These days, most people know me as a venture capitalist. But in my heart, I’m really a spy for the other side.
I’ve been intimately involved with the remarkable trajectories of start-ups like BeatThatQuote, Espotting, First Tuesday, lastminute.com, Monitise, Skype, SoundOut, SpinVox, WGSN and Zopa – a series of companies whose growth has been explosive. Nothing beats the high you get when you see a company take off like a rocket, accelerate through the stratosphere, and finally settle into a stable, profitable orbit in its home market. Nothing beats the taste of success.
Why do people who have made money go back into the ‘burning building’ of building more companies to make more? Because it has little to do with money. True, money is one way you keep score. And I don’t doubt it dominates some people’s minds more than others. But success is a drug. Start-up success is an outright addiction.
A new global entrepreneurship model has emerged. In some respects, it’s making the traditional job of the venture capitalist obsolete.
• Today, companies are being created that are fast, flexible, cheap and operate in a distributed model.
• Products are iterated in a constant state of experimentation and real-time consumer feedback.
• Technology has become standardised and works like components that can be pulled off of a shelf today.
In 1998, I helped the founders of lastminute.com raise £6 million for their first round of funding. Today, you would get a similar company up and running for under £250,000. That’s less than 5 per cent of the cost to get to the same stage. So capital clearly is no longer the differentiator between success and failure.
This new global entrepreneurship model will drive a new financing of entrepreneurship model. Something similar built Silicon Valley in the seventies and eighties. I call it the ‘Supernova effect’. As each David builds his business and makes money – whether simply by accumulating profit from his company, by cashing in and selling that company, or by going public – he starts to back other Davids. This model of ‘entrepreneurs backing entrepreneurs’ grows exponentially as more have money to seed the next batch.
Entrepreneurs are naturally inclined to help other entrepreneurs. David never really stops being David. Once he has made his own fortune, he tends to be inspired to back others. Frequently, he can’t stop himself. He knows that the line between success and failure is very fine indeed, and remembers the help that he received along the way. Most Davids are more than willing to send the lift down to the next generation who are struggling to reach the next floor.
I arrived in the UK on 24 July 1998. I had just completed my MBA at INSEAD, and I crossed the Channel to start a new job at NewMedia Investors (now Spark Ventures). Tom Teichman, the chairman, a former Credit Suisse investment banker, had recruited me himself. I ended up in NewMedia’s investment business as an assistant director with a modest salary, but with the promise of attractive bonuses for getting deals done. Tom asked me to trust him on the bonus issue when I asked for more clarity, so I did. As it turned out, I suspect I made more money over the next two years than any of my classmates at INSEAD (but who’s counting?).
My instinct told me to get in at the ground floor of an opportunity, and grow with it. At that time, few people appreciated the full potential of the disruptive technology known as the World Wide Web. Moreover, NewMedia Investors was a little-known investment boutique. Looking back, I can see now that my decision to take a different path to that chosen by my INSEAD classmates, avoiding the status quo of more traditional jobs and industries, was the first step in gaining my entrepreneurship credentials. I was investing in myself, betting that I could play a big role in the emerging internet industry by joining a small firm and helping it grow. That decision proved to be the best one I could have made, although not entirely for the reasons I had imagined.
When I arrived, NewMedia Investors was little more than three men and a phone. We had an office next to Annabel’s, a posh nightclub on Berkeley Square, London. Although the Mayfair address could scarcely have been better, the building was decrepit, and every once in a while the keys to the front door simply wouldn’t work. Finding yourself locked out, you’d have to go around the corner to the Paisley Tyler private members’ club, head down to the basement and then take the lift into our building. Everyone else in the office seemed to find this a completely normal way to run an investment business. On another occasion, I had just gone to the loo when I heard a loud crash. I returned to the office to see the ceiling had collapsed. It was not a propitious start, and I sometimes wondered what I was doing there. And yet, I loved the way that Tom operated. He was a total gut-instinct kind of guy, and I was flattered that, as he had hired me, his gut must have told him that I had promise.
I subsequently learned that Tom had been a rather conservative banker before he founded NewMedia. It might have been driven by Tom’s mid-life crisis, but somehow the whole environment at NewMedia fitted with the brave new world of the internet. Tom threw me in at the deep end and assigned me to handling such deals as lastminute.com (sold to Travelocity), WGSN (sold to EMAP) and ArcCores – all of which made considerable money for investors. He gave me real responsibility almost from day one, but even more importantly I knew that he liked working with strong women and wanted to build an environment where they could succeed.
