A lesson in being dogmatic towards your beliefs and embracing chance opportunity
Podcast transcription - 5th December 2018
Peter Cowley: Welcome again to another Invested Investor podcast. Today we have Victor Christou, who's CEO of Cambridge Innovation Capital. Victor, welcome. Could you just describe something about your education and background and what led you into the role you have today?
Victor Christou: Thank you, Peter. It's a real pleasure to be here. I think what you're trying to do is a really exciting initiative and it's important that people have a voice, especially from venture, to have a voice to entrepreneurs and to people who are thinking about creating a business. So just to explain what our industry's about and how we get into it.
I think my background, slightly unconventional I guess, from an investors’ perspective, especially the UK investor perspective. I originally was a career academic. I'd always thought about being an academic and I went to university, first person from my family to go to university actually, so had no real expectation of what it was going to be like. Studying chemistry at Imperial College in London.
Peter Cowley: And you grew up in Liverpool, is that right?
Victor Christou: Yeah, I was born in Liverpool. Moved to the Midlands just outside Stratford-on-Avon when I went to school. It was a funny story, my background, so I was born and raised in chip shops. My Dad's a Greek Cypriot, first generation immigrant, moved over in the fifties, got married, met my mom in Walls sausage factory. Not really a sort of a blue-chip background to get into venture capital, but I guess entrepreneurship and running businesses ran through the family. So my dad had a chip shop which he ran with his brother in Liverpool.
I was due to be born in London in the Whittington Hospital in North London, but we moved I think weeks, before I was about to be born to Liverpool my dad took an entrepreneurial opportunity in running a chip shop. So, I grew up in Liverpool and then moved when I was 12. We grew up in inner city Liverpool, so I remember moving to the country as I perceived it when I was 12 and I'd never seen a cow.
Peter Cowley: Really? I remember hearing that story.
Victor Christou: We moved out to this village, it was a big village, but we lived right on the outskirts and there were fields at the bottom and I couldn't believe that we were living in the country, coming from inner city Liverpool.
So went to school and then went to university, studied chemistry. Hated the first year actually, really, really hated university. It didn't feel like I fitted in and almost didn't go back, but I thought I'll stick it out because I'm there and it can't be all that bad.
And then I relaxed. I thought university was something where you had to work hard and be really studious. And actually I thought, well if I'm going to spend the next three years in university, I should actually enjoy myself. So I started to enjoy myself a bit more. At the end of the first year I moved out, shared a house with an old school friend and just had much more fun and I did much better.
And that was a lesson in life I took with me, I think you can be overly scholastic about things. Whereas if you actually take time to take a step back and look at the big picture, then you get a much more holistic view and end up doing better. So, I took that as a life lesson, I guess with me, ever since I was 19.
So, I went to university, studied chemistry, did well, and then went straight from my undergraduate degree to a PhD, which I did again at Imperial College in London. I then moved to a postdoc in UC Berkeley, so just near San Francisco, at the University of California, Berkeley, in the chemistry department for three years.
Peter Cowley: What were you concentrating on there?
Victor Christou: So, it's interesting. I'm a synthetic organometallic chemist by training, so it sounds very high tech. It means I'm a cook, right, a chef. So, I spend my life at a bench in the chemistry lab, making things. Making things that no one had ever imagined before, never been made before, demonstrating I guess, scientific principles, but on things that people hadn't imagined.
So, you dream up an idea of a molecule you want to make, that you need in order to demonstrate something specific, then go to work in the lab and try and come up with a recipe, that means you can make the material and then you characterise the material.
And that's kind of an exciting thing to do, just get into the lab and mix chemicals together, grow crystals, characterise those crystals and then you figure out what it is you've made. I’ve made some exciting and interesting things in the lab, and I thought the academic career was the way I was going to go.
