A place to learn and to teach. A collaboration space.
It is no longer a place where we are expected to be for set hours with rigid schedules of meetings. No one wants to go back to that. Almost everything we used to do can now be done from anywhere. From home, a cafe, a friend’s place, a co-working space near home. It does not have to be your bedroom or kitchen table; we can expand our horizons and opportunities. After all, JK Rowling wrote Harry Potter from a café.
Of course, for some professions, location is central and vital to the activity and not easily reinvented. But for office workers, we are looking at a blank page and our pencil is sharpened.
Perhaps work is a bit like religion. I know I can pray from anywhere. But sometimes it is nice to congregate somewhere special and worship together. If we are all so far apart it is harder to do that. You can’t be a part of your local football team or dance troop if you are never there. Those bonds will weaken over time.
So, we have an incredible opportunity before us. To redefine the way we work and rewrite the rules. In five years, we want to look back and say: “I was part of it. I helped to change the game.”
But to do that well, there are some things to think deeply about.
When I started my career, I learned so much from being around others – bonding with my graduate intake, being shown the ropes by the senior associates and learning from the managers and leaders who shared their experience. Training and mentoring are critical to building great teams, whether in a start-up or mature business. And coaching these teams is vital. It is no coincidence that the best teams in the world have coaches to help individuals and the group deliver great performances. So, we need great online tools to help us with this and we need to use the time when we do get together to work on team performance. Perhaps that will give us the sense of purpose that we need for when we gather in the start-up “office.”
5 models for the start-up office of the future
Some models for the future start-up office are emerging.
How will you play your part in this change?
David Mott is founder partner at Oxford Capital, a venture capital investment manager. He is chair of the BVCA Venture Capital Committee
This blog features in Growth Business on 21/9/2020
Here’s the bottom line: Lucidity leads to better performance. Read the rest if you like!
So, here goes...
How economic and precise are you with words? Do you speak as well as you write? How can you become more efficient and effective with the spoken word?
When it comes to writing well, I was taught to use the acronym LSD, which stands for ‘lucid, short and direct’. These words have long been at the forefront of my mind every time I start tapping on the keyboard or pick up a pen. Succinctness is a skill, a habit that takes time to form. You will recall the famous apology from Winston Churchill who began a letter by writing: ‘I am sorry this letter is so long, but I haven’t the time to write a short one.’
The concept of ‘Bottom-lining’ can be used in meetings in order to get to the point of a discussion quicker. Bottom-lining is defined as the skill of brevity and succinctness and getting to the essence of your communication rather than engaging in long descriptive stories.
We have all seen them before – the long talkers. They are often social, well-meaning, happy people who tend to process out loud, and talk in stories. While these people are often well liked and their long-talking nature is tolerated by most, the problem is that they are not as effective as they could be. They are taking up way too much precious time, theirs and yours, getting to their point. In seeking to perform at the highest level possible and to be more effective, a skill to develop is bottom lining, especially if you are a ‘long talker’.
Typically, the term, bottom line, refers to the last line on an income statement, a company’s profit or loss. However, you often hear the term used more colloquially (e.g. “The bottom line is this:….”). In this context, the bottom line refers to the essence of the story or the final result.
The skill of bottom lining is conveying the essence of the story, without going through all the messy details first. It’s likely that the average long talker does so because they haven’t processed through the story to get to their own conclusion. They haven’t yet made meaning of it. If you have plenty of time, and the story is highly emotional, helping someone process can be a valuable gift. And most often, that’s not what we do in the workplace.
Teaching bottom lining can save everyone time and even add meaning to previously unmeaningful, tedious conversations. Start by introducing bottom lining in a neutral setting, like in your regular one to one with the long talker. You can start by saying something like ‘I’ve noticed that some of our conversations can take quite a bit of time and that it takes a while before we are able to identify an action to take. I’d like to talk with you about the skill of bottom lining that I think will help both of us be more effective. From time to time, when our conversations get long and detailed, I’ll ask you to “bottom line” it for me. That means I’d like to hear the essence of the issue, without the story, so that we can decide what to do about it.’
