Don’t chase the idea of a small return or getting your money back
Start-up spotlight with Simon King
In partnership with Angel News, The Invested Investor, a project founded by Peter and Alan Cowley to help entrepreneurs and early stage investors achieve greater success, is delighted to publish this interview with Simon King.
In our latest interview, we focus on Simon King who is a Principal at Octopus Ventures, a London and New York based venture capital firm. Simon’s responsibilities at Octopus are split between looking for new investment opportunities and sitting on the board of six of Octopus’ portfolio companies. Octopus Ventures is a London and New York based venture capital firm, attracted by exceptionally talented entrepreneurs including Conversocial, graze.com, LoveFiLM, Property Partner, Secret Escapes, Sofar Sounds, SwiftKey, Swoon Editions, Uniplaces, tails.com, Zoopla Property Group and Zynstra.
1) Why/How did you become an investor?
· I came out of academia disenfranchised with the pace of innovation.
· I wanted to be involved in commercialising new technologies and closer to the market.
· So I applied to lots of different start-ups and sent my CV to Octopus Ventures. The team at Octopus were looking for someone with a hard science background and I have been here ever since!
2) What does your company invest in and at what stage?
· We primarily invest at Seed and Series A stage.
· This means our typical first investment is between £250k and £5m, but we can invest all the way up to £25m in a business.
3) How do you characterise success?
· Success for us is not just making the returns for the shareholders and LPs in our funds (though clearly this is important!), success for us is also when an entrepreneur sells a business successfully and comes back to us for investment in their next venture!
4) Please give top three factors that influence your decision to invest.
· Team first. ‘A’ class teams and ‘B’ class ideas and not the other way round! Ultimately an amazing team can overcome almost any challenge.
· Companies tackling big problems which could lead to very big outcomes. The VC business model requires a small number of businesses to do disproportionately well – this doesn’t mean that you have to be able to quantify a market size (because sometimes it won’t yet exist!), but there has to be a big problem!
· Ability to scale. We often like to ask the question ‘if money weren’t an issue, what would happen if you went from 10 customers today to 10,000 tomorrow? What would break first?’ it is an instructive question because it teases out where the bottlenecks are to scaling a business.
5) How do you view your relationship with your investees? What is a good relationship?
· Early stage investment is all about relationship in our view. If you build a strong relationship with a founding team, a CEO and a Company more broadly, then a follow-on investment is always going to better informed than a first investment!
· We consciously try to build a good relationship with a team. What do they need? How can we help, or sometimes do we need to just get out of the way!
· One of the things teams value most in our experience is transparency and consistency, in particular on funding strategy. Giving a Company an early indication of how supportive (or not) we will be at a future funding round is hugely valuable to a Company.
· A good relationship is when a team picks the phone up to you straight away when something happens regardless of whether it’s a win or a lose.
6) How do you maintain a work/life balance?
· By learning to relax effectively.
· No-one can perform at their peak all the time.
· Find out what allows you to relax and spend time around when you want to perform at your peak prioritising relaxing – it is the only way the peaks will stay at the level they should.
7) Who inspires you and why?
· Elon Musk, even though he appears to have gone off the rails a little recently.
· I’ve been following his ventures for the last decade and there is no-one else who has the vision he has. It is hard for anyone to build a single $bn+ business that defines a new category and so far he has built 3 (Tesla, SpaceX and PayPal) with a number of other irons in the fire!
· The problems he tackles are massive and the vision is extraordinary. Take the SpaceX mission statement: to make mankind a multi-planetary species… There are only a small number of people in the world who can credibly found a company with a vision that big!
8) If you could offer an early investor one piece of business advice, what would it be?
· If the upside case for an investment in a business disappears, stop investing – don’t chase the idea of a small return or getting your money back. The early stage investment model should always be thought of in terms of expected returns, that is the multiplication of two things:
1. The probability of an outcome; and
E.g. if the probability is low (which it often is for early stage businesses), say 5%, but the outcome is big $1bn+ valuation and a $100m return, but the flip side is 95% chance of returning nothing and losing your $1m investment, the total expected value is the combination of these i.e.: $5m -$0.95m = $4.05m. But if the potential return drops, the expected outcome goes negative quickly and the expected outcome is always going to be poor ie. You shouldn’t be investing! Read and obey this: http://www.turtletrader.com/pdfs/babe-ruth.pdf
For more information, listen to the podcast interview between Peter Cowley and Simon at https://www.investedinvestor.com/articles/2018/1/10/simon-king. Simon talked to Peter about the interactions between VCs and Angel investors, what the differences are, where the challenges occur and where it works well.
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