Keeping your trade secrets
Podcast transcription -30th october
Alan Cowley: Hi, I'm your host Alan Cowley and this week I'm delighted to be chatting to Chris Smith. Chris is the managing partner at Playfair Capital one of London's lead in seed stage investors. Chris joined Playfair in 2018, having helped plan.com grow over four years, including the company reaching number one in the Sunday Times Tech Track 100. Chris's other achievements include over a dozen angel investments across the UK and US with some impressive exits along the way. All of this began with a law degree which you managed to coincide with the forming of your first company, whilst at university I believe as well?
Chris Smith: Yes, that's right. First thanks very much for having me. Actually, I want to take it a little bit further backwards. So when I was at school in the sixth form, I had some careers advice, which is I think a sad reflection of how things were 20 years ago. And I was basically told, "You're not that good at maths, so you need to go and be a lawyer and also you don't like blood so you can't be a doctor." And that was kind of the only advice I had. So I signed up for a law degree thinking, "Well, it's kind of the only thing that I'm good for." So I actually completed my law degree, went to law school, ended up at a US firm in London called Weil. Had a training contract there, spent 18 months in London, and actually six months in Silicon Valley, which is kind of where the angel investing story starts. But I guess we'll come back to that.
So, I spent nine and a half years as a lawyer, which was far longer than I'd ever intended. I qualified in 2007. And what most people were doing then was duty, it's get a good grounding and doing deals and then going and doing something more interesting. And of course then the financial crisis happened and so the jobs kind of dried up. So I stayed at the law firm actually restructuring most of the leverage buyouts I had done in the previous two years.
It wasn't until 2013 when I managed to finally escape the law. I remember this vividly. I was sitting in my law firm at the time, I'd actually just moved firms. I'd only been there two months, looking at a job board and there was an advert for an investment manager to join a family office based in the Isle of Man, but one of the jobs was in London. And I thought, "This is perfect. I can build a portfolio of 10 to 12 companies." This was just a dream job for me really.
So, I applied for the job, met the guy who ran the family office, had some good conversations, and once I was probably, I was pretty much committed to the job. He said, "Oh by the way, actually it's not going to be in London. It's going to be in Douglas in the Isle of Man." And I thought, "Okay, wow." So flew over to the Isle of Man. It reminded me a lot of between sort of Gibraltar and the Channel Islands. So my grandparents lived on Sark in the Channel Islands, so I knew Guernsey pretty well. My parents had a place in the South of Spain, so I knew Gibraltar. So I had this kind of weird familiarity to it. And it had a Tesco, which was a major selling point. And so I decided to make the move and go be an investment manager in the Isle of Man.
I should say that my family at the time and all my colleagues, I was probably a year or two years away from partnership in a law firm, thought I was completely insane. And I did question myself from time to time. But I think I got to that point when I was maybe 30, 31 and I was spending every night in the office doing deals for people. Watching on a Friday night people going out to have fun, I was getting my like fifth takeaway of the week from Wagamama and I just thought, "This is crazy." It's financially very attractive being a law firm partner, but there's nothing else that really appeals to me and I've got no people in the firm I aspire to be like. So I kind of took the leap and moved to the Isle of Man.
Alan Cowley: Did you ever have this entrepreneurial drive from your parents at all or anything like that? The lure to the start-up world?
Chris Smith: I'm not entirely sure where it came from. It's on my dad's side. He's definitely very commercial. So he was in real estate for his whole career, didn't go to university, just made a fantastic career initially on the agency side and then moved into development. And actually my mom's side, my grandfather was a professor, so there's sort of a blend of the academic and the commercial in there.
But I think what really got the entrepreneurial juices flowing I think was actually moving to London for university because I grew up in Great Missenden you know it's a small village, not really well named for anything apart from Roald Dahl lived there, where he wrote most of his books.
I moved to London and when I got there, I think the diversity and the opportunity just was almost overwhelming. And so that's when I actually set up my first business.
So, I was on the tube one day and I saw someone advertising their cheap international call service. It looked really smart because it was free to the end user, but obviously the company was making money somehow.
Alan Cowley: Yeah.
