20 VC 019 Funding the Future with James Wise of Balderton Capital

Summary Notes


In episode 19 of the "20 minutes VC," Harry Stebings interviews James Wise, an investor and advisor from Balderton Capital, who shares his unconventional path into technology and venture capital, starting from building websites as a teenager to working with McKinsey and then moving into social venture funds before joining Balderton. Wise discusses the differences between European and US VCs, emphasizing the cultural and structural nuances, and the potential for crowdfunding platforms like Crowdcube to democratize investment opportunities. He also touches on the importance of team dynamics over individual heroism in entrepreneurial success and expresses his excitement for health tech and consumer apps that incentivize behavioral change. Wise concludes by highlighting the importance of understanding the underlying "unicornomics" and the team's ability to iterate and problem-solve as key to successful Series A funding.

Summary Notes

Introduction to James Wise and His Background

  • James Wise is an investor and advisor for early-stage technology startups.
  • He holds board member and observer positions at various companies, including three dhubs.com, c nine IO, sketchfab.com, crowdcube.com, mytomoros.com, upbeat.com, and Sunrise AM.
  • Sunrise AM was acquired by Microsoft for 100 million.
  • Before joining Balderton, James helped build one of the UK's first social venture funds.

"James is an investor and advisor to early stage technology startups with Bulldog and Capital. James holds board member and observer positions at three dhubs.com, c nine IO, sketchfab.com, crowdcube.com, mytomoros.com, upbeat.com and finally, Sunrise AM, which was recently acquired for 100 million by Microsoft."

This quote introduces James Wise, his role in the venture capital industry, and his involvement with various technology companies, highlighting his experience and expertise.

James Wise's Entry into Technology and Venture Capital

  • James started by building websites as a teenager, which was initially a hobby.
  • He worked as a consultant for McKinsey in various locations including West Africa, the Middle East, and London.
  • James transitioned from consulting to working with tech companies and then to launching a social enterprise fund focusing on social impact.
  • He joined Balderton Capital over two years ago.

"I actually have a bit of a different background to most. I guess where I started off was the same as many people interested in technology was playing around with building websites as a teenager."

This quote explains the early beginnings of James Wise's interest in technology and how it started as a hobby which later influenced his career path.

Differences in Venture Capital Operations Between Europe and the U.S.

  • Balderton Capital originated as Benchmark Europe, a branch of the successful U.S. fund, Benchmark.
  • The VC industry faces challenges in scaling, which is why programs and events are used to spread their message.
  • Balderton Capital decided to focus purely on Europe due to the opportunity present.
  • There are cultural and structural differences between regions, and communication styles vary.
  • London has a stronger focus on fintech compared to San Francisco.

"VC really struggles to scale, in its current model at least. And the reason why we love doing programs like this and going to events is it means we can, in effect, scale our message a little bit."

This quote highlights the scaling challenges within the venture capital industry and the strategies used to overcome them, such as participating in programs and events.

Silicon Valley's Success and Geographic Influence

  • James acknowledges that Silicon Valley is the epicenter of the technology world.
  • He suggests that the success of Silicon Valley is not solely due to geography but also due to other contributing factors.

"No, I think if you look at the market right now, I think the epicenter of the technology world is still in San Francisco and around San Francisco."

This quote recognizes Silicon Valley's significant role in the technology industry while also implying that its success is not just a result of its location.

Silicon Valley as a Tech Hub

  • Silicon Valley remains a central hub for significant technology companies.
  • The region is home to a wealth of knowledge and resources for tech startups.
  • Historical development of technology in Silicon Valley has laid the groundwork for future companies.
  • Europe is emerging as a strong competitor with a growing number of tech exits and unicorns.
  • The tech ecosystem is shifting, with new hubs developing outside of Silicon Valley.

"But without a doubt, the most important technology companies today are, on average, based in San Francisco."

This quote emphasizes the current concentration of leading tech companies in San Francisco, highlighting the city's significance in the tech industry.

"Those giants are in open source, those giants are in hardware, those giants are in social platforms."

The quote points out that the foundational elements of great tech companies, such as open source, hardware, and social platforms, have strong roots in Silicon Valley.

"We think Europe has got great potential, and we think there is a shift away from one ecosystem just in the valley."

James Wise indicates a belief in Europe's potential to be a major player in the tech industry and acknowledges the shift in the tech ecosystem from being solely focused on Silicon Valley.

Evolution of Funding Methods

  • Funding methods for startups have changed significantly since 2008.
  • Crowdfunding has become an important method for early stage company backing.
  • Crowdcube, a leading equity crowdfunding platform in the UK, has democratized access to investing in small businesses.
  • Crowdfunding has proven to be impactful, with record-setting campaigns and substantial capital raised quickly.

