In pursuit of unicorns

Podcast transcription - 6th March 2019

Peter Cowley:                  Welcome again to another Invested Investor Podcast. Today we have Max Bautin, who I've known for seven or eight years. He's a VC here in Cambridge, and I'll let Max introduce himself, you think you were born in Siberia, weren't you?

Max Bautin:                     Yes, I grew up in Siberia, in a family of scientists, in a little scientific town that was not unlike CERN, in Switzerland actually, in many ways.

                                           That was a great childhood, good schools, and I think it set me up well, for continued education. I was lucky to win a scholarship, to go to Ireland, and then, after a few years in telecom. So, I came to Cambridge, to do my MBA.

                                           September 2000, it was, I arrived, which was, of course, a very, very exciting time, from the Czech perspective. Not unlike now, I would say.

Peter Cowley:                  So, you did your MBA, and had you got a plan for what to do, post-MBA?

Max Bautin:                     No, no, I had no idea. I was thinking that I'd probably go back to my job, doing kind of, private equity investing in telecoms, which was good fun. But I bumped into Nigel Brown, of NW Brown Group. He was a guest speaker at the MBA, and we quickly discovered that both us had interest in motorbikes. As you do, as well, of course, and that's why we talked.

                                           Nigel invited me to come to a race, which I duly did, and from that, we started talking about the summer project, and then we started talking about the job, and that's how I ended up in Cambridge. And 20 years on, I'm still here. So it was serendipity, more than anything else.

Peter Cowley:                  Yes. So you joined NW Brown, doing what, to start with?

Max Bautin:                     They are an asset manager, a traditional asset manager, and a financial services company. But, at the time, they had just started two years before, experimenting with, arranging deals for the business angels. So they set up a business angel network, called The Great Eastern Investment Firm, and they also had a VC fund on the side, and they were starting to think about creating a seed investment vehicle, for the angel co-investments, and that's what I ended up doing for a few years.

                                           Then we added a university challenge fund to that, investing in the US, to spin-offs, but it all started with seed investing. And that's, I guess, where I cut my teeth back then. Predominantly, it was government money, as well, actually. What is now the British Business Bank seeded a few entities to co-invest with angels, and that's when they started making co-investments with The Great Eastern Group. And then, eventually, also the Cambridge Angels Fund that was formed. I think we did a few sort of joint deals together.

                                           That took us naturally to the title when the market settled down. Because it was 2001, and so on, so it was a tough time to start.

Peter Cowley:                  Whose capital were you using at that point?

Max Bautin:                     To be honest, all of the investment funds were 100% government grants.

Peter Cowley:                  Oh, okay.

Max Bautin:                     Both the challenge funds, for the university, and the seed co-investment funds, were all, as funds, government-backed. But they were co-investing with the angels.

Peter Cowley:                  Yup.

Max Bautin:                     So, it was always, very much a commercial entity, that was trying to create proof that returns can be made, making shit investments. It was actually a very good learning ground, because a lot of the investments at the time did not make any money.

Peter Cowley:                  Is there a generic reason why?

Max Bautin:                     I think there's lots of reasons. A lot of the companies did not find the right product market fit. Some of the companies ended up not being adequately financed. Some of them have succeeded, but we haven't necessarily retained them, we were diluted at later stages, because we couldn't invest more than half a million, in the company. So, it meant that some of them were still going, companies like [Grivoo 00:04:02], for example, is one of, investees were that rubbish.

Peter Cowley:                  Oh, rubbish?

Max Bautin:                     And Daniel Labs, and Summit Group, which is now listed as still holding the assets of one of the transactions that we're not, and [D. Phillipson's 00:04:12]. We had a few exits, some of them quite successful, but the seed fund barely managed to return its capital. Which at the time, was, I think, a big achievement, to be honest. But it also lost 70-80% of its businesses. That's when the investment thesis started to come about, and I believe we realised that the concept of just making co-investments with angels was not really good enough.

                                           You know, the angels come in all shapes and sizes, and what really makes companies strong is when you get an angel who is an excellent entrepreneur, and deploys capital. That's how the investment strategy of a [U Capital One 00:04:50] was born, when we released that, if we were to focus early stage investments on situations where we can either, go alongside or bring in, an ex-entrepreneur who has already built a successful business in a particular vertical, then our chances for success will be much greater.

