Duet Partners
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Weekly Briefing Note for Founders

12th August 2021

This week on the startup to scaleup journey:
  • UK set to dominate European VC in 2021
  • Who do you want your customers to become?
  • Decisions only CEOs can make
  • One founder's battle with burnout

1. Insights of the week

UK set to dominate European VC in 2021

Despite the pandemic, VC funding has surged in the UK during the first 6 months of this year, already surpassing the record €13.8M for the whole of 2020. According to Pitchbook, deal count so far stands at 1,370 versus 2,499 for the whole of 2020. At this rate the UK will take almost 30% share of the total deal value across Europe in 2021. The term 'Brexit' has hardly featured in dealmaking, with fears of loss of talent, experience, and capital, simply not materialising. More VCs are active here than ever with new offices, scout programmes and new funds focused on the UK market. But the emphasis is heavily on follow-on rounds, which have continued to dominate transactions right across Europe. They account for 94% of capital invested in 1H21 and are likely to remain above 90% by year end.

Startups demonstrating growth have captured the vast proportion of investment, with late stage capital booming. For many at very early stage and not able to yet show traction, it has been difficult to even capture investor attention, let alone investment. Those with long lead-time MVP developments, especially anything hardware related, have had to find all manner of innovate cash generation initiatives to keep going. The Future Fund, has been a life-saver for many, providing over £1B of support to over 1,000 startups. One of the top 3 challenges founders had in 2020 was getting enough support from investors, highlighting a lack of advice and mentorship on how to navigate the changing market. In response to this, our guided fundraise has helped a record number of founders confidently undertake new campaigns. And for those planning 2022 capital raises, Investment Analysis has once again provided deep insights to inform funding strategy during very uncertain times.

Looking to the remainder of 2021, several predictions that analysts have been making now seem certain: 1. VC investments will hit record levels in Europe and the UK will be the stand out performer. 2. VCs will still channel a vast proportion of their capital allocations into existing portfolio companies. 3 First-time financings and the step up to Series A will remain the biggest transitions to navigate. 4. Startups in the very early stages, especially those based on hardware, will require outlier propositions to gain VC attention. 5. Non-traditional sources of funding will play an even greater role than ever before - corporates, sovereign wealth funds, PE firms, hedge funds and family offices are all increasingly active in the VC space. 6. Many tech businesses have grown impressively through the pandemic and will continue to do so - expect more outsize rounds and the birthing of many more European unicorns over the next 6 months.

Who do you want your customers to become?

Tech companies distinguish themselves by being true agents of change. They enable the transformation of existing markets and the creation of new markets. They embrace the fact that innovation is about 'designing customers', not just new products, new services, and new user experiences. They often ask customers to adopt new values, new skills, new behaviours, new vocabularies, new ideas, new expectations, and new aspirations. In short they transform their customers. Think Uber, Airbnb, Google and countless others. The shift wasn't so much giving customers want they wanted, but giving them something they didn't even know they needed. But marketing something that customers don't realise they need is the classic founder's dilemma. How much do you have to educate the market before you can sell? 

Michael Schrage's book, Who Do You Want Your Customers to Become, goes to the heart of the founder mission - the design of customers, not just products. This short but remarkable text has influenced many of the great innovators of recent years. Stewart Butterfield, founder of Slack, has referred to the book's influence on his thinking, especially the importance of understanding behavioural change in the 'creation of a customer'. Slack's own impact on user behaviour is profound, as the central proposition is to move messaging away from email in the work environment to a proprietary communications platform. Slack was recently acquired by Salesforce for $27.7B, so we know that even the most radical behavioural shifts are possible - and can create enormous value. This means that when investors assess a business, one of the most searching questions will relate to the transformative impact on customer behaviour. This goes much deeper than; What business are we in? What is our brand? How do we delight customers? These questions represent yesterday's marketing and design paradigms.

And this analysis of customer behavioural change is not what we expect to elicit but what change we have actually witnessed and how it may have been different from what we expected. Customers, like markets, are continuously changing. Investors see customers as the most valuable asset a company has, not just because they generate revenue, but because they deliver insight. Back in 2006, Google believed that users wanted more query results per search. But the behavioural data said something else. Google found that search results pages with 30 results per page page rather than the regular 10 led to less search traffic and cut ad revenues by 20 percent. Search volumes dropped. The reason? Speed. Pages with 10 results loaded a half-second faster than pages with 30. So Google optimised for speed. What are you optimising for?

Decisions only CEOs can make

As companies scale, the role of the CEO evolves. Some of this comes naturally and some requires a conscious effort to do things differently. To find a sense of equilibrium and avoid overload, experienced CEOs know which decisions only they can make. They focus on these and (strive to) delegate the rest. Investors assess the capability of a CEO not just by the results that are being delivered by the company today but their ability to identify and impact the core scaling decisions that will drive growth. CEOs must be able to jump into the future and pull the business towards this point. The decisions that only they can make then become more apparent and they become the priority. They revolve around the Vision, the Team, and the Board.

