Luke Hakes - “Raw intellectual horsepower”

Podcast transcription - 13th february 2019

Alan Cowley:                    Welcome to The Invested Investor. I'm sat here with Luke Hakes. He is a partner at Octopus Ventures. Luke is here to talk to us about Octopus Ventures, being a VC and the success and failures that he seen along the years. So, Luke, could you introduce, yourself to the listeners?

Luke Hakes:                     Yes, so, I've been with Octopus pretty much since the start of the fund, So, for 10 years now. So, when I joined it was just after the fund had been started by the four founders. The fund was about 20 million in size, and over the last 10 years we've grown that from 20 million to a billion, almost, as it is today. I've been very fortunate to be part of that journey and work with fantastic people along the way.

Alan Cowley:                    How many companies have you invested in? Do you know that number?

Luke Hakes:                     Well, in terms of total investment I would say it must be up towards a hundred. We've currently got about 65 in the portfolio. And then there's a whole bunch that we've exited over the years that have failed, and others, we've exited in a not so, great way.

Alan Cowley:                    Okay. so, what about you?

Luke Hakes:                     In terms of actual deals, I would say in some way or another I've touched all, of those deals, whether it's being on the Investment Committee or I've been part of the deal process, doing the deals and making the investments. I would say maybe a third, I've had some involvement in.

Alan Cowley:                    Oh, brilliant, we'll get to some of those companies, later. But let's step back a bit. So, before you were at Octopus, did you do something in finance that led you towards this?

Luke Hakes:                     So, I started my career as a scientist essentially doing big data in the Bio-sciences space.  Computational Genetics, which is a far more interesting term, than it is a subject. Certainly, when you're at the coal face, I realised that being a scientist for the next 30 years probably wasn't what I wanted to do. And so, I moved from there into business by way of technology consulting.  I leaped from being a scientist, into technology and management consulting. A hybrid, between, strategy and Accenture, “how do we implement the technology that is going to deliver that strategy”?  I spent a few years there and then, ended up working at Goldman Sachs where I was launching new business units.

                                           So, if they wanted to launch a new bank in Russia, I'd be part of the team that put the bank together and put the technology and the team in place. And then I'd move on to the next and pass that to the business to operate on a day to day basis. In 2008, when Lehman Brothers collapsed, I left Goldman and joined the four guys that started Octopus Ventures and I've been here ever since.

Alan Cowley:                    So, your science background lead you into business, is that what you use as a background, for how you invest?

Luke Hakes:                     I think it's valuable in two different ways. I think being able to assess and interrogate, in a very analytical way, companies that come to us. Certainly, in the early days, when I was at the coal face doing the analysis of these businesses, it was super valuable. So, being able to get some hypotheses, test those hypotheses, as I'm working with those businesses and helping them think through that. Being able to look at counter-factuals, and how you make assessments of the way things work, I think, was super helpful, just understanding deep technology and frontier technology. Whilst, I did the majority, of my work in the genetic space, I'm a massive science nerd. I have a really, broad interest across physics and bio-sciences and engineering, being able to span all those disciplines. Given that, in the early days, Octopus was very much a generalist, we still are a generalist, but having that breadth of knowledge, interests and to some extent, experience. It really helped me identify companies in the early days and that core analytical skill set is still useful today.

Alan Cowley:                    Is that what you look for when you are hiring?

Luke Hakes:                     I think, for me, the things we look for are raw intellectual horsepower. So, that doesn't necessarily mean a scientist. It means somebody that is smart, can figure things out, is a self-starter, and, we couple that with cultural add. So, we've got a very strong belief in having a diverse team, in as much as, a diverse team improves our performance. So, we try, to hire for diversity. And for us that's cultural add rather than cultural fit. So, when you look across our team, we've got a very interesting mix of different personality types, different backgrounds, different subject matters, different experiences. We believe having that holistic and diverse set of individuals enables us to make better assessments as a team, when there's no specific expert in a specific area.

Alan Cowley:                    So, let's go back to the companies that you've invested in and, sat on the board off. Was your first one, to do with your science background?