Once you’ve introduced your colleague to bottom lining, you can use it by asking them to bottom line their stories. If they are having trouble getting to it, here are a few additional questions you can ask, ‘What was the meaning you made from this?” “What’s the nugget you got from this?’
One of the CEOs I sat on a board with, used to start every report with his BLUF, ‘Bottom Line Up Front’. We immediately knew what was the meat of the discussion and through our discussion we could collectively apply a laser focus to it.
So, bottom-line to improve your bottom line.
A colleague recently brought me a BVCA standard NDA for signature that had been significantly marked-up by an entrepreneur’s adviser over the previous week. After a brief scan of the edits, I instructed her to revert to the entrepreneur politely declining to accept the edits and say that we would not be entering into an agreement on confidentiality. Within hours, we had received the entrepreneurs business plan and had engaged in a conversation about his exciting business. A week had already been wasted and the entrepreneur had received poor advice.
We refuse to sign NDAs, unless there is a clear and genuine reason for doing so. We are not alone. Almost all leading VCs will not sign them and in the US, they are all but extinct. Why is this? And why you shouldn’t care about them…
1. The law of numbers
Each year we invest in three to seven new companies. Each new investment is the product of deep analysis, negotiations, business planning, due diligence and a stack of legal agreements. The process is intense and thorough, lasting for weeks or months. It is also the product of sifting through many investment opportunities. Our proactive and reactive research leads to over 1,000 investment opportunities being screened each year. It is a vast number and the screening is brutal, but we hope, honest and fair. If each one needs a NDA, even if standardised, we would never be able to engage with so many entrepreneurs and be bogged down in a mire of legals. Keeping track of so many agreements is logistically challenging, and time ineffective.
2. You may be ill-advised
Over half of NDA requests come from advisers, often trying use the NDA to secure their own position in a deal. This immediately forms a first impression and a calculation that goes: Difficult adviser + complex legals at first hurdle = most likely a poor investment opportunity. Of course, we want to give the benefit of the doubt. Our profession is looking for needles in haystacks, but the practicalities mean we have to be ruthless.
3. We are looking for originality
But in practice, it is rare. Most business plans we see are a about better mousetrap, an improvement, a new twist, a new approach. Often it is about tapping into emerging demand, exploiting an unmet need or driving efficiency in businesses or markets. All are valid reasons for a start-up and may be fundable. But a truly unique opportunity is less common. Is your idea so special it really needs a NDA in place before we can speak?
4. Reputation is our bedrock
Our industry is made up of (mostly) bright professionals that are passionate about growing companies with inspirational entrepreneurs. Reputation is everything. In the age of the Twiter-sphere and Facebook-Likes, news of a VC screwing an entrepreneur by breaching confidentiality will travel at the speed of light and their ability to close a quality new investments will fall sharply. There are many ways of finding out information about your business and if it leaks, it is unlikely to have come from a VC.
In a quick poll of my colleagues, none of us can recall ever being asked to check back on a NDA we signed in the past. Some entrepreneurs or advisers have been insistent that we enter into one, but they are never referred to again. Further, we are not aware of any VC or entrepreneur going to court over a breach of NDAs. This suggests they are never used and that time has been wasted. At best you have been through a box ticking exercise.
6. Due diligence phase may be the right time
As we get to know each other and learn about our respective businesses, we will have conversations about confidential information. Our standard shareholders agreements have certain confidentiality clauses built in, but we accept that from time to time, it may make sense to enter into a NDA as we enter the due diligence phase. Sharing information on specific customer contracts, undisclosed IP or code is clearly sensitive and we understand that it may be appropriate to enter into a confidentiality agreement. But let’s get to that stage first.