Chris Smith: And I kind of realised that most of the people I've met in my first two weeks of university were international students. And I thought, "Well maybe I can do some kind of student branded telecom service." And I actually got in touch with that company, went up to meet them in North London. I didn't realise at the time, but I actually pitched to them and said, "Look, I can get you access to hundreds of thousands of international students." Didn't know how I was going to do it yet, but kind of pitched them on that and they gave me my own access numbers for this service and they agreed to pay me a commission. And that's kind of how that all started.
So, I spent most of my time at university on a sort of generation one Blackberry at the back of lecture theatre’s doing customer service for my telecoms business. And we actually, we grew it really well. So, I met a co-founder, he was also at UCL, brought him on after about six months. It was actually sort of a key decision because I think I was reasonably good at coming up with a business model and knew how I wanted to sell it, but I was terrible at design and I didn't know how to build a website. So he came on board, built an amazing website, loads of really good marketing materials and it started going really well.
So, to give you some sense, I made two pounds in the first month.
Alan Cowley: Yeah.
Chris Smith: Then I think I made seven and then nine, and then I think it got into like double digits and then triple digits quickly after that. So you know a lot of people were sort of, "It's a bit silly, you're not going to make any money out of it." But actually finding that co-founder was that real inflexion point at building it out.
Alan Cowley: Do you think you would have invested in yourself if you walked into it? I know obviously with your parameters at Playfair, for example, but as an angel investor, would you have invested in yourself?
Chris Smith: So, you know, I wouldn't. So I think probably the biggest lesson I learned from that business, you know we grew it, I think in one year we turned over about a quarter of million and the margins were amazing because it was just commission getting paid back to us. I made a fundamental mistake at the beginning, which is that I was an agent for somebody else. So those numbers that I was given and I was paid a commission on, they ended up being very valuable because there were millions of minutes a month going through them. But I couldn't move that traffic. So it's like one of those foundational things. I basically had a single point of failure with one provider and that significantly reduced the value of the company. So if anything I learned from that business is it was a great hobby business. As a result of that business and my parents being very generous with my allowance to university, that was probably the wealthiest I felt. Where it could be 10 years after leaving university to feel that you have that much disposable income again. But it wasn't a business that could scale.
Alan Cowley: Yeah.
Chris Smith: There was quite a big sort of regulatory, I guess, opportunity and then misstep we had as well. There was going to be another mobile network in the UK and it was going to be called Dolphin, and it was backed by Qualcomm in the US. And they were assigned a range of mobile numbers and those mobile numbers had a termination payment. So basically every time you call those numbers you have to pay the network about 15 pence. And the idea was to subsidise the cost of a new network coming into the UK. Qualcomm then abandoned plans to launch here, I guess they thought it was too competitive and those numbers got into the hands of some fairly clever people, not me I should add, but who realised they could use it for international calling.
So, if I'm paying a penny to send the call to the U.S. I'm getting paid 15 pence back, that's a really, good margin.
Alan Cowley: Yeah.
Chris Smith: So, we promoted that service heavily. We actually signed up a network of resellers in all the shops on Oxford Street, and it was doing like 50, 60 or 70,000 pounds a month.
And then the mobile networks realised, "Oh, this is weird. Why are there so many calls going to this single number? Oh, they're using it for international calls." Instead of it being free to use, is it's now 40p. Bang, overnight, 60, 70,000 pounds of revenue disappears.
So, second lesson from that business was, you know, almost if something seems too good to be true, you've got to be very careful. But also you have to be so aware of sort of regulations and things moving around you.
Alan Cowley: Yeah.
Alan Cowley: Okay, so that's your first entrepreneurial venture. Let's hear about the transition. You touched on moving to Silicon Valley. Let's hear this transition.
Chris Smith: Yeah.
Alan Cowley: For the first angel investments you did and your kind of journey of angel investments.
Chris Smith: So yeah, I was on secondment in Silicon Valley working with a patent litigation team, which was sort of vaguely interesting.