Peter Cowley:                  When did you realise this? So, you start investing in '01, say, probably '02, actually?

Max Bautin:                     As soon as that, Yes.

Peter Cowley:                  That's quick, because you hadn't got many failures by that point, had you?

Max Bautin:                     That's when we started investing in the seed.

Peter Cowley:                  Yes.

Max Bautin:                     And sort of, 2002 to 2006, was the period where I was doing the seed investments, and kind of getting the learnings. I think I probably did, something like 30 investments in those few years, in total, and I would say that a good 50% of them did not make it.

Peter Cowley:                  Even in those three or four years?

Max Bautin:                     Yes, absolutely. So it's a very different ecosystem to now, as well. Because finding full on investors was just so much tougher. There was simply not enough money to pick up those companies. You had to be an absolute star, to be able to make it onto the radar. That's when I actually met my partners, Ed and Kerry, because they started off in the '90s. Ed was head of due diligence at Generics.

Peter Cowley:                  [Santa Fe Generics 00:06:09], which is a local consulting IP generation company, Yes.

Max Bautin:                     Exactly. He worked with a number of investors, and one of them, the family, has decided to back, setting up a venture fund. That's how Venture Technologies was born, one of the first pure tech VC’s, and they had a number of very successful investments there. They have Autonomy their first million. They've had companies like [Dew Lacquer 00:06:34], and KBS, they sold to Sun Microsystems and Yahoo. So they had $3 billion companies in the fund back then, so that one was a good turn.

                                           Then we did a few deals together at seed stage, and got to know each other, and we're all very different, actually. So, he had this, very technical, but strategically technical. He understands tech, but he understands where tech can be applied, and where it's going as well.

                                           Kerry is very market-focused. She's good at asking the question of, "What's the product market fit? And I understand the tech, the “thingamajigs”, but where's the big green button to press on, as a customer?" And team building, as well, she's fantastic at.

                                           Whereas, I'm with more, kind of finance negotiating, M&A, exits, operations. So that gave us comfort, to actually set up a firm together, and that's how IQ Capital was born. So we left NW Brown, and IQ Capital raised its first fund, which was $25 million, and these days, we often get the question as to why do you even bother? But back then, it was a huge amount of money, or it seemed so.

Peter Cowley:                  And two-thirds was government.

Max Bautin:                     Two-thirds was government, or again, the British Business Bank. That was a much better idea. By then, it wasn't doing the British Business Bank, it was the predecessor capital for enterprise, but they had experimented quite a bit, in terms of so-called state interventions, with things that work and things that don't. And they realised that the best way to do it was to excite the private capital, to drive the allocations.

Peter Cowley:                  And leverage it.

Max Bautin:                     And leverage it. So, the concept behind the enterprise capital funds was, and still is, it's a programme that is still very active, and I think it was brilliant to say ... "One of the objectives is to help emerging managers raise their first fund." And we are prepared to give as much as two-thirds of that capital. And we are going to incentivize the private investors, by essentially doubling their up-side. But it comes at the cost, of potentially, a slightly higher down side. Not hugely higher, but a slightly higher down side. Because, essentially, the investors' preference equity was a 3% dividend.

Peter Cowley:                  Yes.

Max Bautin:                     So, clearly, if the fund does better than 3% in this, or 5% at the time. And that fund has done well for us. We had to raise the $8.5 million from the private investors, and again, I think we ended up having 40 investors there. All of which were technology entrepreneurs, angel investors ... so, we were very lucky in that we had a group of investors, who were not just money, but they were also bringing deals to us.

                                           They bought into the concept of what the fund was trying to do, which is to follow the experienced entrepreneur in the technology investments, and that was fairly broadly defined as to what fields we would invest in, and seed, and so you say, was always the focus. So, I think, our smallest check in that fund was, to start with, probably a couple hundred thousand. But we have gone as high as, over $1 million. In fact, $2 million was the largest initial investment.

                                           In terms of the investors, I think the largest investor was $1 million, and the smallest investor was 50,000.

