20 VC 086: Starting A New Venture Fund and How London Compares To The US with Hussein Kanji @ Hoxton Ventures

Hussein Kanji really is a pedigree in the industry having started off his career with Microsoft, he made the leap into venture with Accel Partners where he was a board observer with the likes of Playfish, acquired by Electronic Arts and made seed investments in the likes of OpenGamma and Dapper acquired by Yahoo. Following such success, Hussein raised his own fund and is now the founder of Hoxton Ventures, a 2013 fund with $40m under management. Despite, Hoxton’s age their portfolio is immense with the likes of Deliveroo, DarkTrace by the famous Mike Lynch from Autonomy and Campanja, recently acquired by 24/7 customer. Before we delve into the show today, our dear friend and kind donator, Brad Feld has agreed to do a competition giveaway featuring signed copies of his amazing book, Venture Deals, all you have to do to be in with a chance is headover to the website at www.thetwentyminutevc.com and sign up for our newsletter. It’s that simple. In Today's Episode You Will Learn: 1.) How Hussein mad his way into the wonderful world of venture? 2.) What was it like to start a new fund with Hoxton and why did Hussein leave the security of Accel to start his own? 3.) Why did Hussein believe this was the stage with the most opportunity? Does he think there is too much capital chasing too few deals? 4.) With DarkTrace (portfolio company), Hoxton were the only VC money in at the early stage? How did that come about and what was it about Hoxton that made Mike take your money? 5.) Why did Hussein choose to setup the fund in London? What does he think is driving the surge in European tech with the rise of the Nordics etc? 6.) With Steve O’Hear Hussein stated he looks for brand new markets that are going to be formed (Playfish)? What does he think those are? Items Mentioned In Today's Show: Hussein's Fave Book: The Second Bounce Of The Ball: Ronald Cohen, Flowers from Algernon Hussein's Fave Blog: Josh Koppelman: Redeye VC, Abnormal Returns As always you can follow Harry, The Twenty Minute VC and Hussein on Twitter here! If you would like to see a more colourful side to Harry with many a mojito session you can follow him on Instagram here!

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Hello, I'm Harry Stebbings and this is the 20 Minute VC. Now today, I am thrilled to welcome Hussain Kanji to the show. Hussain really is a pedigree in the industry. Having started off his career with Microsoft, he then made the leap into venture with the world-renowned Accel Partners, where he was a board observer with the likes of Playfish, which were acquired by Electronic Arts, and he made seed investments in the likes of Open Gamma and Dapper, which was acquired by Yahoo. Following such success, Hussein set out to raise his own fund and is now the founder of Hoxton Ventures, a 2013 fund with 40 million under management. Despite Hoxton's age, their portfolio is immense, with the likes of Deliveroo, Dark

• 0:45Harry Stebbings?

  Trace by the famous Mike Lynch from Autonomy, and Campania, recently acquired by 247 Customer. It's an amazing chat today with Hussain, where we discuss the difficulties of raising a fund and then establishing it in an ecosystem, the current state of London's investing environment, and much, much more. But before we delve into the show today, our dear friend and kind donator, Brad Feld, has agreed to do a competition giveaway, featuring signed copies of his amazing book, Venture Deals. So all you have to do to be in with a chance of winning is head over to the website at www.thetwintiminetc.com, all in letters, and sign up for our newsletter. It's that simple.

• 1:26Harry Stebbings?

  But enough from me, so without further ado, ladies and gentlemen, I would like to introduce the man himself, Hussain Kanji, founder at Hoxton Ventures.

• 1:41Speaker 01

  You have now arrived at your destination.

• 1:44Harry Stebbings?

  Well Hussain, welcome to the 20 Minute VC. It's an absolute pleasure to have you on the show. Thank you for having me. This is great to be on. Now, we always like to start off on the 20 Minute VC with a little background, so can you give us a quick snapshot of your past and how you got into the wonderful world of venture?