7. It’s about you and us
In the end, investing in your business is a partnership that is likely to last a long time. Perhaps longer than your kids are at primary school or than you will own your car. From the first meeting or interaction, we are looking to form a relationship based on trust and ambition. On the roller-coaster experience of you entrepreneurial journey, there will be good and bad times, highs and lows. If there is a partnership of trust in place, the chances are, together, we will emerge from them successfully. Is an NDA really the best starting point?
So think twice about asking a VC to sign a NDA. And be sceptical if your adviser insists that NDAs are put in place. It might improve your chances of getting funded and reaching your full potential as an entrepreneur.
Oxford’s entrepreneurs and innovators have never had it so good. For the first time, in over two decades, there is a wall of capital of over £1 billion available to fund great ideas and emerging businesses within the Oxford cluster.
According to Oxford Capital, over £1bn has been raised by investors active in the Oxford cluster in the past year, much of which is either allocated to or available for start-ups and high growth companies in the cluster. The investors - Oxford Capital, Oxford Sciences Innovations, IP Group, Woodford Investment Management, Parkwalk, Mercia, and OSEM - have together raised over £1bn in the past 12 months. Four of these firms increased their firepower by over £100m each during the period. Much of this capital is either managed locally, dedicated to backing new companies emerging from the research institutions or in part available to back the rising stars of the Oxford cluster.
This mass of new capital is set to fund a wave of investments in new and expanding technology businesses. This follows the recent success stories such as Circassia, Oxford Immunotec, Natural Motion and Arieso, whose combine valuations exceeded £1 billion following their acquisitions or listings in London and New York.
The quality of companies around Oxford emerging from the science parks, research centres and universities has been rising rapidly in recent years. A virtuous circle is developing as successful companies attract both talent and funding. As these companies grow in size and value, they foster new generations of ambitious entrepreneurs and innovators who in turn will launch the next generation of businesses. Companies such as Oxford Nanopore, Oxitec, Oxford Pharmascience and Oxford PV have already received significant funding and are emerging as leaders in their markets.
The Oxford cluster is best known for the strength of its life sciences sector, though other sectors have attracted substantial funding as well such as energy, software and advanced engineering. Increasingly, companies in the Oxford Cluster are attracting international capital from the US, Europe or Asia. Green Biologics, a specialty chemicals business is backed by the Swire Group, an Asian conglomerate, as well as venture capital investors Sofinova Ventures and Oxford Capital.
At Venturefest Oxford on 8 July 2015, we are hosting a debate bringing together leading investors in the cluster to explore how the Oxford cluster has attracted so much capital and how it will be deployed to create the next generation of technology stars.
Is the US tech sector signalling the peak of the market and the coming of the next crash? Has the $50bn valuation of Uber caused the first reverberations that will hit the US tech market? Will Europe feel the full force of a hurricane that is to come? Or, with the explosion of smart devices and a globally connected population, is it really different this time? Let's take a look at some of these opposing views.
Dan Primack, long time blogger on VC, showed some of his bearish views in his interesting article in Fortune.com. He explains the fact that venture backed companies are not selling so easily. Only seven VC-backed tech companies have gone public so far this year and the pipeline of IPOs is not pretty dry with only Fitbit having registered with the SEC. In the UK, Wonga is a case in point – the company was on the verge of an IPO when the FCA cracked down on it and this has probably set back its hopes of a listing by some years, possibly also for a trade sale, if it is seen as a bit ‘toxic’. Many companies have achieved high valuations, but neither the entrepreneurs nor the VCs are realizing their investments. Paper profits have limited use.
M&A activity shows a similar drought with only two >$1bn M&A deals having completed in H1 2015, a number that is strangely low, compared with the hype that surrounds Sand Hill Road and the unicorns.