So, when I finished my postdoc in Berkeley, which would've been 1993, I moved to Oxford and got a job there. So I was a Royal Society University research fellow in Oxford, so pretty prestigious fellowship, moved straight out of California into Oxford. All set for an academic career. But I found it slightly, I guess stultifying in a way. So, I could do a lot of research, but the environment didn't suit me, and just talking to some friends, I figured out that my research could be quite applied.
So my research when I went to Oxford was related to understanding how the shape and structure of a molecule affects its electronic properties. And so, with some friends of my friends from college, I moved into Oxford, I also got a research fellowship in a college with friends I'd made at that time. One of whom had gone off to work in a management consultancy, another had gone off to work in an investment bank, we all got together in 97, when, I guess entrepreneurship and spinning out businesses was in vogue. So, we created a spin out business based on my research that worked in the field of organic light emitting diodes or OLEDs.
Peter Cowley: Which are quite well known now, in mobile phones and other devices, aren't they?
Victor Christou: Yes, commonplace, so mobile phone manufacturers use OLEDs in their displays. You can buy an OLED TV now too. I was there at the start of that, inventing materials that are now used in some of those products.
We created a spin out business that we took through the University of Oxford with four of us, which was a lesson in life. So, me being an academic and my academic collaborator in the engineering department, then two friends, one of whom was an investment banker and the other a management consultant, all left our jobs. The guys who were gainfully employed, left their jobs and we set up my business Opsys to make OLEDs, based on the IP we'd filed at the University. Created it in 97, funded initially by friends and family.
Peter Cowley: How much did you raise?
Victor Christou: Initially I think £200,000. So effectively what we did was sponsor a couple of postdoctoral research students in my research group, sorry, one in my group and one in the engineering group who were going to make devices. So we raised a couple hundred thousand pounds from the guy who worked in the investment bank.
Peter Cowley: But that doesn't replace the salaries of an investment banker and a management consultant for very long. A big decrease in salary?
Victor Christou: Yes, they said goodbye to those salaries. They knew that they weren't going to get that kind of compensation for a very long time in a start-up business. But equity's what drove us, and I think equity is still an important aspect of incentivising people. The lessons I've learned about structuring the business then, are still true today.
I think in a very early stage business, you can't hope to pay high quality people the kind of salaries they're going to get elsewhere, but they've got to be on board for the excitement and the vision, and I think having a vision is really, really, important. We may come back to that later about, discuss what we look for now at Cambridge Innovation in entrepreneurs.
But I think vision and changing the world or having a view as to how the world can be a better place is really, important for me when I'm thinking about an investment, and then understanding the entrepreneur and understanding how they're going to get to that point, and have they got the drive to get there, is also important.
But we had IP and a relatively young team, all late twenties, very, very early thirties when we set the business up.
Peter Cowley: And Oxford University had a share?
Victor Christou: Yes, so we span out through Oxford Uni, well as was Isis Innovation at the time, so Oxford University Innovation now.
Peter Cowley: What share did they take to start with?
Victor Christou: 1997 was a pivotal moment in the history of Oxford University Innovation because it was the start of a new regime under Tim Cook and we were the first business that Tim span out of Oxford. I can't actually remember exactly, but it's something like 50/50 or something like that.
Peter Cowley: Oh really, as much as that.
Victor Christou: Yes.
Peter Cowley: So, that would not be dreamed up nowadays.
Victor Christou: Yes. So, it was interesting because I think the boot was, definitey on the University's foot in those days. It may have been a third, a third, a third. So, it might have been a third to the founders, a third to the investors and a third to the University, but it was something like that. We ended up as entrepreneurs owning something like a third of the business.
But we created the business outside the University first, we created it over the summer holidays 1997, in the college library. That was where we wrote the business plan and created the company, we dreamt up the name and everything. So, created the business, then raised a very small amount of seed fund. Then we raised institutional seed fund, so we had investors, Questa, which is a venture capital firm.
Peter Cowley: Or was?
Victor Christou: I don't think it's around anymore, but it was very active and very, very supportive.
Peter Cowley: Was this during ‘98 or’ 99?