Relishing my new life in London and caught up in the whole internet explosion, I started to bring all sorts of new start-ups into the office. I would present them to Tom like a cat dragging in dead mice – showing off yet another deal that I was convinced we simply had to pursue. I was always indignant whenever Tom said ‘no’. But for all of his enthusiasm and his willingness to take a punt on new ventures, Tom was not reckless. He had been an early backer of Brent Hoberman and Martha Lane Fox, and was an adviser to them during lastminute.com’s IPO. This was long before they became media darlings, but it was clear to see that they had star power. Finally, Tom was able to get through to me by using them as an example: ‘Brent and Martha are the standard. When you meet entrepreneurs of their calibre, then I’m listening.’
He was right. The quality of the entrepreneur is everything. In early-stage investing, you are only backing the ability of that man or woman to make good judgement calls. The market reacts to what the business is trying to achieve, and it all happens very fast. You can’t run a start-up by a committee or a board. You can’t invent a piece of technology so good that it sells itself. You find an individual or a small group and give them enough money to take their product to market and execute their core operating idea or hypothesis. But those individuals and groups are rare and exceptional people.
Most of the venture capital community goes about their job of backing entrepreneurs at an early stage by focusing on technology, market analysis, what their competitors are investing in and the pedigree of the entrepreneur. They study market sectors, produce dozens of spreadsheets and carry out extensive due diligence on the technology. But, fundamentally, it all comes back down to the entrepreneurs and the steel – or lack of it – that they have within them. A successful entrepreneur has to keep going even when he or she comes under heavy fire. They cannot express their own doubts, cannot allow their spirits to flag, in front of anyone. They must be able to convince potential investors to back them and customers to buy their products before there is much evidence to support their claims. The qualities of leadership, salesmanship and persistence make or break most entrepreneurial ventures. Occasionally, something else might be the deciding factor, but usually success can be traced back to an indefatigable leader at the core of the business. These people are not necessarily smarter than everyone else. They simply have the ability to keep going when most people would throw in the towel.
I had been in the UK for just over two months when I founded First Tuesday. Brent Hoberman, who I met through an INSEAD friend, and I met at coffee shop near South Kensington on Easter weekend 1998, and then he introduced me to my co-founders, with whom I set up the first networking event for internet entrepreneurs at the Alphabet Bar in Soho on the first Tuesday of October 1998. Over the next few months, it quickly became the place for those with money to meet those with ideas – an environment for sharing and learning what was happening, and would soon be happening, in the world of the web.
I continued to work at NewMedia while organising First Tuesday events on the side, but by the spring of 1999 this ‘sideline’ was front and center in my life. Over the next year, I decided to leave my job at NewMedia and take First Tuesday international by expanding across Europe. I had hundreds – possibly thousands – of conversations with venture capitalists throughout the continent. What surprised me was how few of them had been entrepreneurs or built businesses themselves, and how negative they were about those who were attempting to do just that in Europe at the time. Statements like ‘Early-stage venture capital as an asset class doesn’t work in Europe’ would roll off their tongues without any introspection as to whether they were part of the problem.
The reality on the ground was rather different to the picture they painted. As I criss-crossed the continent – spending probably 50 per cent of my time out of the UK to meet First Tuesday’s ‘City Leaders’ and entrepreneurs of all stripes – I realised that Europe had an amazing wealth of entrepreneurs. Many of them had done everything they could to bypass the traditional investment community, searching for funding from any other source and stating that they wanted to avoid dealing with venture capitalists if at all possible. I soon realised that the problem did not lie with the entrepreneurs.
The real issue was that the financing of entrepreneurship had not kept pace with the high quality of entrepreneurs in Europe.
As an American who grew up in Silicon Valley, I was familiar with many of the Valley’s big names who had built their own businesses before going on to back other entrepreneurs. There was no equivalent of that model in Europe in 1998. However, by December 1999, Forbes was already writing that First Tuesday was ‘bringing the spirit of Silicon Valley venture capital to Europe’. I was very proud of that. I knew I was on to something because, in London alone, entrepreneurs secured more than $150 million of investment capital at First Tuesday events or through the network. More than ten years later, I still receive emails from people thanking First Tuesday for helping them find their job, their business partner, or their funding through one of our events.
Building a company is like working in a hot kitchen with sharp knives, hot oil and tempers fraying. Only those who have gone through all of that themselves can truly understand the pressures faced by an entrepreneur who is trying to get a new venture off the ground. So they are the people who should be investing in start-ups. This model of ‘entrepreneurs backing entrepreneurs’ was sorely lacking Europe.
By the late summer of 1999, my First Tuesday co-founders had all decamped to Silicon Valley, which they viewed as the centre of gravity for internet investment. I, however, was convinced that there was a major opportunity tackle the inefficiency of the European venture capital and entrepreneurial ecosystems and build efficiency into them.