Peter Cowley:                  Yes.

Max Bautin:                     So, we have a big range there. The fund was, November 2006 start, although the first investment was made in 2007. Then we made three or four investments, and then, 2008 happened. In fact, actually, maybe five or six investments. And one or two of our companies were caught in that abyss, actually.

Peter Cowley:                  I'm sorry about that.

Max Bautin:                     Which, I think, they were good investments which would have made it, had it not been for 2009, really, more than anything else. Because corporates have stopped buying technology. And all of a sudden, so their equity markets dried up. Raising capital became much harder. But also, to carry corporate contracts had become much harder too. It meant that we had a few failures, but we also had a whole bunch of successes.

                                           So we got a lot of stakes. We sold a company to Apple, we sold a company to Google, we sold a company to Huawei, Beck & Dickinson, that was a great exit. And in fact, we have just done the biggest exit from that fund, to Oracle a week ago, and that alone paid the whole fund two times.

Peter Cowley:                  This is 12 years later, of course, isn't it? So that's the longest journey.

Max Bautin:                     Well, the thing is that you needs to remember, that in a venture fund, the capital is committed and not invested. So you have five years to actually make those investments initially, and then, there's full on capital.

                                           The duration of capital, as they call it, is less. From the day that we take a pound from an investor, and invest in a company, and then return the capital back, it's the usual sort of, four to maybe seven years, whatever the company really takes.

                                           So, there's no difference to investing in that business directly, or investing through a venture fund, in terms of cash flows. But, yes, if you look at the start to finish on them, Grapeshot, we invested in 2009. So it still took a good, almost, about nine years, to get to this outcome.

Peter Cowley:                  Yes.

Max Bautin:                     So, on the back of those successes in fund one, we raised fund two, which was double the size, and that was in December 2014, when we started investing. This time around, things accelerated, and went much smoother. We made 22 investments out of that fund. Also, and seed in CUSA, learned a few lessons, so we stopped investing in consumer tech. We became much more D tech focused, as an investor, so we like investing in companies that have some proprietary innovative elements at the core. Especially in software space.

                                           One of our key tasks is, if you can rebuild the product in 12 months, with 50 people in India, then probably, it's a bit too simple. Ultimately, what they're trying to achieve is situations where there's some secret sauce, with machine learning, or other, algorithmically-driven, or it's complicated connectivity to the rest of the world. Where it's much more difficult to displace it. And we can then find a big vertical, where, if the company is successful, then it becomes absolutely huge. If it doesn't, typically you have a corporate to buy that company as well, because of the technology and because of the upside that they can get from the integration into their own value chains, because of course the latter is much simpler than the former, which is building an independent company.

Peter Cowley:                  Which is probably 10X less valuable, possibly?

Max Bautin:                     Oh, generally 10X less valuable. There are some trade-offs, because of course, those technology exits, happen much earlier in life than the business exits, they take a few years to achieve. But none the less, yes, obviously selling it is typically not as lucrative. However, it's much more lucrative than losing the business altogether. And I think increasingly we see that Plan B as a corporate tax sale has been quite realistic and very achievable pass for a lot of these businesses and we've had a few of those in our portfolio.

                                           But equally, the journey towards scaling revenues and scaling the business is taking much less time than it used to. We think that the eco-system has actually moved on a great deal. Now in Cambridge in particular, we have entrepreneurs and management teams that have been around the block a few times. They have been to the Valley, often, come back, they've had experiences of starting and scaling businesses. Some of them have come back from the corporate sector with the experiences that are often quite relevant too. And what we see is some of the companies in the current portfolio that have gotten to multi-million revenues within two or three years. And when I say multi-million, it's not one or two, it's five to twenty million in revenues.

                                           These businesses now take three years to get to get there, versus six years to get there before, and that, for an investor, it makes a big difference, because the amount of capital you spend per annum is not really that much different. We spend more when companies accelerate faster, but you get the proof points much earlier. You have the confidence, you have the market as well, which is starting to be very active. So most of the investment rounds in the businesses that we have, have been over-subscribed many times. So all of a sudden you have more experience, more money and better opportunities globally and better understanding of how to address them. And I think it's starting to combine into a much more attractive story, where we see these businesses produced successfully much more systematically than ever before.