The Vision is what the company aspires to be, and perhaps more subtly, who it wants its customers to become. This requires a clear articulation of the mission (how we will get there), and the purpose (why we want to get there). This is the narrative that only the CEO can take responsibility for. Many will help, but in the final analysis, the CEO owns the top level messaging. This finds its way into all the company's communications, from its website to the investor pitch. The Team, or more specifically the CEO's direct reports, are the leaders that will then deliver this vision. Crucially, they will also limit any unnecessary distraction that threatens the precious bandwidth of the CEO. These individuals must create an exceptional team and the CEO is uniquely responsible for hand picking them.

The Board really refers to how the operational business interfaces with the Board. As the Board has the final say on many strategic matters, including capital raising, this is a critical relationship. The CEO owns this relationship. Experienced CEOs know how to work effectively with their board, which will almost certainly include key investors. Serial entrepreneur Christa Charles, CEO of Corel Corporation and former CEO of OpenTable, says that the art of leveraging the board, is to regularly provide context. "Don't underestimate how little your board retains" is her favourite prompt. Ensuring the board is well briefed ahead of time is a great tip and she highlights many others. Whilst the buck will ultimately stop with the CEO on any matter, if it's with the Vision, the Team, or the Board, there is nowhere to hide.

One founder's battle with burnout

Mathilde Collin is the co-founder and CEO of Front, a communications platform that has developed a cult following. We have followed Mathilde's remarkable journey since Front's Series A back in 2016. Mathilde has captured many of the big milestones in her blog, a wide ranging collection of powerful insights. But it has not all be plain sailing. As she revealed recently, 4 years ago she began suffering from extreme anxiety - to the point where she was unable to go to work. A combination of severe overwork and the declining health of her co-founder due to cancer, conspired to make her believe her world was collapsing. She felt unable to share this worsening situation with anyone, worried that her colleagues and investors would panic. Her anxiety became so debilitating, she had to return home to France - from her HQ in California - for a period of rejuvenation. Gradually, she turned the corner, although it took a whole year before she felt confident enough to discuss her experience openly.

Mathilde's experience is not unique. Many founders face periods of extreme stress and burnout is sometimes only a few steps away. But in finding a route back, sharing her experience with the world, and making some important lifestyle changes, Mathilde offers other founders some valuable inspiration and ideas. Meditation, exercise and logging off from work at the weekends are now entrenched. She says, "After all, building a company is not a sprint, it’s a marathon. If I continued to push myself without taking the time to recharge, Front wouldn’t be sustainable in the long run." This philosophy applies to her employees too. She learned that as a founder, she needed to set the example and introduced initiatives that encouraged employees to prioritise their health and happiness. She now feels that she has developed a company that has even greater resilience.

In early 2018 Mathilde closed a $66M Series B round led by Sequoia Capital, followed by $59M Series C in 2020, which has propelled the company forward through a period of dramatic growth. The progress that the business has made she attributes in large part to the culture she has now developed and to a group of understanding investors. She talks about this openly and speaks regularly on the subject of how to motivate a happy and productive workforce. In a great Forbes article she says “What people want is meaning, calling, purpose, being fulfilled, and I think companies should live up to these expectations.” As Covid hit, her proactivity in caring about the welfare of her team as they shifted to remote working was striking. Her focus on increased communications, enhanced employee benefits, and online events to drive the caring culture forward has been well documented. Mathilde's journey makes remarkable reading and offers inspiration to stressed founders everywhere.

2. Other pieces really worth reading this week: 

The end of Venture Capital as we know it
Are venture capitalists an endangered species? If nothing else, we’re experiencing the end of venture capital as we know it, according to  Sam Lessin of Slow Ventures, who predicts in a recent column in The Information that by next year, nontraditional tech investors will invest more in private tech companies than traditional Silicon Valley VC firms will. Crunchbase says: "Our data seems to show that’s already the case."

An Exact Breakdown of How One CEO Spent His First Two Years of Company-Building
Sam Corcos is the co-founder and CEO of Levels, a bio-wearable company that shows you how food affects your health using real-time biological data. In this First Round Review article he confesses, "I’m a bit obsessive, and I track every 15-minute increment of how I spend my time and I’ve been doing so religiously for years." The results are eye-opening.

Help Your Team Do More Without Burning Out
In HBR this week, and picking up on the burnout topic above, a great piece on avoiding burnout. "Earlier in our careers, speed and energy are important components. But there comes a point where you actually can’t speed up any more. You need to rely less on what you can personally achieve (your “ego-drive”) and more on what you can achieve with others..."

Write like you talk
Timeless advice from Paul Graham in this powerful essay. Writing is becoming an ever more relevant skill - especially for business leaders. This will inspire.

Happy reading!

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