My day job at NewMedia had allowed me to work very closely with some extraordinary entrepreneurs, such as Jez San (of ArcCores), Julian and Marc Worth (of WGSN) and, of course, Martha and Brent from lastminute.com. As far as I could see, the only way for such high-calibre people to reach their full potential was through a Europe-wide network of entrepreneurs and entrepreneurial investors. Britain was just too small a market for them. Enter the First Tuesday international network, which I launched on 7 September 1999 with seventeen City Leaders in various locations throughout the continent. Between us, we would help web ventures expand and build pan-European businesses. On launch day, Stephanie Gruner wrote on the front page of the Wall Street Journal Europe, ‘few Internet-networking organisations, even in Silicon Valley, have taken off like this one’.
By the summer of 2000, when First Tuesday was sold to Yazam for $50 million, I was more convinced than ever that the future of European entrepreneurship financing should lay in the hands of entrepreneurs themselves. Even though First Tuesday had been a phenomenal success, I had often been frustrated because of some fairly profound differences of opinion with respect to strategy, corporate structure, business values and leadership between myself and the other founders. Selling the business at such an early stage of its development rocked me to the core, but it also gave me the freedom to commit wholeheartedly to the model of entrepreneurs backing entrepreneurs.
I started work on the blueprint for my next business, Ariadne Capital, the day after we sold First Tuesday. The idea was to fund the world-class entrepreneurs of Europe. I flew to Malta, sat on a boat with some friends, and let the enormity of the sale of First Tuesday sink in. I did this by sleeping for three days. A friend would wake me up to have a Campari and soda and some dinner, but other than that, I just slept and thought, and tried to re-energise my core.
Over the past eleven years at Ariadne Capital, I have been able to implement many of the ideas I had originally intended to put into practice under the First Tuesday brand – particularly getting entrepreneurs to back other entrepreneurs in a systematic way. Some entrepreneurs are able to dash from sector to sector, but pretty much everything I’ve done has been about facilitating entrepreneurship. That’s my true calling. That’s always been the theme; the names of my companies have just been variations on it.
On 8 December 2000, the day I launched Ariadne Capital, the Industry Standard (the Bible of the internet set at the time) called it ‘The Net’s Next Business Model’. I put up the initial £500,000 of seed capital myself, but then invited leading entrepreneurs to become founding investors in the business with me. Some of these were men and women with whom I had already established a close working relationship; others were simply people I admired. Today, sixty prominent business people and entrepreneurs from four continents are Ariadne Investor Members. Between us, we have funded more than 100 projects, and more than £300 million of capital has gone into Ariadne deals over the past decade. We have worked with explosive-growth companies and sold our portfolio businesses to some of the biggest companies in the world.
Today, many investment houses look for ways to invest entrepreneurs’ capital, but Ariadne was the first to pioneer the ‘entrepreneurs backing entrepreneurs’ model in Europe at an institutional level. And our network of investors is still the only global partnership of entrepreneurs to form the very heart of a private equity firm. It is embedded in the DNA and corporate architecture of our business.
I frequently say that we’ve built our business by helping ‘nobodies’ become ‘somebodies’. That’s not meant to sound condescending. We start with people who are unknown but whip smart – global leaders in the making. And we stand shoulder to shoulder with them as they develop their businesses.
What does all of this mean for you? You might not see yourself as a potential global leader, but the people who do – the drivers of entrepreneurcountry – have much to teach us. As the world grew darker during the financial crisis, I started to think that more people should visit entrepreneurcountry every day – to get a glimpse of the real economy up close. I built www.entrepreneurcountry.com and have invited everyone to join us there. As we trudge through the debris of the debt-fuelled, uncontrolled finance mess, created by an unaccountable financial and political elite, I realised that:
• entrepreneurcountry is not an option: there is no other place to go.
• There is no other end game to be played.
• The train has no other destination.
Every day in entrepreneurcountry, in the process of entrepreneurs backing and working with other entrepreneurs, you witness the give and take, the friction and the momentum of building businesses that grow the economy. Those who have succeeded back the next generation and give them a much better chance of succeeding – pure and simple. We must do everything we can – at every level – to support and encourage that virtual circle of growth.
• entrepreneurcountry is being built by entrepreneurs helping other entrepreneurs.
• The main indicators of success for a new firm are the persistence, salesmanship and leadership of the entrepreneur.
• If you want to have an impact in society, don’t follow the herd. Look for a ground-floor opportunity that will give you most potential to shape the market.
• Once you’ve reached the top, send the lift down for others.
The article was written by Julie Meyer.