Duet Partners
Tel: +44 (0) 20 7416 6630 / Email: partners@duetpartners.com


Weekly Briefing Note for Founders

20th August 2020

This week on the startup to scaleup journey:

  • Don't study greatness, study failure
  • How to respond to VC Associates
  • Diversity in VC
  • Board letters bring better perspective
  • Public to Private shift continues

1. News and Insights this week

Don't study greatness, study failure

Founders are constantly seeking out best practice ideas as they transition through each phase of company development. So much is dependent on the type of business, the sector, the business model, and other aspects that are peculiar to stage. Just working out what advice to listen to and what to ignore can be a drain.

The starting point we recommend is to first focus on the most common points of failure. There is a general aversion to doing this as it seems like a negative approach, but learning from the lessons of others seems smart to us. Knowing where you are most likely to trip up might just be a useful prompt when there is so much distraction around us. A little help might go a long way.

The big risks at each stage will be different. From Pre-Seed to Seed, the most likely failure point is that the team can't gel around the Problem/Solution thesis. What MVP do we need to engage with our beachhead audience? At Seed to Series A its the classic failure to find Product/Market fit. Have we found the first real demand curve? At Series A to B its about managing the initial process of scaling and the organisational transition. At Series B to C its about building highly repeatable processes that scale across geographies/sectors etc.

It's rare to find an investor that can - or is willing to -  elaborate effectively on these points of failure. Charlie Songhurst is one of the world's most prolific private investors (483 investments) and in a recent interview, provided his unique insights. He highlights the most challenging transition point (Series A to B) and why declining productivity is often the biggest curse. As a result, management techniques and recruitment priorities figure highly as the team expands from around 10 to 30. A great listen.


How to respond to VC Associates

One of the key roles of Associates in VC firms is to source deals. They are often some of the most junior members of the team and we are usually advised as founders to avoid people at this level. Whether their business card says Associate, Analyst, or even Principal, they are not (yet) Partners and so aren't the big decision makers we want to connect with.

The reality is that Partners are often very inaccessible - they sit on many boards and are often out raising money themselves - so understanding how to interface with Associates and others at these lower levels is really important.

Our advice is to always be responsive and engaging - they could very quickly become your most important advocate. But graduate the information flow. Give a little, then ask for a little. See how capable and resourceful they are. Associates are often great researchers and will have access to extensive industry data, so if you're smart they could be a source of really useful market intelligence. Build the relationship to the point where they want to involve a Partner - this should hopefully not take long. If they are being responsive to your requests then that's a strong signal.

Deal sourcing is the lifeblood of all institutional investors. Whoever makes an approach is doing so because they have been given that job. So assume that the investor has really placed their trust in this person and respond accordingly. First impressions matter - don't fall at the first hurdle.


Diversity in VC

It's been our privilege over recent years to work with some amazing female founders. Both through our work with Astia as well as in our direct advisory projects, we have seen some terrific businesses formed, take shape and grow.

Farillio, an online legal services business led by two formidable female entrepreneurs, Merlie Calvert and Nilema Bhakta-Jones, is a case in point. Being a member of their advisory board for the past 2 years has unequivocally demonstrated both to us and their investors the power of a female led yet truly diverse team.  

But what about female VCs? Who is coming to the fore? The Forbes Global VC Midas List still only features 9 female VCs out of the top 100. Only 1 is based in the UK and that's Sonali De Rycker of Accel. In the European listing of the top 25 investors only 4 are female. The full listing is here.

But there are many others making a real impact. An article in Business Insider 'These are the 10 most trailblazing female VCs in London'states: Venture capital remains a boys' club, but the number of women in decision-making roles is slowly ticking up, particularly in the US, according to Axios data. In the UK, the picture is slightly different, with the most recent report from non-profit Diversity VC indicating that the number of women in investing roles at the UK's 183 firms surveyed has increased by [only] 2% [between 2017 and 2019].

We seem to have a long way to go here.


Board letters bring better perspective

In recent briefings we've spoken about the importance of long form writing as a key founder skill. With remote teams and increasing asynchronous communications, companies are striving to document everything more fully and not just rely on powerpoint bullets. Many are realising that the initial overhead of spending more time documenting important initiatives pays huge dividends in downstream productivity across the wider team.

Insights from two founders this week on how they are extending this to board packs with the inclusion of a board letter as a preface to the usual board deck. The letter - anything from 4 to 6 pages - provides something that is often missing in the deck; the element of perspective.