What was most interesting was every lunchtime I would go across the street. I was in Redwood Shores, pretty much the heart of the valley. I'd go to this bagel shop and I'd eat lunch. And I realised that people were in there and they were having these kind of meetings. People were flipping open laptops. They were having these conversations. Not too sure what was going on, but I soon realised that they were pitching for investment. And so I had plenty of time, I wasn't that active in the patent litigation. So I was kind of researching Silicon Valley, you know looking up like kind of Georges Doriot and like so the origins of VC. Started to really read and understand it.
I didn't do anything about it while I was there. It's a shame, I probably should've done, but when I got back to London, I had this thing in my head, which is like, you know, you can invest in companies. You know, why not? Just because I'm a lawyer doesn't mean you can't go and invest in some start-ups.
And my first investment was a company called Wrap It Up, which is a burrito company.
Alan Cowley: Oh, yeah, yeah.
Chris Smith: It started on Bishopsgate and so I used to go from my office, which is in Moorgate, every lunchtime I'd go across and get a burrito. And it was kind of the, added a little bit of colour and a little bit of joy in my otherwise sort of boring 18 hours a day of photocopying and drafting documents.
Alan Cowley: Yeah.
Chris Smith: And I met the founder, he was just on the cash register. Asked him sort of how business was going and he said it was great and actually they were raising a little bit of money. So I met up, had a coffee with him and put a small check into the business. Kind of followed their growth. They launched another small outlet in Broadgate Circle and they were growing well, so I put a little bit more money in. And then was actually asked to join as an adviser. So spent, I think about 18 months as a non-exec really, helping them with strategy.
And I think a couple of things really dawned on me about this, you know, one is that food and beverage and brick and mortar generally is a really, really tough place to invest. And as an angel you've got to be so concerned about dilution. So every time we wanted to set up a new store, "Oh, that's another 400, 500,000 pounds. Where are we going to get it from? Well we're going to issue some new shares." So it quickly became diluted.
And the other thing I remember just strategically, they became very obsessed really about extracting the maximum amount of value out of each store. It's kind of understandable, but what they did was they started to dilute the brand. So at one point we had a pasta machine, a fresh pasta machine in a store that is known for wraps and burritos. And it just looked crazy, just it made no sense. So that's actually one of the times where I just stepped in and said, "You've got this wrong. You need to really focus on your core offering. You're going to confuse the end user, the consumer." So eventually that was removed from the store.
But I think that initial investment kind of got me over the hump of anyone can invest. The barrier to entry is kind of money and a kind of an inquisitive mind and wanting to do it. But I very quickly realised that brick and mortar and food and beverage was not the place to invest. They're still doing great as it happens, I think they've got 18 stores now.
But I then became much more attracted to the tech side of things and this idea that you can build and scale something without having to put huge amounts of capital into it.
Alan Cowley: Okay, so you were a non-exec director of that one. How involved have you got with the rest of your investments?
Chris Smith: I mean it really depends. I try and be helpful to all of them. So if there's an introduction I can make, there's a useful company I've met in their space, I'm going to make that referral. But generally I think as an angel you've got to be aware that you have a relatively small position on the cap table, or at least I did when I was investing. Basically I was just investing some salary I had. So I was helpful. I would obviously offer advice if there was something major I thought the company was doing wrong. But generally it was fairly limited actually, fairly light touch.
Alan Cowley: Okay. You were in London and then you moved to the Isle of Man?
Chris Smith: Yes.
Alan Cowley: For plan.com?
Chris Smith: Yes.
Alan Cowley: You were there for four years in the Isle of Man?
Chris Smith: Yeah, a little bit, four and a half.
Alan Cowley: So then was it back in 2018 you then came back to London and you started with Playfair Capital?
Chris Smith: Yeah.
Alan Cowley: Why? Why did you decide to come back?
Chris Smith: Well, so I think the move to the Isle of Man, I mean ended up being the best move I could have made. Although as I said everyone thought I was insane. I actually met my wife, so that was fantastic. And then I also got to have this amazing four and a half year journey with plan.com.
So, when I signed up, it was an investment manager role and we were going to build this portfolio of companies, maybe 10 to 12. I think control type investments rather than sort of traditional VC. But that was the plan.