Luke Hakes:                     The first business I ever got involved in was in relation to my background. So, it's a long story, but I'll cut it short, given the time we've got. When I interviewed for the job, I asked the team what businesses they were currently looking at, there was a company called e-Therapeutics. It still exists. It's still operating and since, raised I think, 60 million since we made our initial investment. I’d asked what does it do? And it turned out, that e-Therapeutics did drug discovery using a Systems Biology approach, which was, actually using systems biology and network analysis to determine the effectiveness of the things in a network, which was what my PhD was on. So, just by chance on the day that I turned up, the guys were looking at a business that probably only six people in the world had any real insight into.

                                           And it just so happened, that, I was one of those six people. So, if there was ever a fate, I guess that was potentially, an example of it.

Alan Cowley:                    That's absolutely brilliant.

Luke Hakes:                     A pretty, recent example of a business that was very successful, in a very short, period of time, would be something like Magic Pony. In our company we were only investing for 18 months or so, essentially it went from absolutely nothing to being acquired by Twitter, an extraordinarily successful company, in terms of returns, but a business that hadn't proven that much, at the point that it was acquired. So, in the case of Magic Pony, they had an absolutely world class team and that is an enormous driver of value and success and maybe we can pick up on that later. But they were also addressing a problem that was super interesting to the market, which was video. And obviously you know today, video makes up an enormous part of the traffic that's on the internet and is increasingly an asset that's being leveraged by all of the major tech players in various different ways, it goes without saying. But more interestingly, they're also, doing something in the AI space with video, which by de facto, makes them an interesting company to investors, even without investors knowing anything about it.

                                           But, it also, makes them an interesting company or made them an interesting company. With respect to the acquirer, and the type of talent that it would be acquiring when it bought the business. Finally, they found themselves in a situation, timing wise, that was, absolutely, perfect, in as much as Twitter had just announced, that they were focusing a lot on video and it so happened that they didn't have a video team and we had one of the most interesting video teams in the market.

Alan Cowley:                    Little bit of, a right place and the right time?

Luke Hakes:                     Right team, right place, right time. I think it's often said, that success is a combination of talent and luck, and great success is a combination of talent and lots of luck. In this case, I think there was quite a lot of luck, but there was an enormous amount of talent as well.

Alan Cowley:                    Yes.

Luke Hakes:                     One company that I'll mention now, which is still to be proven, I think is becoming quite interesting, it's taken a long time, it’s a company called UltraSoC Technologies. It is a Silicon IP business, it operates in the semiconductor space, which is an industry that hasn't been that successful for European VCs. As such, over the last few years it has seen very little interest from European VCs, that poses its own challenges for companies operating in that space, which we can maybe pick up on later. UltraSoC has been building technology, probably, for near enough, I would say, seven years. And it's only in the last two years that, that company has really started to be commercially active, and by that I mean really generating commercial revenues and growing very quickly. Growing of the order of 150% plus, per annum.

                                           And So, that's a business where patience has been a real virtue. It would've been very easy for us, I think, to walk away from that company after a few years, had we not been the kind of investor that really, understood that this was a 10, year time, horizon. We are pretty, fortunate at Octopus, in as much as our VCT, our early-stage fund, provides us the opportunity to have that long term, horizon. It's an evergreen fund, so, there is no end of fund lifetime, that we need to aim at. And that enables us to make quite early investments and quite early bets into frontier technologies, that are going to take time to develop. And I really, think that UltraSoC is now, in a position to capitalise on what is an interesting market opportunity. There's a change in the market now, ARM has been purchased by SoftBank, the whole industry, is now considering the shift to an Open Source Model, RISK-V, which is the kind of open source competitor to ARM. It is a perfect opportunity for UltraSoC to capitalise on that shift.

                                           So, in this instance, rather than just turning up, in the right time, we've given the business time to be able to reach a point at which it has an enormous opportunity. Again, fantastic team, technically big market opportunity. The things that we look for.

Alan Cowley:                    Yes. So, they obviously thought there was a market and you've kept with them, until there is a place for them.