• 2:02Speaker 02

  Yeah, so I think with, as is the case with a lot of venture folks, it's accidental, it's a series of circumstances. So I, I moved out to London in two thousand and five to go to graduate school here. And I think the second week of graduate school, uh, one of my colleagues from the Bay Area, uh, who knew the Accel partners pretty well, and specifically one of the partners made an introduction, uh, on my behalf, uh, to them, saying, you know, smart guy in London, you guys should connect, uh, you know, obviously top tier VC, you guys should connect. Um, we had a conversation, one thing led to another, I met most of the other partners at Axel, a- and then I ended up taking a job while I was still a student, uh, working for the firm. Uh, as soon as I graduated, which is about two years later, um, I to- I joined the firm full time and I became a VC and,

• 2:48Speaker 02

  you know, VC was something that I thought I'd do, or venture is something I thought I'd do, you know, uh, in kind of the, you know, kind of the later years of my career, uh, it was, it was kind of an, an interesting thing. I didn't know that much about it, but I thought it was interesting and curious about it. Most of my life has been building companies, uh, whether inside of very large companies like Microsoft, so building new products there, or, or in many cases, building startups right from the ground, right, right from ground zero. So venture is kind of a, a nice transition, right? Cause once you, once you've learned how to build companies, I think you can be, you can be more effective in the, in the venture scene, helping and coaching.

• 3:21Harry Stebbings?

  And so you joined Axel in two thousand and seven full time?

• 3:24Speaker 02

  Two thousand and seven full time, and then I left in two thousand and nine to go to Hoxton.

• 3:29Harry Stebbings?

  And with Hoxton then, why did you decide to leave the security of Axel? Obviously Axel incredibly prominent fund. What made you believe that there was an opportunity with Hoxton?

• 3:40Speaker 02

  Yeah, a great question. So, you know, I think, you know, Axel's a great firm. I mean, it's probably one of the best in Europe, if not the best, uh, alongside of index. Um, I think the, the challenge is when you're a very, very large fund, and this is just kind of the economics of funds, uh, and, and Axel's more than half a million, half a billion per fund, so five hundred something plus per fund. Um, writing a one, two or three million dollar check is reasonably difficult for the firm, and the, the reason being is, you know, even if you get twenty, thirty, forty times your money back, say off of two million dollars, so, you know, you return eighty million. Million back into the fund, you know, you have four hundred and twenty more to go just to be able to break even on the fund to return capital. As we know, there are not that many forty Xs in the world out there every single year.

• 4:23Speaker 02

  So the firm made a conscious decision to do more later stage investing, which made a lot of sense. Um, which meant that they were writing ten, twenty, thirty million dollar checks in addition to the early stage checks. And and I think a lot of people back in two thousand nine were doing this, and this is, you know, kind of post recession. They were looking for more of a, more of the safety of kind of grow, growing businesses, which left a vacuum on the early stage side. That was kind of observation number one. Observation number two is, you know, uh, me and my partner Rob became very bullish on, on what was going on in Europe. So, you know, this was a time when very few people were bullish on anything in Europe, uh, apart from probably the bigger funds and, and their investors.

• 5:02Speaker 02

  And the reason why is we saw a, a massive shift happening because global distribution platforms became far more global. So you could build a startup literally from almost anywhere in the world and leverage the fact that you had Facebook's API. Or the App Store or Google Play or, you know, AdWords or AdSense and, and build a community of users. Or, or customers or subscribers all, all around the world. And this was very, very, and this was very changing, I, you know, game changing, I think, for Europe. Cause up until then, if you're a European company, you know, historically you're almost always underfunded and you focused on your local market. And by the time you thought about expansion to other countries, there was almost always a well-funded Silicon Valley competitor, maybe a Boston competitor.

• 5:44Speaker 02

  That was also thinking about the same thing and either they would eat you up or they'd compete with you and put you out of, out of business. And there just wasn't a very level playing field because America's a bigger country and there's a lot more money going into the startup community.

• 5:56Harry Stebbings?

  And why do you think institutional investors asset allocation is much greater towards venture in the US than the UK?

• 6:03Speaker 02

  So it started off earlier, uh, and it became very self-reinforcing. So, you know, it started off in the, in the sixties. That's probably when the industry started in the US. You had a bunch of successes in the sixties and then the seventies and then the eighties. And more and more institutional money flew, you know, flew back in. Uh, people tried to do the same thing in the UK. Back in the seventies and eighties, I mean, you had the pioneers like Apex and you had Three I. You know, the founder of Apex, Ron Cohen, wrote a book. Um, and you know, in the book, he explains that venture doesn't work in, in, in, in the UK. And, and the reason being is you never got companies that, that really scaled up to those same sizes. And Apex became much more of a private equity firm than it became a venture firm. And Three I became much more of a growth equity firm.