In the end, the MD of Bramden Investments, or the family office, is an absolutely, phenomenal guy, but he's an operator and so he was heavily involved with the two companies we already had in the portfolio. One was Vannin Capital, litigation funding business, which actually sold to Fortress just a couple of days ago, the big New York hedge fund. And then plan.com was the other one.
And he was just so determined to build those into great companies. There was no capacity to do any more deals, so after spending about four months with Vannin, I was dropped into plan.com and basically asked, look, go and build a sales team. I thought, I'm a lawyer building a sales team, I need salespeople, I need to get sales, right? This must be quite straightforward. I had I think an initial three people, in the end I built it up to 15, so I had five people based in the field covering the whole of the UK and then 10 inside sales based on the desk. I learned very quickly that you don't just ask salespeople to go and get sales, you actually have to motivate them, and it's a completely different kind of mindset. I actually wrote a blog post recently about that experience.
I mean, I was terrible about it for the first three months. I couldn't understand why aren't they hitting target? What's going on? Once I started to realise that actually they needed inspiring and they needed motivation, they needed leadership, and rewards beyond the commission structure, but actually a pat on the back when you've had a really good day or you've won a big deal, and try and build some competition and some camaraderie and the team, it all started to take off. By the end, we were actually doing pretty well and the business was growing pretty well. Then we hired in a full time sales director and I was asked to take over the software development team, which again is a completely different kind of mindset from sales. There I had to go out, hire aggressively, scale the team.
We had a very demanding roadmap with a completely new version of our portal. It's probably worth saying what plan.com does actually, because a lot of people have never even heard of it. It's a B2B telecom business and it works through the partner or indirect channel. There's no direct sales to end users, there's no retail store, there's nothing like that. We actually sold through a bunch of, I call them resellers effectively. Those resellers typically partnered with competition like Carphone Warehouse Business, or Chess, or Daisy, these types of companies, and they resold the same mobile tariffs that the network providers provide and they got paid a commission. It's a completely commission driven business.
It was a really, tough business. If you're a mobile phone reseller, let's say I'm coming in to meet you and I'm trying to get you to take mobile phones from me. If I'm selling stuff that's at the same price as you've already got, it's just an impossible conversation. What plan.com did was we built this website where the resellers could go in and they could do customised pricing for the tariff and customised contract length. You tell me you're paying £30, I say, "Fine, we'll do it at £28 or £26.50 or £25," whatever that number is to get your business. Then I could also flex the contract length to make you comfortable, but also to try and get me some more commission. So what we did, we actually had those sales meetings that the resellers were doing with their prospects, maybe had a one in 20 conversion in the past. We were one in two, one in three, and just took massive market share from our competitors. That's why technology was really key.
I built the team, we released the new version, version four of the portal, and outsourced a huge project which was rebuilding one of our internal systems as well. Outsourced that to a software house in Belarus. So did that for about two and a half years. I was already getting to the point where the company had gone from, I was the eighth member of the team, there were a hundred people, 50 million of revenue, this is turning into quite a big company. It was much harder to get things done, so you feel a little bit like you're walking in treacle every day. I think although I did have more to learn, I've learnt a lot and I felt it was time to move on. My plan was actually to start looking in April this year and figure out what I was going to do next, but I met the guys at Playfair last summer.
They put out a tweet, I think it was, that John Gannon who writes an amazing blog about VC jobs, he emailed it out. I got in touch with them, actually got introduced through one of my angel investments, a company called Eedi. Ben Caulfield there, thank you again. He introduced me to the guys at Playfair. We actually had a great initial conversation and then we spent the summer getting to know each other. We worked on a couple of deals, really took it through the whole process actually, almost to an IC decision or one particular deal to really understand how we worked, and they made me an offer to join, so I joined back in November.
Alan Cowley: You joined back in November, but they have been going for a few years obviously. What are Playfair Capital's aims and objectives for investing, what's the mission of the company?