Luke Hakes:                     Yes. So, they had a hypothesis that, in the future, with the complexity of chips getting increasingly greater, there would be a necessity for their technology. We absolutely, bought into that hypothesis. That's the case for many of the companies that we've invested in. The question is, how quickly does that happen? And then the challenges, can you continually fund a business until it does? And, when we talk about failure, if you were to think about the three main reasons why companies fail. One, is people, and that drives failure around a whole bunch of different vectors. The second, is making something that nobody really wants and essentially a product market fit or, just not solving a problem that's interesting. Thirdly, it's running out of cash, that can happen for a bunch of reasons. Maybe you didn't have a product market fit and it took longer and you ran out of cash. Maybe you had to change the team and you hired the wrong people and you ran out of cash. But ultimately running out of cash is what causes failure.

Alan Cowley:                    So, we've talked about team, we've talked about patience and finding a new fit in the market. Are there any other successful companies that you've had that you can talk about?

Luke Hakes:                     Moving away from deep technology and looking at something that's probably a bit more accessible, we were early investors in Eve Mattresses. Which, though there's been some challenge in the press recently around their performance, the business, I think, is still going well. It's only growing at 80% per annum rather than 100% per annum. There again, the team played a huge part, in that instance, for me, it was domain expertise that was the interesting element. So, Eve was the first mattress in a box, business to be funded in Europe. Under normal circumstances it's not something we would necessarily do, because the product is relatively undifferentiated. It's an amazing mattress, but it's still a mattress. There's only so much innovation you can do in the mattress space. But in this instance, the team have a deep domain expertise around what it meant to scale a mattress business. And that's a commodity that is rare, I would suggest, in Europe. The founding team had scaled the mattress business via a group on campaign. One of the people in the team was a brand person.

                                           So, when we took the scaling knowledge and the understanding of the mattress supply chain and combined that with the desire to build a world class brand, we have the ingredients, and the unfair advantage, that would enable us to invest in a mattress business and scale it very rapidly. And, treat it, as though it was a tech business as opposed to something that might take a long time typically in the furniture industry. So, that's a business that scaled from nothing, to tens of millions in revenue, in just a couple of years. We floated that. It was really a combination of an outstanding team and disruption in the marketplace, never done before in Europe. It had been demonstrated in the US, and, in this case, a kind of US style funding strategy. In order to make that kind of company work, we needed to think about how we could own the market, how can we could own mindshare, and what kind of funding strategy is going to be necessarily to do that.

                                           Unlike, maybe, historically in Europe where, European investors have provided small amounts of capital initially and then maybe run a business for a period, to see how it goes without putting any, additional weight of capital, behind what appears to be good, early unit economics. We made the decision we wanted to build Eve into a brand leader very quickly. So, after the seed investment where ourselves and DN Capital invested a few hundred thousand initially, we very quickly followed on with a few million and then a few tens of millions. Then we floated it. Almost within the first 18 months of the business's life cycle, it raised the order of 45, almost 50 million. That enabled it to go from being a brand new, brand, to getting massive market penetration and into being a, well known, company.

                                           That's a perfect example, which runs counter to my initial comment, which was, we can be very patient. When we recognise there's necessity to be patient, in as much as, the market may not be ready for the technology, or we need to help build the market in some cases. In that instance, we know people buy mattresses, we know the experience is horrible, we recognise there's an opportunity to change that, and the idea here, was to change it as quickly and as drastically as possible, to catch everybody off guard. That just requires a different approach and a different funding strategy.

Alan Cowley:                    Brilliant. Let's spin this around and try to be as open as possible. Let's talk about some failures and why you think, some, of these companies have failed and what's gone wrong.

Luke Hakes:                     We obviously, have a bunch of failures to our name, if we didn't, we wouldn't have taken, sufficient risk. Companies fail for a whole host of reasons. Principally, I think, from my perspective, it's people. So, that can be multifaceted. It's easy to say, it is people, but, in some cases, it's hiring the wrong people. In some cases, it's the right people falling out with each other, so, disagreements between founders, or, early team members, or just failure to hire the right person into the right role, or failure to move people on quickly enough once you have realised, they're the wrong person. Having the wrong people, essentially, prohibits you from doing the right things in a whole host of areas. If you've got the wrong people in technology development, you build bad product. If you have the wrong people in marketing or no people in marketing, you don't market. If you have the wrong people in finance, maybe you have no financial controls and you waste money or lose money in other ways.