"I think what they're doing is opening up and making more transparent an asset class which previously was only available to a very small group of wealthy individuals controlled by small merchant banks."

James Wise explains how Crowdcube is transforming investment by making it more accessible and transparent, previously limited to a select group of wealthy individuals.

"The fastest crowdfunding campaign, I think, was done on Crowdcube itself. For Crowdcube, I think they did a million pounds in 16 minutes."

This quote highlights the efficiency and speed at which crowdfunding can operate, as evidenced by Crowdcube's own rapid fundraising success.

Crowdfunding vs. Venture Capital

  • Crowdfunding and venture capital represent different levels and types of financing.
  • Equity crowdfunding offers a wide base of support but differs in the structure of support and advice compared to venture capital.
  • Crowdfunding is a broader industry, encompassing various types of funding beyond the niche of venture capital.
  • Crowdfunding offers more flexibility and liquidity, catering to a wider range of businesses and investment sizes.

"You get a huge new group of people, in fact, just park, who did their crowdfunding campaign recently on Crowdcube. They actually saw a three x increase in the number of downloads of the Just park app."

James Wise illustrates the marketing benefits of crowdfunding, where a company not only raises funds but also gains advocates and sees increased product engagement.

"Crowdfunding is a much, much bigger industry than just venture capital."

This quote clarifies the scope of crowdfunding, which extends far beyond the realm of venture capital, affecting a diverse array of small businesses.

Competitive Advantage in Venture Capital

  • There is no one-size-fits-all competitive advantage in venture capital due to the unique nature of each investment and founder relationship.
  • Personalized approaches and understanding the specific needs of each company are crucial.
  • Venture capital firms must differentiate themselves to attract and support entrepreneurs effectively.

"Difficult to lots of funds will say the same things. They're entrepreneur friendly and they understand the markets."

James Wise acknowledges the challenge of establishing a competitive advantage when many venture capital firms claim similar strengths, emphasizing the need for a personalized approach.

"And the amazing thing is that is all true, because it really varies person to person, entrepreneur to entrepreneur."

This quote reinforces the idea that the effectiveness of a venture capital firm's competitive advantage is highly dependent on the individual circumstances of each entrepreneur and investment opportunity.

Venture Capital Investment Philosophy

  • Venture capitalists spend a significant amount of time getting to know the companies before investing.
  • The average holding period for investments is 7.1 years, indicating a long-term partnership.
  • The competitive advantage for a venture capitalist often lies in the personal relationship with the founders and the shared vision and passion for the project.
  • Subjective judgment plays a crucial role in investment decisions, despite the availability of data and market trends.
  • The investment team's experience in starting and growing businesses is considered an internal advantage.
  • Team members have diverse backgrounds, including software, retail, and social enterprises.

"So that's a long time to know and work with someone. And so ultimately your competitive advantages are going to be about how you get along with that person or that team, whether you share her vision, whether you share her passion for what they're doing, whether you believe that the team can execute on what they're doing."

The quote emphasizes the importance of personal relationships and shared beliefs between venture capitalists and the founders of the companies they invest in. This interpersonal aspect is considered a crucial competitive advantage.

Key Metrics for Series A Funding

  • Metrics for Series A rounds vary significantly by sector.
  • Some benchmarks include 20% month-to-month growth for social media platforms and sub 5% churn rates for SaaS businesses.
  • There is no one-size-fits-all metric for Series A; it depends on the business model and the unique "unicornomics" of the company.
  • A company should have a solid understanding of its core business mechanics and a model that is close to working effectively.
  • Series A funding should help expand into new products, geographies, or scale operations.
  • The ability of the team to learn, iterate, and problem-solve is as important as the business model.

"But I think that you have some confidence around the core of your business, and that's generally what defines a series a that you've been testing and trialing and understand now the real underlying mechanics, and you have a model which just about works, and that you now have a vision to place it."

This quote defines the essence of what makes a successful Series A round: a business with a tested and proven core, understanding of its mechanics, and a nearly functional business model that is ready for expansion with a clear vision.

Crowdfunding and Minibonds

  • Crowdfunding is often criticized for being high risk and for the perception that investors may not fully understand the risks.
  • Crowdcube is working on improving the information provided to investors to make informed decisions.
  • Minibonds are a new product that attracts a different type of investor seeking various asset types and risks.
  • Minibonds allow investors to support businesses they are passionate about while receiving immediate returns through interest.
  • This product is unique in the market and has seen significant uptake.
  • The mixed model of minibonds allows for both financial return and support for businesses investors care about.