Chris Smith: Playfair was founded in 2013 and the first fund ran from then until the end of last year. We did around 50 deals across 11 countries, deployed about 21, 22 million pounds. Prior to that, it was actually our founder and chairman, a guy called Federico. He moved to London in 2010 and he was angel investing. He actually did around 25 angel deals. He was working with Robert and Eileen out of White Bear Yard. Actually, I think it was before Passion Capital launched, but he was working with them, and he just got to this point where he'd done a lot of great angel deals and he realised he needed a team around him to support the companies he invested in and also to scale up his activities. That's when Playfair was born.
We've had this angel DNA from the beginning, and I think if you look at the first fund, it's broad. We've got B2B, we've got B2C, tonnes of different sectors, a really broad cross section of companies in there. The thing that unites them is brilliant founders, and that's what Federico really cared about. He started angel investing and started Playfair because he wanted to have an impact on the world and he felt the best we can do that is by investing in outstanding founders. I guess if you then roll it forward to the second fund, which we launched in March this year, that's a 25 million pound fund. Fedi is not active day to day, although he still signs off on all our deals and he's still our chairman. We've narrowed the focus a little bit, so we love deep tech, we love AI, machine learning, computer vision, and we like B2B.
If you ask the team, they'll probably tell you that we might do a consumer deal, but they just scare me. I just think the costs, it's just, when's the last time you downloaded a new app and really engaged with it and kept it? I think it's something I learnt at plan.com, I like B2B, I like good visibility of revenues, contracted revenues, let's just build a business. Never say never, we're still very much a generalist tech fund, but I think we're definitely focused on the deep tech and B2B.
Alan Cowley: You touched on there the B2B and the industry stuff. What are the other processes for investing? Do you use some metrics? Do you have a geographical area? Do you have a timeframe?
Chris Smith: One of the joys I think of Playfair is that we are this generalist fund, so we make our own rules and then we tend to break them. The first thing we said was we're going to-
Alan Cowley: That's every investor, isn't it?
Chris Smith: Yeah, I guess so, but we don't have lots of LPs to answer to and get in trouble with, we have one. But we set out very much to be UK focused. We think there's huge opportunity in the UK, and I don't just mean London, I think more broadly. Then the first deal we did was in Singapore and the second deal we did was in Israel. So breaking our rules, but I think we would like to do 70% of this fund in the UK. We believe Tel Aviv and Israel is a really nice ecosystem as well. Israel, UK, and then other deals will be ad hoc in different geographies.
They tend to come through one of the other funds that we're LPs in. One of the things Playfair did, I think in 2017, we just saw an opportunity to broaden our reach. There are actually LPs in six other funds, whether that's geographically focused, so we've got one called CRE, which is a Pan-African fund, we're actually LPs in Entrepreneur First in a global fund, and then a couple of crypto funds. If deals are referred from them, we'll obviously look at them wherever they are in the world, but generally it's UK and Israel. I think you're also asking about process as well. One of the things we try and do, obviously like most funds, we see about 400 deals a month. We're going to take some of those through to an initial call or a meeting, if one of the team likes them, we'll then try and get the founders to meet other members of the team.
One thing that we're really, keen to do actually is get the whole team to meet the founders, if we like a business, very quickly. We do that because we see with other funds, a lot of founders get very deep with, say, one person in the fund. They spend six weeks, they're very excited. That person then takes it to their IC or talks to another partner and they go, "Why are you looking at this for?" And so you wasted your time. For us, and it's a really good indication I think from a founder's perspective whether you're doing well, is actually if you've met the whole team within two or three weeks, that's typically a good sign. Then our decision making is, we will hold an IC whenever, wherever. The last two deals we've done IC calls, I was in Utah for one of them staring out at Bryce Canyon, which is amazing, and then the IC call we've just done, [inaudible 00:21:24] Car Associate, was in Rio. We're very nimble. We're not kind of, yeah, we do an IC once every month or once every two months. We just get it done.
Alan Cowley: You've talked about the process here of investing in companies. What are the most important aspects when you are actually doing the investment? I'll ask you that first, and then afterwards it'd be good to hear about your views on defensibility in IP and how that plays into, again, the process of investing.