                                           Really, when you look down at all the reasons for failure, they come back to the team. If you were to invest in a team with the best ideas in the world and the ability to execute better than anybody else, almost certainly, provided they do something, which is a big problem for people, which in theory they should if they're good people, you will have a successful company. I always say that if I could have one attribute, that I could test for, prior to making an investment, it would be the entrepreneur's ability to hire and retain talent. If an entrepreneur has that ability, almost certainly they will find a solution to the problem they face by finding somebody to find that solution.

Alan Cowley:                    So, does work in a corporate environment beforehand, or a management role, or having had their own business before, do they have big bonuses when they come to you?

Luke Hakes:                     It really depends on the stage of the company. At a start-up stage, the principle thing we look for is domain expertise. So, it's, does this individual understand the market that they're going after? Do they understand the nuances in that market? Are they solving a problem that exists and that people think is valuable? It's no good building a product that you think is interesting. You need to, build a product that everybody else thinks interesting, and that solves a problem, otherwise, you don't really have a business. People with domain expertise tend to have identified what those problems are and have started the company because they want to solve them.

                                           The second thing is a passion and a north star. What drives this individual? Is it a belief? Is it something to do with their domain expertise? Is it something else? You need to have that north star, because, building a company is extraordinarily difficult. Some founders, who find a problem, that they don't know very much about or may not be that interested in, but see it as being potentially lucrative, really struggle. They struggle because, they don't have domain expertise, so, it may not be a sensible problem. They then struggle, because they don't care enough about it. While you should, in theory, always care about the business that you're building, unless you care about the problem, actually, in the majority of cases, when things get tough, it's much harder for you to find the grit to continue, pick yourself off the floor and say, "Actually, I'm driving towards that north star." We often see intelligent founders who have got a good business idea but haven't really got domain expertise and aren't really driven to solve a problem, in our experience, it's best to try and avoid those founders.

Alan Cowley:                    It obviously doesn't always happen.

Luke Hakes:                     Doesn't always happen. Indeed, sometimes and certainly in the past, we have been blinded by the excitement around a problem, the excitement around a technology and then found ourselves, somewhere down the line asking questions around what direction we're going in, when we suddenly find that the direction we set off in, is not the right one. In the absence of that north star and that drive, sometimes, the founder can turn around to you for the answer. That's when you know you've probably made a mistake, because whilst we all have certain strengths, within the team, differing degrees, and in some cases lots of experience working in start-ups, there's no way that I should be telling you the direction that your business should be going in.

Alan Cowley:                    Yes.

Luke Hakes:                     I can advise and challenge, and connect you with people, and, in some cases, I may be able to add additional value, but you need to have a north star.

Alan Cowley:                    Obviously at the start, this was all very new to you, investing in companies. When did you get over the shiny objects? When did you kind of realise, was it your first investment? When you realised, I can't just say, "I love the idea. Let's just invest and invest." Obviously now, you've a lot more knowledge. But it's something that I hear, quite a lot, where early stage, when you're just starting to get into investing, when you're new to investing or VC. It's hard to get past, "This looks amazing. They're saying it's amazing. It's a world changer."

Luke Hakes:                     I think that assertion is doubly difficult for a scientist, because inherently, as a scientist, you're driven by problems, not necessarily the people solving them. Those, problems, tend to be big problems that are challenges for the world, as you see it. They may not necessarily, be economic, and they may not necessarily be commercial. There is required, a significant, rebasing of what does an interesting problem look like, and what do the people addressing that problem need to look like in, order to make that commercially successful. I would say in the early days, I was quite attracted to teams of smart scientists or smart technologists, that were solving problems that I thought were interesting. They're not inherently bad attributes. You just need, all the other stuff around it, in order for those to be interesting companies.