                                           So I think overall the point is that corporates are much happier buying from start-ups. In fact they feel that if they don't they are disadvantaged. And they're all much keener on buying product from start-up and also buying the start-up, which of course for us is great news.

Peter Cowley:                  So, we've talked about some great successes. Let's talk about some failures. Not necessarily naming them, but so the audience can understand what can go wrong.

Max Bautin:                     Companies fail in multiple ways. I think in terms of the learnings, there is one or two that are quite uncommon. For example, we haven't seen many technology failures where technology or product has not worked, ironically, even though it's the core of those businesses. I think where it fails most typically is companies that fail with the product market fit, i.e. whatever has been built is built in a way that the market doesn't want. And I think historically Cambridge was great at doing that, over-engineering products and spending all the money on the engineering side of things, to then realise that the market doesn't quite want it.

                                           Or, even in comparative terms, you look at the Solexa gene sequencing story and how Solexa has built an amazing technology, where Illumina, that was developing in parallel was in a better position to acquire it, because by the time that they built the tech, they still didn't have a product to sell,  it was a great billion dollar exit, by the time that the shares were sold and everything else, but Illumina became a $30 billion company.

 I think Cambridge is learning to do that better, and that's great to see that, but there were some outrageous stories. Some of the instances were, people can be a very common reason for failure, obviously, execution is an important element. And it's not even binary because you don't need to fail. Failure could be executing too slowly, because of course time is money for start-ups. But it's been even more dramatic than that. We had a situation in the company where the CEO, a bit of a diva CEO I should say, one day just threw the toys out of the pram and disappeared, with all the codes, all the access, passwords to company bank accounts, all the keys physically from the office, and could not be reached for two weeks.

Peter Cowley:                  He or she was a single founder?

Max Bautin:                     He was a single founder, yes. That business never managed to recover after that. Generally speaking, I think situations where founders have to be replaced is a situation where you might as well walk away, because it's incredibly rare that your augmenting founder teams is possible, replacing founders, in our experience.

Peter Cowley:                  If they've disappeared completely. If they're willing to move aside, then there's plenty of examples of those, aren't there?

Max Bautin:                     Absolutely.

Peter Cowley:                  Where they become chief product officer, like William Tunstall-Pedoe, or CTO, or whatever.

Max Bautin:                     And often that's where their heart lies, and they're quite happy to say, you know what, as far as fundraising or strategy forming is concerned, I'm happy for somebody else to come in and do that. But losing founders altogether, you just lose the soul of the business.

Peter Cowley:                  Which is a good reason not to invest in sole founders, potentially. Because at least if there's one left or two left, could it then survive?

Max Bautin:                     Well, there's different schools on that. I think generally speaking people say that they prefer to invest in situations where there's two or three founders. But I think there needs to be the core team, which is several people. Whether or not all of them are called founders is a different matter. There were one or two situations where a follow-on funding was simply not there and the companies were squeezed and squeezed and squeezed. One business had the tax breaks pulled out from it, then, all of a, sudden, businesses that relied on raising capital from individuals, or S funds or what-not, could not do it anymore, and all of a, sudden, the grown-up world was a little bit too unfriendly for them.

Peter Cowley:                  And that was a regulatory change that they couldn't have foreseen, yes?

Max Bautin:                     It's fair enough. But the thing is that you do expect to lose 30% of your capital in making VC investments. But historically, it's a reasonable threshold. So, failure is normal. What's not normal, and where I think, we blame ourselves is situations where companies fail with a big chunk investment from the fund. We have learned to be quite strict and say, you know what, if it hasn't worked then it hasn't worked, and one needs to be quite firm.

                                           Ultimately investors are prepared to overlook just about anything for the right business. So the non-participation of the existing investors is only an issue when those investors are significant parts of the earlier syndicate, and the business is not doing great for whatever reason. But you know, we have created nominee vehicles where if companies prefer not to have us as a seed investor on the shareholder register for that reason, we appreciate that that could be a trade-off, and not a lot of entrepreneurs do, actually. But we're quite explicit about that, it', great to have an institutional investor early on, but it could be a bit of a message if we decide not to support. And we have a million reasons. Ultimately, we expect to only invest in, probably 50% of businesses that we support at seed stage get the CSA check from us.