Chris Smith: Sure. We are looking for outstanding founders, which is what every VC and angel investor in the world is looking for. But I think to put that in some kind of context, I mentioned before we see about 400 deals a month coming through. One of the reasons for that is we have a Pitch Us form on our website. Anyone can pitch us, so we believe that access to VC should be open, it should be meritocratic, everyone should be able to apply. We see a lot of deals. If you then think we take 400 a month, we do six to eight deals a year, everyone knows those numbers, but I think that context first before we say what we're looking for, because we're looking for founders that really are outstanding, and that can be a mixture of things, but it tends to be, it's about character first and foremost.
There tends to be a track record of performance, whether that's academic, whether they've got a PhD in the domain or whatever it is, but it's just about the fact that we think that they are going to succeed. There's this really good book that Joe, my colleague, talked to me about, about jagged CVs. I'm going to forget the name unfortunately, but it's a really good example. We don't just look for the obvious. You don't have to have gone to Oxbridge, or a London uni and then worked at Goldman or whatever it is. We don't necessarily care about that. If you're an international level sports person or if you've played a musical instrument to national, whatever it is. I think we're looking for people who are outstanding and show that kind of record of achievement.
It's really, hard to put it down into quantitative aspects though, because we just know when we see it. We just know if there's a founder that lights up the room, that just engages you, that's fundamentally what we're looking for. I think on top of that, we are looking for supportive markets. Markets that are ripe for disruption, markets that are growing quickly that can sustain a big business. There are loads of other things. Obviously we look at the idea, we look at the plans and everything else, but we know that things are going to change. We know from the minute we invest, whatever we've actually seen on a business plan, we're going to help them to change the narrative probably 10 times before we raise more money or before we do whatever else. It really does come down to the founder and whether they're in a big enough market.
Alan Cowley: Okay, and then defensibility in IP, where does this factor in on this decision then?
Chris Smith: I see it as edge, which is borrowed from the hedge fund world, but I think a company, needs to have some, kind of competitive edge or advantage. That doesn't necessarily have to be hard IP, and I think there are some start-ups that are very proud that they've got a patent for a particular, process. It's not always a positive though, because a patent exposes you. If you're a small company, particularly a company that's trying to take on some of the bigger established incumbents and you expose yourself, can you afford to fight a patent infringement suit? You can't.
Alan Cowley: What do you mean by expose yourself there?
Chris Smith: If you have a unique methodology or way of doing something and you keep it to yourself, and the only people that know the people in the company, that is very well protected. Some of the best secrets in the world, like the formulation for Coke or how you do this kind of stuff, they're all just secrets. They're trade secrets, you keep them yourself. If you register a patent, anyone in the world can go to the patent registry, they can see what you've registered, they can see your methodology, so you have exposed a lot of your thinking.
That means two things can happen. One is that other companies can think their way around the patent, which if you've got enough smart people, you generally can, particularly in the US actually where it's easier to get a patent. But the other thing is people may litigate. If you're taking on, as I say, the really big tech companies in the world, you've got an amazing new method of doing something that they also do, they'll sue you, and then you have no cash. You can't fight that. No investor, VC angel is going to put up money to help you fight a litigation.
Alan Cowley: That's extremely insightful, and we haven't heard of that way of thinking about it before on our show. That's really good advice for entrepreneurs to think of it that way.
Chris Smith: Yeah, and I think there's nothing wrong per se with getting a patent, but it's just, it's not you have to, and it's not you must. If you've got patentable technology, just keep it to yourself. We've actually had that conversation. One of our investments, a company called uMed, has got some incredible technology with the way they are engaging with patients. Their whole business is about improving patient engagement, speeding
... up the time it takes to assemble cohorts of patients for clinical trials. You've got some amazing technology and the founder was saying to me, "We should patent this, shouldn't we?" We said, "No, just don't tell anyone." And that's the decision we've made certainly for now.
Alan Cowley: Okay, brilliant. Before we move on to entrepreneurs, I just want to hear a bit about what the failure would be for a VC, not just a company not succeeding, but what are the failures that you kind of see as a VC?