Victor Christou: ’98, I think we raised something like two to three million and then we grew. We then sponsored research in my research labs to start with and then we had our own, we got our own facility just on the outskirts of Oxford in the Begbroke Science Park where the University bought the old Johnson Massey Cookson labs and refurbished it.
I feel like I've done a lot of firsts in my life, we were the first business into that site, and at one stage we anticipated buying the whole site and then leasing it out.
Peter Cowley: As a start-up?
Victor Christou: We would have become members.
Peter Cowley: A grand plan.
Victor Christou: We thought that was foolish, and then as soon as we knew that the University was interested in bidding on the site, it just became a non-consideration. Anyway, we grew the business, grew it to 70 people over a five year period and raised substantial capital, I think it grew to be one of the world's leading businesses in that space.
But there was also a lesson we learned in that time, it's just interesting thinking about developing technologies, especially developing technologies in mobile industries or display industries which are largely driven by Asian manufacturers.
We had some great IP and insights, we filed as much IP as we could on the research, and we picked up as much IP as we could as well. So, whenever IP became available or we were aware of IP, either through the University of Oxford or elsewhere, we bought it because it's a very erratic journey growing your business and you need to be spontaneous and agile and think quite broadly.
I think you need to be dogmatic in following your belief, but also opportunistic in trying to maximise opportunity and maximise possibilities for the business. Because we pivoted the business from one set of materials that we were researching to another set that we picked up from another research group and put that into Opsys. It was rolling that other technology into Opsys, that proved to be the value driver in the business.
And then there is a value destroying element of the business too, which is another lesson, so as I was saying earlier on, we had this view that we were going to manufacture, we felt there was more value in manufacturing materials and displays.
Peter Cowley: Than licencing?
Victor Christou: Than licencing the IP, I think that's always true, but there's a cost element associated with that because when you control more of the value chain, it just costs more to get there. And I think by becoming vertically integrated and manufacturing displays, which is actually what we set up to do, you're running the display portion, but actually it costs you a huge amount of capital. So we raised from 1999 going into 2000, we raised £20 million from a whole bunch of larger venture capital firms and private equity firms, and I guess bulge bracket banks as well.
So we raised a substantial amount of capital that we used to build a production line and we had to build a production line because when we're speaking to Asian manufacturers, they wanted to know that they could manufacture displays.
Peter Cowley: They needed to copy the line?
Victor Christou: Exactly. Yes, exactly. Copy the line and manufacture in their plants using our technologies.
So there was a capital intensity to the business that we hadn't anticipated originally, but which became essential as we went down that route.
We sold the business in 2002, we raised capital right through the dot com boom and bust and saw the exuberance of investors who didn't really understand technology. That was a lesson for me in the due diligence process, you can go through the due diligence process and not manage to navigate that process when you're being led by people who don't know what they're talking about.
Peter Cowley: (laughing).
Victor Christou: So, it's an important aspect of what we do today, the lessons I learned on the other end of the process.
Peter Cowley: You didn't mind at the time though, because the capital was available?
Victor Christou: Yes. Because we always thought that we had something really, interesting and exciting, and we thought we were legitimate, right? We knew what we had was good and there was nothing to hide, so we were very open to a due diligence process.
Peter Cowley: Unlike Theranos maybe?
Victor Christou: Well exactly, exactly. So, I think one of the things that we look for when we invest is transparency. Jumping ahead now, businesses I've been involved in since, I've seen the children in those families grow up, in the time that we're invested in those businesses.
So, you're on a journey that lasts many, many years, there's no point trying to hide anything, because ultimately, it'll be seen, so I think transparency and honesty is a, really, important aspect of what we do.
Anyway, we built the business and we sold it to Cambridge Display Technologies.
Peter Cowley: I was going to mention CDT because they're on a similar journey over here in Cambridge, right?