Whilst facts (objectives, metrics, progress points etc.) will form the basis of the report, a CEO's perspective describes how they feel about the progress that is being made. This provides greater context to the data and, when provided ahead of time, gives board members the opportunity to more deeply absorb the key messages outside the pressure of the meeting.

This idea of greater 'openness' may worry some, but if clear thinking and clear writing go hand in hand, then the power of the written word can have enormous influence. We have also seen this with the increasing popularity of regular investor updates and the best of these can have a disproportionately positive effect on investor sentiment.

When times are really hard and stakeholder support is more important than ever, a little more openness can go a long way.

Public to Private shift continues

in 2000 a $1B exit was exceptional. 20 years later exits measuring tens of $B's are now common. China's ByteDance (owners of TikTok) has been planning to go public this year at around $200B. Along with mega VC funds, some investors that had previously only invested in public markets (e.g. hedge funds) have 'moved down' to participate in private markets where huge value growth is occurring.

Where big macro drivers are at play, such as the 'digitisation of the enterprise' and the shift to the Cloud, many institutional investors believe we are only at the start of the journey. The bulk of the TAM is still up for grabs. Covid has even proven to be an accelerant for some.

As Pitchbook reported recently, deals over €25 million comprised 61.2% of overall deal value in Europe during 1H20, building upon the shift towards larger rounds we have witnessed in the last decade. Ecosystems and startups have matured, and traditional and unorthodox investors have facilitated outsized rounds with bigger cheques, contributing to the extension of funding runways for startups. In the COVID-19 climate, cash-rich investors have not shied away from substantial late-stage VC rounds either, and this has helped deal value remain robust.

Although Q2 exit value in Europe was unexpectedly buoyant at €2.7 billion, exit value in 2020 is still on track to register the lowest figure since 2012. There is pent up investor demand for IPOs. Even so, we do not expect highly valued startups to rush for an exit as late-stage and nontraditional capital has largely alleviated the pressure to exit in the maturing European ecosystem. 

2. Other pieces that are really worth reading/listening to this week: 

The state of global venture funding during COVID-19
Latest report from Crunchbase: Global venture funding is down 6 percent from the first half of 2019. Excluding $15.2 billion of funding for India’s Reliance Jio, 1H-2020 is down 17 percent from 1H-2019. In 1H-2020, late-stage and technology growth rounds accounted for 66 percent of funding, up from 59 percent in 1H-2019. Funding in North America equaled 49 percent of total global venture funding in 1H-2020, Asia received 36 percent, and Europe was the third highest with 13 percent. 

Edtech VC funding reaches $4.1B so far this year 
Edtech has been in the spotlight lately, given how much COVID-19 has changed the way students are learning. Based on Crunchbase data, global venture funding for Edtech companies reached $4.1 billion between January and July 2020. That’s $1.5 billion more than was raised during the same period in 2019, and the highest amount raised in that timeframe for the past five years.

How API platforms are disrupting banking & payments
More insights this week into embedded Fintech business models. An article in Medium discusses how Fintech infrastructure companies are transforming the technology and financial services industries through APIs, enabling virtually any software company to offer financial products directly to their end customers through 'embedded fintech'. APIs are the new battleground of value creation in many sectors.

Enterprise & Deep Tech VC in Europe & Israel
Angular Ventures is an early-stage enterprise and Deep Tech fund with offices in Tel Aviv, London and New York. "We try to avoid investing in companies that have no ability to erect any sustainable barriers to entry (technical or otherwise), and we don’t invest in companies that are targeting (pardon the phrase) “unsophisticated” buyers (i.e. consumers)." They have just produced their latest market report and this is an insightful read for Deep Tech entrepreneurs. Despite the heavy global focus on consumer in recent years, Angular claims that Enterprise and Deep Tech account for about two-thirds of investment activity in 2020 to date.

If you can do your job anywhere, can anyone do your job?
Thought-provoking piece in the FT. "I have been thinking a lot about 'Bob'. He was a US software developer who worked from home for a large company. In 2013, it emerged that Bob had been outsourcing his own job to China. He sent a chunk of his own salary to a Chinese consulting firm to do his work so he could surf Reddit, trade on eBay, update Facebook, and watch cat videos, according to a blog post by Andrew Valentine of Verizon, who investigated the case. 

The Future Fund publishes diversity data
The British Business Bank has just published Future Fund data that gives a detailed picture of the 590 companies that have been approved for £588.3m worth of Convertible Loan Agreements since the scheme was launched on 20 May. There have been 902 applications in total in the first three months of operations.

Happy reading!

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