Chris Smith: I think the biggest failure we've got, and this applies to us as much as the entire industry, I just think diversity is such a big and such a real issue, and I think that comes in many different forms. The fact that only 8% of VCs, I was reading recently, have any operational experience in Europe. Now, it strikes me as bizarre because, especially at the seed stage, your job, I think, is to invest in companies, and then help them on their journeys. So, I think that is a concern. We recently invested in a company called Vine Health. We invested because the founders are brilliant, and we think it's an amazing opportunity. I only found out after doing the deal that only 2% of VC dollars globally go to all-female founded teams, which just blew my mind.
And then you have VCs themselves who, again, tend to be like white guys like me. I think it's not going to be solved overnight, but it's something the whole industry needs to work on, because we're only going to find the best companies if we have access to the whole universe of companies. Not just the companies that come through our referral networks, [inaudible 00:27:29] always been very passionate about backing any first time founders doing amazing things, and I think we've realised we need to broaden that even a little bit more, and say underrepresented founders, female founders, whatever it is, we need to do more to get them into the ecosystem, and to also gives them the confidence to push forward, and actually try and raise funds.
Alan Cowley: Let's move on to the entrepreneurs. What do you think are the biggest challenges that entrepreneurs face during the journey?
Chris Smith: I mean there's so many. I think there's probably three key ones I'd point to. So the first one is noise. I think that it applies to all aspects of our life now. There is just so much noise: your email, your LinkedIn notifications, your Facebook, your Instagram, et cetera. You're constantly bombarded with information. And I think as a founder is even worse because you're thinking, "Do I need to be at that conference? Do I need to join that accelerator? Do I need to raise this money?"
So, trying to filter out the noise, and just focus on building what you're building, I think is absolutely, key. Yeah. And little techniques, you know, actually like just switch off your email for half a day. Nothing bad is going to happen, and then focus on something. I found it increasingly at plan.com as we got bigger, then actually our thinking time only really happened in the evening, because during the day it's just this storm of different forms of communication.
So, I think trying to get away from the noise, and really focus on your strategic plans. Absolutely key. I think that sales is something that's hugely underestimated in start-ups. We see it particularly because we like deep tech, so we find founders who have deeply technical backgrounds. They may have just come off a Master's or a PhD programme, and so that real world nouse and understanding of sales tends to be lacking. And it's really hard to actually get people's attention nowadays. You know the whole how you build your funnel, how you get your CRM set up, all these things are sometimes a bit of an afterthought. So I think having a real awareness of how you're going to build your sales team, who you're selling to, what the vested interests are that want to stop you or help you succeed at absolutely key. We actually like to help founders on that, but they need to have that kind of basic understanding of their market.
And then I think funding. I think figuring out when to get funding, what funding to get, who to get it from, are all very challenging questions for founders. It really should be an early, and a two way conversation, with anyone you're thinking of having invest in your company. And unfortunately you see this, where founders get in a position where they just need money, and they'll take it from anybody. And you know, we see people in the ecosystem charging 8% fees and then 2% monitoring fees, and then warrants on top. I think it's a great shame. I think founders should really do that diligence and make sure they're getting smart money that's going to help them out. But equally that they're partnering somebody that they want to be on their journey for the next 10 years.
Alan Cowley: Talking about funding, and as an investor, what are your views on founders cashflow, and bootstrapping, and using that funding wisely, I.E. To stretch out rather than just spend it and just have to go back for some more.
Chris Smith: I like to see founders who do a lot with not very much. So when people come into pictures for the first time, one of the biggest turnoffs is you see this sort of really nice business plan, and again, "We're going to build this, we're going to build, there's going to b- ..." "Oh, what have you done so far?" "Well, we're waiting to raise the money until we actually go out and build it." That's a massive turn off. So we like people who have gone out there. But one thing I like in particular, when someone's building a marketplace, and they don't have any of the software, but they're basically running a marketplace on Xcel email, and phone calls. So they're basically proven the model. They haven't got the software yet. So I'd like to see people who do a lot before they come, at least to us, and asked for funding.