Peter Cowley:                  Yes, Yes. And what's the maximum percentage shareholding do you feel comfortable with in any one investment?

Max Bautin:                     Generally, we wouldn't go above 30%, and quite frankly in the current market it's virtually impossible to go anywhere near that.

Peter Cowley:                  Because of the availability of capital.

Max Bautin:                     Well, because of the size of the fund that we are and because of how we operate at seed stage, we wouldn't want to take a big chunk of the round because you would be displacing our syndicate partners, like Cambridge Angels, and we wouldn't want to do that. Of course beyond the CSA the story is a little bit different, because your capital in the company is already much greater and a follow-on investment is typically a much more sensible choice, whereas at seed it's a bit more binary. You don't have much of a stake, so therefore, pro rata, investing pro rata in the following round, doesn't necessarily make as much sense.

                                           The economics of venture investing is quite interesting if you really dig into the models and ratios, and what we increasingly see is that, yes, it's important to be very disciplined and not end up with losses that are too high. Equally, having the capital to back the big winners in big ways, because often even as valuations grow, the later rounds still produce huge returns, certainly on a risk adjusted basis. It helps to have big fund returners, the dragons, as they're called, in your portfolio, because if you have one or two of those then the rest becomes easier. Of course investors are looking for returns above 3X on the whole fund basis, and delivering those, given that some of the companies will be losses, is not that easy actually. And then there's of course the overheads of the fund and so on.

                                           So having one or two fund returners, you don't need to have many, actually, that's another favourite topic in the sense, because everyone talks about unicorns these days, and if you're not a unicorn it's just like, Well, Grapeshot was not a unicorn, but it still delivered fantastic multiple of our funds. And that's what you want to see, ideally. If you have a multi hundred million dollar exit, that should generate enough of a return to pay the whole fund, and that's when it really starts to make the rest of the journey much easier.

Peter Cowley:                  And that isn't necessarily a unicorn, clearly.

Max Bautin:                     No, no. Because it's about capital efficiency. Ultimately that's what it is about. What is the multiple on the capital that the company raises? And having a 20X multiple on the total capital raised, to us, is the sort of thing that helps to return the funds. Billion dollar unicorns, you often have those companies raising 300,000, 400,000, 500,000. 100 million. So you look at it and it's a 3X multiple on the capital, but ... and of course you need to remember that that's also the management team with the participation and everything else. So if a company that has raised 300 million gets sold for a billion, that's a 3X return.

Peter Cowley:                  And of course, liquidation preferences of various sorts. Uber has this big number, but if you took the liquidation preference waterfall into account, who knows what the return would be? It could be quite small for the early sellers.

Max Bautin:                     Yes, exactly, and that's why being an early investor can often be a bit difficult, because on one hand, these days, the equity journey tends to be going from small numbers into bigger numbers so the price per share grows, but do you see a liquidation preference and other bells and whistles later down the line, that essentially mean that not as much of the waterfall reaches the early stage investors. Thankfully we see less and less of that. Certainly we would only invest in instruments that have a non-participating liquidation preference. So it's binary, you can either have the 1X or you can participate in the pro rata. In the olden days it was both, a double bite of the cherry, exactly.

Peter Cowley:                  I do know a firm, who will remain completely nameless, who had a nine, digit exit, in dollars, who ended up with nothing. Because the preference stack just worked in such a way the ordinaries disappeared.

Max Bautin:                     We've had a situation in our portfolio where, it wasn't a huge exit, it was several times of million, but because of the capital raised and the various liquidations, tax and so on, it meant that the team was only making, maybe closer to 10% of the proceeds. And then they made a passionate call saying, look, we need to have more, and there was a reshuffle, just before the exit. Some people felt that it was unfair, but the reality is that it's a journey, and no one knows where that journey leads at the beginning, but if the team has things to deliver, the investors have things to deliver, one needs to be focused on being equitable. You can't be dogmatic and say, this is what the agreement says and that's it, full stop, I am not going to hear anything else. So, yes, your friend should have been a bit tougher with his investors at the fund.