"But the great thing about minibons is it attracts into the market people who have a different type. They want a different type of asset, and they want a different type of risk, and it allows them to be involved in businesses which they really, really care about and they have a passion for, but also not completely put money in a way which won't see a return for a very long period of time because they immediately get money back in terms of interest on that bond."

The quote explains the appeal of minibonds in the crowdfunding space, highlighting that they offer a different risk profile and immediate returns, appealing to investors who want to support businesses they are passionate about while still receiving some form of immediate financial benefit.

Utilizing Brand for Capital and Inclusion

  • Leveraging a brand's passionate following to raise capital.
  • Financial rewards are combined with the inclusion of supporters in business operations.
  • Focus on rewarding engagement with tangible benefits.

So it's a nice combination of having a brand, utilizing a brand that people are passionate about to raise capital, reward those people financially, but also reward them with inclusion within your business, and focusing.

The quote emphasizes the strategy of using a well-loved brand to secure funding while also ensuring that investors are rewarded both financially and through active participation in the business.

Excitement in the Technology Market

  • James Wise expresses interest in multiple sectors within technology.
  • Health tech is a particularly exciting sector due to its breadth and impact.
  • Health tech encompasses consumer health, clinical health, software, and hardware.

So there's lots of sectors. One area I spend quite a lot of time looking at, and I'm imagining you'll get this response. At the moment, quite a lot, is health tech.

James Wise conveys his enthusiasm for the health tech sector, highlighting its variety and the current trend of increased attention towards it.

Health Tech Innovations and Patient Care

  • Health tech's role in improving patient care and market efficiencies.
  • Empowering patients with data is crucial.
  • The approval for 23andMe to identify Bloom syndrome is a significant breakthrough.
  • The decision has sparked important debates and discussions.

For me, there's two areas that sort of fascinate me. One is around patient care and getting them the marketplace for services around people who are ill, and improving the efficiencies around delivering services to people, empowering them with data.

James Wise is fascinated by the potential of health tech to revolutionize patient care by enhancing service delivery and empowering patients with their health data.

Behavioral Economics and Gamification

  • Interest in the intersection of behavioral economics and gamification.
  • Consumer apps that help control bad habits, especially in health, are intriguing.
  • The use of gamification to incentivize behavioral change is powerful.

I'm really interested in this combination of behavioral economics and how we incentivize people, not just financially, but through the use of the broad term gamification as well to change their habits.

James Wise discusses his interest in how behavioral economics and gamification can be used to help individuals manage their habits more effectively.

The Importance of Teams in Success

  • Success should not be attributed to individuals but to teams.
  • While entrepreneurialism is an individual trait, great companies result from collective effort.
  • The role of a CEO is crucial in building and leading a team.
  • Shifting focus from individual celebration to acknowledging entire organizations.

The one thing I've learned working in this industry is the real importance of the team and delivering everything.

James Wise emphasizes the critical role of teamwork in the success of any venture, suggesting that the collective contribution of many is more significant than individual accolades.

Quick Fire Round: Investment Decisions and FOMO

  • Recent investment in my tomorrows for its disruptive vision in drug distribution.
  • The founding team's capabilities were a key factor in the decision to invest.
  • FOMO is a natural but dangerous inclination in investing.
  • Constant self-checking against FOMO is necessary.

Most recent investment was in a company called my tomorrows. They are targeting the delivery of drugs for early access programs. So completely changing the way that drug distribution has done for people who are very, very ill. And we said yes because we thought the founding team had the right abilities to execute and their vision was entirely disruptive to a trillion dollar industry which affects all of us.

James Wise explains the rationale behind his most recent investment, highlighting the potential impact and the strengths of the founding team.

Favorite Book and Its Impact

  • "An Intimate History of Humanity" by Theodore Zeldin is a favorite book.
  • The book is appreciated for its focus on individual stories within a broader historical context.
  • It emphasizes the importance of understanding individuals' motivations and backgrounds.

My favorite book is probably one more about people than about businesses though. So an intimate history of humanity by Theodore Zeldin.

James Wise shares his favorite book, which aligns with his belief in the importance of understanding individuals as part of a larger societal fabric.

Conclusion and Resources

  • Harry Stebbings signs off and directs listeners to the podcast's website for resources.
  • Encouragement for listener engagement and suggestions for future questions.

For all the items and resources mentioned in today's show, do head on over to Ww dot the 20 minutevc.com and please do email us with your suggestions for questions that you'd like to be asked in the future.

Harry Stebbings closes the episode by providing information on where listeners can find additional resources and encourages them to contribute to the future content of the podcast.

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