What were your biggest learnings from your experiences with Lovefilm,Secret Escapes and Oxalyst?
Those three businesses have very little in common, except that they all took inspiration from something successful and tried to replicate the model somewhere else.
Two of the three of them have proved very successful.
It’s hard to distill the learnings definitively but I would say that people/culture and strategy are the two defining characteristics of long term leaders. LOVEFiLM and SecretEscapes had them, Oxalyst didn’t quite.
What inspired you to become an investor and have there been hard choices that generally could/should have been made( without being specific!) at Adzuna, Fluidly, Onfido, Plum Guide, Sofar Sounds, Thread, Tide, Lingumi, Uniplaces, etc that you have felt unable to make?
This feels like two questions!
What inspired me to become an investor – it was wanting to help some friends who I respected. My first ever ‘investment’ was in fact a loan – effectively a ‘junk bond’ – to help a digital agency grow. My second one was to support a very clever guy I know tackle a big problem. My third was into a financial data business that I thought I could help. I was lucky to get my money back in the first, I lost everything in the second, and having written the third off I ended up making almost 10x my money after almost 10 years.
My early investments were all really to support people I wanted to support – I thought of it as a bit like charitable contributions. It took many years before I realised I might even get my money back, let alone make a return on the investment.
Turning to hard choices. The common hard choices are regarding cost structure, CEO transition, investor selection (which often feels like an easy choice but actually isn’t), and board composition (where the ideal choice is often easy, but the practical realities are difficult). Uncommon ones are around exits.
As an investor you are often not close enough to the business or its market to really understand the hard choices facing any particular company. You do however have some experience of patterns elsewhere and often you recognise those patterns. So you can perhaps see when a business isn’t growing enough, or is burning too much money, or its product proposition isn’t quite right, or has a dysfunctional board, more clearly than the founder/management team can. However that doesn’t mean you can meaningfully do anything about it! I will always try to challenge the team before putting money in, to test how they respond to challenge – and if I don’t feel they are listening effectively or engaging appropriately I will walk away. I have passed on some reasonable investments that way, though I have also dodged bullets too. But it means that hopefully by the time I invest I have some form of relationship that ensures that if I have a point of view, I will be listened to constructively. And in point of fact very few of the business I’ve invested in have then completely failed to make hard choices that needed to be made – I think founders/CEOs who are good listeners and engage constructively will in turn be up for making hard choices.
As Court cases and new laws relating to employee rights from the European Commission take shape, how do you see the future of the gig economy?
One of the arguments made for the gig economy is that the gig workers themselves – for the most part – appear to love it. There is definitely something to that, and policymakers need to be careful not to throw the flexibility/autonomy baby out with any bath water.
However it appears to me that, at least in the UK, there are some externalities in the gig economy that need to be internalised. The playing field regarding holiday rights, pensions and so on is not level and policymakers should fix this – for the future selves of the gig workers, as well as for the nation’s balance sheet. Part of the problem in the UK is that we tax jobs much more than income; many of the mooted changes seek to fix this by taxing gig economy more to level it up with regular work. I wonder – purely personal opinion – whether we shouldn’t be taxing regular work less, and taxing (unearned) income more?
This is one area where the UK’s post Brexit freedoms may prove useful.
‘Should Holmes be convicted, some argue it would strap a leash on future innovators, introducing a fear of failure. If Holmes is acquitted, other say, it would signal to investors that even someone who they claimed lied continuously faces no criminal repercussions. (Theranos founder shows regret and resolve in court FT 25.11.21)…..Do you agree?
I find the Theranos/Elizabeth Holmes case fascinating. I recognise in the story some things I have seen in the UK tech scene over the years. A lot of this is down to a concept I learnt about at McKinsey – “tolerance for ambiguity”. A lot of founders have a lot of tolerance for ambiguity. Some can elide the past with the future – e.g. “our platform transforms X to Y”, which sounds like a statement of current capabilities and in fact past achievements but might from some founders’ mouths mean ‘our roadmap/intention is to transform X to Y, but that doesn’t mean we do it yet’ . Most investors try to nail down such ambiguities by doing due diligence; something that it appears wasn’t done well by many Theranos investors. Are founders who make ‘transform X to Y’ statements crooks? Would they still say these things if they feared failure more? Should investors understand the difference between ‘will transform X to Y, one day, all being well’ and ‘is succeeding because of all the Xs it has transformed into Ys’? These are good questions that I don’t have the answers to.
How has your investing style changed over the last 10 years?
My style hasn’t changed too much over the last 10 years. I have learnt some lessons of what mistakes not to make, but I still make them!
I have historically, and still today, look for backable people, with a plausible winning strategy and an eye for the economic model.