Peter Cowley:                  Yes. That's another story. So in terms of tips for entrepreneurs, let's talk about how entrepreneurs should manage VC money.

Max Bautin:                     Well, again, there's different ways of approaching it, and maybe different schools. Some entrepreneurs prefer to have a single VC backing the deal. Some feel that having two is better. I think any more than three, you're already starting to be in a situation where herding the cats is quite tough, because inevitably VC’s have different maturities of funds, different fund sizes, a different approach to investments, clearly different personalities. The one thing that you cannot change about your company is your shareholders, especially if they are VC’s, so one has to be very disciplined in terms of understanding what kind of investor you are bringing and what they will actually do for the company. Most VC’s will say that they do a lot, and a lot of them are not actually able to do quite as much as they say they would.

Peter Cowley:                  Of course, each VC will want a board position, so you could soon get the board dominated by the money men potentially.

Max Bautin:                     Exactly, which again, U.S. style boards only have the chairman, the CEO, and then maybe two or three investors. That actually works okay, because then the other people can report to the board but the board is genuinely focused on the strategic and finance issues. That can be fine, but where it does become harder is when, either the personalities of the core investors don't work very well, or their profiles don't work.

                                           It's really, the VC’s that should know better, because they of course, have much more experience of the market and working with each other, but I think for the entrepreneur, it's important to do their due diligence as well, and figure out whether one VC will be a compatible fund size. Where is the VC in the fund maturity? Because a VC that invests in the first year of a fund and a VC that invests in the fifth year of their fund will be on a different time flow, time expectation. Ability to follow on capital is what matters. Having a strong chairman with prior experience of working with VC’s who is able to say, "You know what? You are going and opening that door for me, and you are going and doing this. By the way, in the next funding round, this is how the allocations would look like." He is able to control that situation. When you have one VC, of course, it becomes a bit easier. Two, is generating a good amount of balance. I think by Series B, it’s probably a natural position to have, at least two VC’s.

                                           Now there's a lot more of a choice. I remember years ago there was always this, no matter who you speak to, there was always this point about what you should be looking at in your VC, and what he can do. I always listened to it, and I was just like, "Just come on. Some of these companies just need capital, and they only have one choice at best. What are they going to choose, not to take it and die otherwise?" These days, there is a lot more choice. I think doing the homework, and doing the due diligence on the VC, and not being lazy, not being lazy to call the portfolio companies and understand how they operate, what they actually bring to the deals, what sort of personalities they are, because there are very different management styles, too. There are VC’s that come into the room, and bang on the table, and demand that the numbers are met.

Peter Cowley:                  Yes. I probably told you before, I sacked a VC before they invested in his own office. A guy that you know, so we won't mention this on this podcast, but I know exactly what you mean, doing the due diligence.

Can we just move on to corporate VC’s? You won't know, but I'm a small investor in an organisation that trades as Global Corporate Venturing. This is the main database of corporate VC’s. What is, your, feeling about getting investments and how they can add and detract value?

Max Bautin:                     I think that again, over the years, there has been a debate going on whether having a corporate VC in the company is a good or a bad thing. Corporate VC’s always felt that they're just about as good or better than the normal VC’s, and the normal VC’s felt otherwise. Now I think there is much more convergence. There is an understanding that corporate VC’s could be quite helpful, certainly in terms of opening doors within their own organisations and getting a lot more strategic alignment. Having early customers, of course, is incredibly important. It's useful not to have one, but rather having two or three, so that there is some natural balancing out and hopefully having them for fairly small checks, so that there isn't the tail wagging the dog situation. Thirdly, most corporate VC’s do have a double or triple bottom line type of approach where they only invest in sectors which are strategically important for companies.

                                           I think increasingly they are not even asking for things like preferences on sale and so on. Of course, it's incredibly important not to give it, because I think the market has accepted that having a corporate VC does not mean that they are the natural bidder for that business. I think that's the important thing. I think corporate VC’s have become increasingly relevant. The market at large is much more relaxed about having that capital, and we have had it in a number of our portfolio companies. I think it works incredibly well.