I think the flip side of that is when there is a market opportunity that has a limited time period, or there's some specific reason that you need to accelerate what you're doing. That's obviously when funding makes sense. And I think founders just need to be constantly asking themselves that question, and also figuring out what their ambition is, because there is nothing wrong with building a company that's going to pay you a really nice salary for the next 20 years. That's fine. Not everyone has to go and raise capital. So I think just constantly reviewing that, makes sense.
Alan Cowley: Okay. And what about the biggest mistakes entrepreneurs make?
Chris Smith: I'd go right back to the beginning on this and I would say that their motivation isn't right. So what you want really in life, and this is thankfully what I have now, you want to leap out of bed in the morning, be excited about what you're doing, be passionate about what you're doing.
Okay. It took me nearly 20 years to find that role, but I, as an entrepreneur, it's just so tough to build a company. You want to be genuinely passionate about it, so you get through the hard times. And I think what we see, I'm not sure it's specific here in the UK, but we definitely do see it here. We do see people who are attracted to entrepreneurship because it's cool. Because, actually, there's this cult of celebrity around founding a company, and being a billionaire. What most people don't talk about is the downside, which is it's extremely hard work, and your chances of success is really small. So I think I go right back to the beginning and just look at that motivation. I think people tend to be in a bit of a rush, so they think, "Well I just, I've got to do this company now. I'm 25 I've got to get on with it." Actually, there's nothing wrong with going to work for a bigger company, getting a good grounding, really understanding what's going on in that market and then moving out to create your own business.
Alan Cowley: Yeah. We've actually had a few people in the last few interviews that have brought this up actually, about the societal push toward entrepreneurial-ism, but without that motivation behind it. Just cause it is cool, or it's the thing to do, and I think that is absolutely spot on. People need to think about it before they actually leap on into that cool, entrepreneurial venture.
Chris Smith: I think so. And I think people probably actually undervalue the experience you get at big companies. So it's quite cool I guess to say, "Banking's crap, I don't want to do that. I want to do a start up." But actually if you join a bank for two to four years, you're going to learn so much. It's going to give you an incredible grounding. You're going to understand how to do deals, how to do valuations, all these skills you can use going forward. So, and getting back to what I said, I spent longer in law than I initially planned, but it was incredible grounding. You know, I know how to do a deal. I've seen loads of people doing sort of big private equity transactions. I've seen them go wrong. So I think people are in too much of a rush and there's nothing wrong with getting some experience first.
Alan Cowley: So just before we go to our last question, you've got experience as an angel and as a VC. What do you view as the biggest differences between the two?
Chris Smith: I think the main thing is that as an angel, your accountable only to yourself. So that's a positive in the sense that you can write checks after a 30 minute conversation, which I wouldn't recommend by the way, but you can do that. The downside is, that you don't have the rigour and the colleagues necessarily to bounce things off and to do a sense check. So I think that being an angel is a lot of fun. One thing we need to do in the UK system is try and professionalise angel investing a little bit more. Encouraged people to yes, trust your gut, but actually do your diligence, and talk to other angels. And some of the angel investment clubs, like Cambridge angels of course, there fantastic places for that. If you're an angel investor looking to get into angel investing, you can really learn a lot from other people's experiences.
Alan Cowley: Your VC now and an angel investor obviously. What does the future hold?
Chris Smith: So, I'm incredibly excited to see where we can take Playfair. Freddy did an incredible job building an amazing brand. It's incredibly heart-warming really to go meet people, "Oh I love Playfair." Brilliant. You know, that's all Freddy's hard work building that up. For me, it's now about making sure we've got the right team in place, to make sure we're around in 10 20 years, time. We actually can build this into a long-term institution. Alan Patricof, I don't know if you've come across him before, is that there's an 85 year old VC who still goes into the office every day. That's the kind of role model I look up to, because this job is just unbelievably interesting and exciting. I'd like to do it for a long time.
Alan Cowley: Let's keep going. Keep going. Chris, this has been hugely enjoyable, and also insightful. Thank you very much and all the best for the future.
Chris Smith: Thanks very much.
Peter Cowley: Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website invested investor.com or via a number of podcast platforms online. Remember, you can order our book online and be sure to follow us on Twitter, LinkedIn, and Facebook to get the most up to date, interesting and insightful content from the Invested Investor.