                                           Very quickly and one of the benefits of joining a team with people, who have more experience, in working with companies and making investments, than I had, was being able to leverage the early years as an apprenticeship, and rebase what I thought, was good. So, I'd often go into pitch meetings, come out and somebody who was in the meeting with me would say, "What do you think to that?" I'd articulate all the positives I saw. They'd say, "What about this? What about that? Do you not, think that was a problem? Do you not, think this is a problem?" Then you get into a discussion. So, I think having an environment where there are others around you, and I'd put this advice to anybody, it's always great to understand what you know, understand what you don't know, and find people to fill in those gaps. Yes, I would say it took a few years for me to find a level, whereby I was out of that scientist mindset, and more into a true investor's mindset.

                                           At the time, I probably thought I'd got there earlier than I had. I was still spending time looking at things that I probably should have passed on, in the early days. Certainly when we hire new people, into the team, we just hired four new analysts into the team, you see early on, the kind of companies that they spend their time looking at and help them identify the reasons why they may not be the best companies for them to take forward, or to spend more time on, or to do analysis on. That sense that you get of people, and the opportunity, and what's going to work and what's not going to work, comes with experience. That's just the reality of it.

Alan Cowley:                    Okay, so, we've talked about people and possibly experience. What other reasons for failure have you had?

Luke Hakes:                     Timing. So, whilst I said we can be patient investors and have an evergreen fund that enables us to wait for the market, or at least, fund the business to the point at which the market approaches it. There is a limit to that capacity to wait, and to the amount of risk you're willing to take with a company, in terms of providing it with capital. So, we invested in a Cloud video production business, which essentially was trying to move video production from On-premise into the Cloud, perfectly sensible idea. In five, years’ time, that's probably how all video production will be done. What I think, we failed to appreciate, or underestimated, was the investment that the customers had already made, in equipment that was sitting in rooms on their premises. Whilst they love the idea of Cloud video production, they had also spent a million dollars on On-premise video production. The argument from them, is, "Well, if you come back in three to five year, we'll buy your stuff. It's just we have stuff that works, and we don't see any reason to change it."

                                           The question then for the entrepreneur, is, do you continue to try and sell this amazing solution, which everyone will use in the next five years, or do you try to find a way to address a separate market with that technology. In that instance, what happened was, the business pivoted. You could say timing is a reason for failure. The way to avoid failure, if timing becomes an issue for you, is to potentially pivot. Failure to pivot can be a reason for failure or having a successful pivot or not having a successful pivot. What they did was pivot the technology into an industry that needed Cloud video access and production capability today. They hadn't got a solution, and that was a much more interesting offering for that industry.

                                           In that case, it was an industry that the CEO have no domain expertise or knowledge of. So, they were very, very nervous about going in that direction. It was only by adding people around the CEO, and by the CEO finding others to work with, that meant they were able to get comfortable and confident about how they should go about addressing that market. How big it was? How the players within that market operated? What the requirements would be? I think that will go on to be a very successful company. Had it stayed on the trajectory of wanting to work with video production companies, it would have failed outright. The company still didn't succeed. You know, we had to restart the business, but we took the assets and the raw material that were in there and pointed it in a different direction, with the same CEO, in that case.

Alan Cowley:                    It Sounds like CEOs have come up quite a bit here, about them adapting, whether that's adapting to a pivot, adapting to life as a business leader rather being in a lab somewhere, for example. Have you had any examples where a CEO has really pushed back, and you've tried to mentor them and help them as much as possible, but they haven't been, open to change?

Luke Hakes:                     Yes, we have. I won't give specific examples in this case because the businesses are still running, and the individuals are still part of those companies, but there are instances where we've had to step back from the board simply because, you can take a horse to water, in many cases, but you can't make it drink. And in those instances, the CEO is just very unwilling to change the way they operate. Now, that may not be around market direction, or product direction, it might be around management style, or hiring. There comes a point, at which, if you are not being listened to, and relationships breaks down, then sometimes it's best to take a step back and do what you can from the side-lines, rather than have a proactive partnership.