Peter Cowley:                  Yes. There's a figure floating around, I think, that 17% of all corporate VC’s exit to the corporate. Only 17%, so 83% of exits are not to that corporate. There isn't the danger that people used to worry about that the only way out is to that corporate, that one of the competitors in also possible.

Max Bautin:                     Absolutely. They started behaving much more financially, but they can go beyond that, and that's of value through helping on the revenue side.

Peter Cowley:                  Finally, as we exit this podcast in a few moments, let's talk about exits.

Max Bautin:                     Well, there are more of them. The great thing also is that there's more types. Again, for the last 10 years, M&A was essentially the only realistic exit route that one would have, but on the M&A side, there's a lot more corporates that are acquisitive. The multiples are higher. There's better choices. There's better ways of playing one corporate acquiring another, which I suggest is always something that companies should try to engineer, because corporates try to avoid that situation understandably, and they use all sorts of very clever tricks to do that.

                                           There's also the likes of later-stage funds. The secondary purchasers that were unheard of for many years are now back, and they're back at strength. We have seen offers for our companies, not even for 100% but sometimes 30, 40, 50, or 60%, a capital replacement offer from essential private equity growth firms. They are prepared to pay multiples which are very close to what the strategists would pay. That of course often creates a great opportunity for the earlier-stage investors to exit, prior to the master exit, that might take many more years to achieve.

Peter Cowley:                  Including one in Cambridge where the angels exited at seven X and the VC essentially went bust. I don't know if you know that story, but we won't name it.

Max Bautin:                     Exactly. The thing is that you can have situations where even at later stages there is still ongoing risks with a company. Sometimes taking that early exit is not a bad thing, especially if you can take it at a price which is demonstrably comparable to what you would get if you were selling the whole business outright.

                                           Then increasingly also, alternative models. I think IPOs are coming back. Nasdaq First North is starting to be quite material.

Peter Cowley:                  Sweden.

Max Bautin:                     It's through the Swedish. It's becoming more liquid. AIM, I think, not really quite certain that it's changing quickly enough, but there's more options for companies to list. There's also companies like new platforms that essentially enable liquidity from businesses like Funderbeam. They're only starting to pick up, but the opportunity for liquidity prior to the actual exit, where they help shareholders exchange, and sell, and buy shares in exactly the same sort of way that stock exchanges would, is also increasingly relevant, and hopefully will help earlier-stage investors to recycle their capital quicker, which ultimately will mean that we'll be able to back more businesses. So, I'm quite excited about where things are going in general.

                                           While people sometimes argue and ask whether the prices are a bit too high, I am not sure they are. A lot of these businesses are generating numbers which fully justify the numbers that they achieve. Some don't. There will always be speculation. There will always be irrational exuberance in this market. It's part of it, and it will swing from too positive to too negative every now and then. Again, that's part of the technology development cycle, but overall, I think we're in a very strong place, and I expect a lot of great things from the tech.

Peter Cowley:                  Long may it continue. Final question to you, Max, which you're not expecting. I'm about 20 years older than you. What are you going to do when you get to my age?

Max Bautin:                     You know what? I have been asking myself that question. I have been privileged to work with many angel investors who have created a lot of wealth for themselves. After taking a few months off, I tend to see those people back investing in companies as angels. I suspect that that's probably where I will end up in my more senior years. We'll see. I think it will be good to spend a bit more time with my hobbies. I do a lot of interesting stuff, which of course I don't have time for because of work.

Peter Cowley:                  You have one or two children, have you?

Max Bautin:                     Just one. Again, maybe that will change in the future, but it's something that of course is incredibly rewarding, and takes time, too.

Peter Cowley:                  Maybe you should be retiring soon, and therefore you can spend more time with your child or children.

Max Bautin:                     I don't think that that would work for me. I'm just enjoying this too much.

Peter Cowley:                  Excellent, Max. That was really enjoyable. I've learned so much, as always when I spend time with you. Thank you very much.

Max Bautin:                     My pleasure. Thank you, Peter.

Alan 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. 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.