Victor Christou: So, they were slightly ahead of us and they were always the bigger player, but we felt we had better technology and we got into an interesting patent dispute with them. Sorry, it wasn't a dispute, it was just a discussion and it was actually quite a technical discussion about what a polymer consists of.
Peter Cowley: What is the definition of a polymer?
Victor Christou: So, we had one view and they had another, and in the end, our view prevailed. As a result they bought the IP in the business and that was the lesson for me as a founder, that we'd raised all this capital to build the production line but the value creation part of the business was the IP, we'd have all made much, much more money had we not raised this capital because we were diluted and subordinated.
Peter Cowley: Did it sell for more than the post money of the last round, or not?
Victor Christou: We went through the dot com boom and bust, we zigzagged all over the place. The final investors made capital, the founders didn't make very much money at all, but it was all as a result of us taking dilutive capital through this capital intensity.
Peter Cowley: So, the final investors had the preference of some form of stacks?
Victor Christou: Yeah, so there were all kinds of preference stacks in there, so it's a lesson about preference stacks as well.
Peter Cowley: So as founders you've been on a five year journey, learned a lot but not replaced the salary that your mates have foregone?
Victor Christou: Yes, exactly. But we all learned a huge amount and have gone on to be very successful in different walks of life. But for me it was a lesson that there is value in IP if you can really build up a defensive IP platform.
Peter Cowley: Yes.
Victor Christou: And it's the IP that is now being used.
Peter Cowley: Samsung for instance, use OLED?
Victor Christou: Yes.
Peter Cowley: So, you're suddenly unemployed, I guess?
Victor Christou: It wasn't quite that simple. So crafty as ever, what we did was to sell the licence to the technology, in 2002. Only a couple of weeks ago, I was contacted by the University about royalty payments.
Peter Cowley: Some money floating around?
Victor Christou: Yes, because it’s 20 years ago, so there's still royalty payments.
Peter Cowley: And because CDT was then sold onto a Japanese company, wasn't it?
Victor Christou: To a Korean company, Sumitomo Chemical.
Peter Cowley: Okay.
Victor Christou: So, we sold the IP, but we take a back licence to the IP for non-display related technologies.
Peter Cowley: Using the line you've already built?
Victor Christou: Yeah, so we sold the line at cost to someone else.
Peter Cowley: Okay.
Victor Christou: But the real value returner in that business was the IP. We took a back licence for the IP for all kinds of materials related, business technologies. We created a spin in business rather than a spin out business. So, we had this technology that we based in a company called Arborescent and Arborescent is still going today. So, this gets into the technicalities of the discussion about polymers versus patent. Our materials were dendrimers, which are these snowflake shaped molecules. They look, how snowflakes grow when they start to crystallize and the debate was whether a dendrimer, these discrete but multiple repeating units within the discrete group, was a polymer or a monomer or a molecule. And in the end, we decided, and CDT agreed, that it was not a polymer, so ambiguous. I think it's a separate class of materials, but it's not a polymer.
Peter Cowley: But the back licence allowed you to carry on?
Victor Christou: Yes, so the back licence then allowed us to develop a business in non-display related technologies, that business today is looking at sensors and detectors for things like explosives.
Peter Cowley: It's 16 years later, isn't it?
Victor Christou: And it's still going.
Peter Cowley: You've got shares in it, I guess?
Victor Christou: Yes, but I chose to leave because that five years was a defining period in my life when we were running the business because I decided I didn't want to be a career academic. It's much more exciting, much more exciting to be in a start-up and to run my own business and create something new. And as much as I like doing research in the University and teaching, there's no comparison.
I transitioned out of the University to a CTO role in the business, and the same was true of Arborescent. But I was very aware of what I didn't know and so I didn't want to go down the same route as with Opsys, where I was driven to do nothing but the science because that's all we have time for. In that five years we spent creating Opsys, not one of the founders took a holiday, we just worked all the time.
Peter Cowley: You weren't married at that point?