                                           We love to have proactive partnerships with everybody that we invest in, but you can't spend all of your time with everyone, and if there's an individual in your portfolio that isn't keen on taking advice and working with you in a proactive and cooperative way, then sometimes it's best to step back and use your energy on other companies, that are.

                                           In terms of people, one of the key things, is not being afraid to move people on, effectively rowing the boat. So, if you think of a start-up as a dingy, there's only enough people, probably, for five or six, and they all have got to row hard. If you've got someone that's not rowing, you need them out the dingy, even if that's a founding member of the team. There comes a point at which, often you have to replace that person, and that is a really tough decision for CEOs and founders, and actually for investors. I've never seen a situation where we have made the decision to change somebody and thought, "That was the wrong decision."

Alan Cowley:                    Is that something that you advise to all entrepreneurs, when you invest in them?

Luke Hakes:                     It's about having the right people in the right seats, at the right time. And it's about not hiring too large. So, there's no point in hiring somebody that you're going, "Oh, in five years' time, we're going to be 10,000 people. I need a sales manager that's going to be able to manage 500 people." You only hire for the next 12 to 18 months, and if that person is not going to work out 18 months after that, change the person. But everybody is on a kind of short life cycle, until they can be proven that they can scale with the company. It's not like you've got a steady, steady business. The business is scaling, and the people need to scale with the company, and that's just hard to assess.

Alan Cowley:                    So, have you got any other tips for entrepreneurs?

Luke Hakes:                     My number one tip to any entrepreneur starting out in business, today, from scratch, would be hire good people, make something that other people care about, and spend as little money as possible doing it. If you do those three things, essentially, you'll have a team that builds a product that somebody is interested in, and you'll get to a point, hopefully, of product market fit, before you run out of cash. That is a key tenant of any start-up. From there on in, it's a host of other challenges that you can solve. But that would be the initial start-up tip.

Alan Cowley:                    As an entrepreneur that maybe hasn't got any business knowledge, has never hired someone before, what advice would you give as a board member or a mentor to these start-ups, to actually, hire the right person? How do you know?

Luke Hakes:                     I think that's a common issue, right? Especially where you have first time entrepreneurs, or maybe tech founders who have never built a team before. The way we do it, or tend to help companies, is to, first of all advise on the core functions of a team, that we think, you should have in place. Whatever stage the business is at. Then it's about, introducing the person, that's doing the hiring, to world class examples, of whatever that function is, and then simply saying to them, "Ask those individuals what they think you should be hiring for, give them the stage, and what the attributes are." And, also, what are the interview question they would ask if they were interviewing themselves?

                                           In that way, you essentially get, kind of, transference of world class expertise, to some extent, onto an individual who has probably never hired that kind of person before. It's incumbent, on that individual in the team, if that's a CEO, to disseminate that captured knowledge to the other team members, because typically, in the early stages, everybody is going to be interviewing each individual, and so, everyone has to understand the kind of questions you need to ask a CFO if you're going to hire a CFO.

                                           So, why not go and find three or four world class CFOs and ask what questions you should be asking, and how you should be hiring a CFO? That's a strategy we use when it comes to entrepreneurs, not necessarily understanding what kind of function they need in their company. So, sometimes, we might say, you need a CFO, and there's often a pushback from the entrepreneur that says, "Well, I don't think I do." Rather than me trying to convince the entrepreneur, what I tend to say is, "Well, let me introduce you to some world class people in that space, or with that skill set, and just go and have a conversation with them, and ask them what they do, and the kind of things they might be able to do for you."  I think very quickly, it tends to be the entrepreneurs going, "Oh, wow. I didn't realise that person could do, those kind of things for me." All of a sudden, it goes from a conversation of why do I need that person, to, how do I find them?

Alan Cowley:                    So, that's obviously a tip that I can imagine you give to any investor, as well, is connectivity?

Luke Hakes:                     Yup.

Alan Cowley:                    So, if you are investing as a VC or an angel, connect people. Are there any others that you can think of?