In Europe, nearly all the unicorns still have founders at the helm. Perhaps their desire for control is holding them back from going public. The level of ambition of the 30-something generation of entrepreneurs is greater than we have seen for decades. They are young and, perhaps, in less of a hurry than their 40-something VCs to get paid.
Andreesen Horowitz have published their review of tech funding. It makes a strong case for why 'this time it's different' - it's always different. Yes, valuations are high, but so are profits. And just look at the number of global internet users. They have risen from 40 million in 2000 to 3 billion in 2014. And these numbers will keep rising to 4 billion by 2020 - 100x in 20 years. On top of that, by 2020, there will be 4 billion people with a smartphone. Almost all of them can be accessed from anywhere, buy anything, connect, reach, socialise, contribute. They agree that valuations are high, but this is limited to a small number of large deals, and that this is rebalancing from IPOs as many of the largest investors are committing to late stage private rounds. This is where they are finding returns - performance post IPO has been disappointing in several high profile IPOs over the past couple of years.
There has not been a surge of funding into VC funds. Yes, there is more press and prominence than there has been for years. The buyout funds had all the press and LP attention for years, but now the VCs have raised their heads above the parapet. But the numbers are still relatively small, both in absolute terms and in proportion of GDP (under 3% in the US and less in Europe).
More people are becoming entrepreneurs. The cost (and risk) of creating a tech company has plummeted, mainly as a result of cheap computing power and increasingly with innovations such as 3D printing which is slashing tooling costs for physical goods. The number of start-ups being created has more than doubled in the US in the past 5 years. Any one visiting London, Berlin, Stockholm or Paris will be unable to avoid the buzz of entrepreneurial activity. A new generation of risk takers is busy creating the value of tomorrow. Yes, many will fail. Some will try again. More and more will succeed. The laws of numbers - more companies and more entrepreneurs - will prevail and generate more successes. If success breeds success, then the future is bright.
The chances are that you have actually seen a unicorn. Probably several of them and encounter them on a daily basis. When Aileen Lee coined the term in 2003, unicorns were almost mythological. Today there is a herd of them, both in the US and here in Europe. What can we learn from this trend?
The latest report on European unicorns from the team at GP Bullhound is well worth a read. It looks at the tech companies in Europe established since 2000 that have achieved valuations of over $1bn. There are 40 of them in Europe today, 13 of which have reached the threshold in the past year. They include many well known brands such as Skype, Spotify, King and Vente Prive. But some are surprisingly not household names, such as Powa, Ve, Home24.
The UK comes out on top with 17 unicorns to boot, nearly three times as many as the next country (Sweden).
While special because of their valuation, unicorns are expensive and require on average over $140m of funding to attain the lofty valuation. Many of the best known Unicorns are consumer businesses and the median amount they have raised is $278m. Building a brand is a capital hungry activity.
Most (58%) have been started by entrepreneurs in their 30s and nearly all of them still have one or more founder leading the business. This is a great sign for the European tech ecosystem as each of these companies will over time spawn numerous entrepreneurs in the future. The senior team will probably do another start up and almost certainly become angel investors once (and if) they realize some of their holdings.
For both entrepreneurs and investors, syndicating these large rounds can be beneficial and this is a feature of the European tech landscape. Over 2/3 of unicorns have more than 3 institutional investors backing them, and Spotify has 17.
Around 3 unicorns are born every year and the next generation are emerging. The tech market appears to be in rude health today. While some talk about exuberance and bubbles, there is a growing body of evidence to show that it is based on strong foundations. Most of the big valuations have been limited to a small group of companies. At the Seed, Series A and Series B end of the market, it looks more like 'business as usual'. But the prospects for achieving stronger valuations and exits are better than they have been for a long time
Put in a strong run and sprint finish to end up in 16th place at the Master Pentathlon World Championships. Delighted!
Tonight we party as United Nations!
Co-founder of Oxford Capital Partners. Husband, father, triathlete and polar marathon runner. Represent Great Britain at master level in Modern Pentathlon.