Victor Christou: No. All of us were single. One guy actually got married. Sad story really. The run-up to selling the business was the run-up to his wedding. So I remember the day of his wedding negotiating the sales terms for Opsys. When you're selling a business, as a founder of the business, nothing is more important than making sure that that business ...
Peter Cowley: And he was on the phone in the aisle?
Victor Christou: Practically, I remember we were all getting dressed, all getting changed into our suits for the wedding, trying to negotiate the deal with the lawyers. Crazy stuff.
Peter Cowley: No honeymoon?
Victor Christou: Sold the business during his honeymoon, I think that marked his marriage.
Peter Cowley: Oh dear. The four founders stuck together then?
Victor Christou: Yeah, we stuck together right the way through, and we're still in touch with each other today, but we trusted each other. The University took an equity position in the business and the University appointed someone to the board, we suggested who they should appoint because we wanted someone friendly and it was another friend of ours from college. I think he was the first non-founding partner at the consultancy Ellie Kay. He had been a strategic consultant, but was now an academic at the University, but was also at the same college that we were all from.
And the best piece of advice that he gave to us was, when you go into a business, be clear with each other about what you want to get out at the end, as you may all have different agendas and when you achieve it, one person might decide that they're out and if they've been clear about what it would take to get them out at the point at which you go in, there's no surprises and no one's let anyone else down. So we all knew what each of us wanted to get out of it.
Peter Cowley: And in terms of a capital sum at the end?
Victor Christou: It's not necessarily capital driven but it might be, we want to achieve a landmark business, or I want to make a certain amount of money, or I just want to have the experience of going through a start-up. As long as you're all clear where you want to jump off the bus, then no one can complain when you actually do.
Peter Cowley: That will change won't it, depending how the bus is driven? How erratically it's driven, how many stops starts there are, how many potholes it falls through.
Victor Christou: That's right, and you keep coming back to this point about transparency and honesty, I think as long as everyone's transparent and honest with each other, there are no surprises.
Peter Cowley: Yes, I've seen teams of four become three, for that reason.
Victor Christou: It's quite difficult to keep teams together coherently, different people drift in and out at different periods and were more so or less so committed.
Peter Cowley: So, you sold out. You worked with the company Arborescent.
Victor Christou: Arborescent.
Peter Cowley: For a while?
Victor Christou: For a year, but I was clear that I didn't know enough about business. So I went to business school after I created the business. Yeah, I went to Stanford, so I was in the graduate school of business at Stanford as a Sloan fellow, which was an amazing experience for me. Particularly useful as a result of having created a business as a technologist and not really understood business to be honest.
So, I went to business school thinking that I'd learn a lot about accounts and corporate finance and they were all the courses I wanted to do, I was dead set on doing that, and economics as I'd never done them before in my life. I learned all of that, but the most important things I learned in Stanford were things I discounted initially.
I chose Stanford because it's the heart of venture capital, so it's based right in the centre of Silicon Valley, right where all the venture capitalists are. I knew we'd be getting lots of venture capital lectures.
The most transformative classes I took however, were interpersonal classes. To do with interpersonal relationships and how you deal with people, which I thought I was pretty good at it, it's interesting being exposed to your own vulnerabilities and blind spots. I think that was useful.
Peter Cowley: It's almost a counselling course?
Victor Christou: Yeah, well they're very clear that it's not counselling, but it's all about interpersonal dynamics. So, it's not about you dealing with your own issues, it's about understanding your impact on other people and how other people impact you, it was a revelation. I take that with me today, that's really, important. Learning when you're running a business and trying to interact with people with lots of different needs and lots of different character types. That was the most valuable thing I took away from Stanford.
Alan Cowley: Thank you for listening to part one of Victor Christou's Invested Investor podcast. It was great to hear some valuable tips from an accomplished entrepreneur including Victor's advice that when you go into business, be clear with what you all want to achieve. Each founder may have a different endpoint.
Part two will follow on from Victor's business school experience and onto his investment career.
Peter Cowley: Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website Investedinvestor.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.