Luke Hakes:                     Yes. It's about base-lining. It's about helping entrepreneurs understand what good looks like. That's the challenge. If somebody has never hired a team before, they can go and hire a team. The question is, is it a good team? And if you don't know what good looks like, in a whole host of functions, that you've never had any experience with, you're never going to hire the best team. Which is kind of going back to point one.

                                           Number two would be find the right investors. I'm sure every investor says that, I still see day in, day out entrepreneurs believing that cash is a commodity, truly, and not appreciating how different kinds of cash come with different headaches, benefits, or drawbacks. And, really, understand the nature of the fund, if you're going to a VC, where is that fund, in its’ cycle? Can it follow on? Is the fund an evergreen fund? If you're trying to do something over the long term, or that's beneficial to you, that's probably worth a conversation. How much capacity is there to move through multiple rounds? It's a huge distraction. Fundraising. So, try and limit the number of parties you go out to, if you can.

                                           Similarly, around board members, and advisors. I often see early-stage founders collecting advisors, giving them equity because they think it's a good thing to do. Getting the best out of advisors is very challenging, and you'll soon give away quite a lot of equity if you simply offer up a piece of equity for somebody to sit on your advisory board for. You'll find, in many cases, that if you do that without any strings attached, you get very little advice. So, I would be frugal with the equity. I would be targeted with any advisors and I would be specific about my investors.

Alan Cowley:                    How do you feel about the relationship between angels and VCs, do you think there needs to be an improvement there?

Luke Hakes:                     So, we love angel investors. We'd love to work more closely with angels. I think there's often a bad reputation that VCs have with angels, and some specific angel groups, that take, quite a dim view of some of VCs in the market. I think that's historical, because of misalignment. It's historically because of firepower, if you like, and it's often because of missteps, maybe, taken by both entrepreneurs and angels in the early rounds of investment in a company. So, I often see start-ups, that have raised money, at very, high evaluations from angel investors. That doesn't necessarily chime well, with the institutional community, when those companies come out to raise institutional money, the effect of that, is often that those businesses struggle to raise capital at the evaluation, that they raised money from the angels, and then there's a down round. I think VCs get blamed for essentially pushing the value of the company down and diluting angels unnecessarily and then imposing punitive terms, et cetera.

                                           But it's often, the business that shouldn't have been valued at the value it was, so, it's very challenging for the institutional investor to do anything else, if the business is of interest. Clearly that changes, from a dynamics perspective, if there's multiple parties involved, and for those lucky few that have that kind of excitement and that kind of business, they'll get their rounds away at high valuations, come what may. But I do see that as a point, often, of friction.

                                           We invest very much on angel terms, when we do seed deals. We see quite a few institutional investors imposing series A style terms, in seed style investment, and I think that can grate angels, if they have already invested in the business. If, they are investing alongside VCs, sometimes, that can be a benefit, because they get to take advantage of those terms.

                                           Sometimes, I think VCs, can be seen as heavy handed. I think there's definitely Some folks in the market that are like that, but just like angels, there are heavy handed investors that are light touch investors, or entrepreneur friendly investors, and it really goes back to my earlier comment of understanding the investor that you're bringing on board, understand their attributes, understand the way they work. Reference check your investors, and I would say to anybody that came to speak to us, whether that's angels or start-ups, is, feel free to ring any of our companies, or any of our co-investors, and ask them what it's like working with us and investing alongside us. I'd hope we'd get a good report, but in the interest of transparency, we're happy for anyone, to call anyone, and I think if you can honestly put your hand on your heart and say that, then I don't think you should have an issue, or a bad reputation, working with anyone.

Alan Cowley:                    Yes. At the end of the day, you're all looking for a successful start-up, aren't you?

Luke Hakes:                     Exactly. We're all trying to build big companies that do something amazing in the world.

Alan Cowley:                    Well, Luke, it's been absolutely, brilliant to have you on the show this week. The amount we've learned, and the brilliant stories that you've told us are going to be hugely insightful and useful for a lot of people. Thank you very much.

Luke Hakes:                     My pleasure. Thank you.

Peter Cowley:                  Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website,, 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.