• 6:45Speaker 02

  And so because we didn't see these massively scaling companies the way we did in the US. You know, the money pulled out of, uh, out of venture in the UK and broadly out of Europe as well. And a lot of this was because the playing field, like I was saying, was just not level. It was very, very difficult to build in a, a global business out of these places because. You know, you would try and go international and the American company would go internationally and they compete with you. And there were, you know, America is a bigger country than most places in, in Europe and probably barring Germany. And so it's just very difficult to get to scale and America also has all the early adopters. But once these distribution platforms became global, you know, the, the playing field completely changed, right? You put your app on top of the app store, it doesn't make a difference where you come from.

• 7:24Speaker 02

  You know, you're going to get users all over the world and Angry Birds did this, Supercell did this, King.com did this on top of Facebook's API. Spotify is doing this. And so all of a sudden you can see the shift. Uh, and you can build massively scalable businesses from Europe. And this was, you know, back in two thousand eight, two thousand nine, there weren't that many venture firms. And there weren't very many focused on early stage and there weren't many investors who kind of saw that Europe was going to fundamentally transform on this dimension. I think today, if you talk about this stuff, there's so many examples of success now, right? You know, whether it's Auto One in Germany or it's FanDuel in Scotland. Um, you know, there's so many different examples of success now in Europe that I think. You know, talking about the fact that European venture or European startup community has changed is almost self evident today.

• 8:07Speaker 02

  But back then it was still, there, there weren't very many people doing this kind of stuff. So we said, look, you know, we're both startup guys. We made our careers before we became venture guys building new businesses. And so let's go build a new venture fund, uh, and go target this gap. Uh, and, and you know, part of the gap was also making sure that our companies were very plugged into the Silicon Valley fabric. Uh, to make sure they were as connected as possible to all the decision makers out in California, whether the decision. Became executives in the companies and they became eventual, um, you know, funders of the companies or they became uh, or they became potential acquirers of the business. You know, we thought it was really important for, for guys here to be deeply connected out to the ecosystem there. Um, and there was a gap in the market, so we, we set up. Uh, I think no one told us it was gonna be so difficult.

• 8:53Harry Stebbings?

  Uh, to- talking then of the money then going into venture and the difficulties, was it difficult to raise the fund?

• 9:00Speaker 02

  Oh yeah, it was, it was, it was downright impossible. So, you know, you had, you have different, different reasons for, different reasons for why people said no, and we kind of bucketed it up. So first of all, it took us about three years, right? So everyone told us, it, it generally takes about twelve to eighteen months to establish a new fund. And you know, if you're not that great, you know, it might take you twenty-four months. I mean, obviously, if you're not very good, you may never do it, but you know, twenty-four months is probably the very high end. Um, so we thought, you know, we'd, we'd budget for twenty-four months, you know, twenty-four months in, we realized we were nowhere close to getting uh, to our goal. And our goal was pretty humble compared to Axel. We were only gonna raise a twenty-five million dollar fund. It was, you know, that's tiny in comparison to that. It, it took us thirty-nine months to do this. Uh, and you know, we got a, a bunch of different reasons for why people said no. So we talked to the Americans.

• 9:42Speaker 02

  And most Americans that we talked to said, you know, we don't underst- you know, you guys are smart guys. We have no idea what you're doing in Europe. You know, nothing comes out of Europe. Why don't you come back home to California and get, you know, get jobs at good venture funds and go build your careers the right way? So, you know, they just couldn't see what was going on in the ground in Europe. So that was, you know, it was tough. Uh, we talked to a bunch of European families and a lot of European families said, look, we think venture investing is like gambling. We don't believe in any of these companies. And this is, you know, back in the day when Facebook was still a small company. Uh, and you know, people are very skeptical that Facebook was ever gonna be able to generate any real value, you know? Today, Facebook is three hundred billion, but that's, that's a big shift. This is back when Facebook was still worth ten billion and people were debating whether that was even a fair valuation.

• 10:27Speaker 02

  So, you know, a lot of the European family said, we don't get this, um, and we think it's gambling. And by the way, if it is gambling and we do get it, we'd rather do it ourselves. So why should we pay anyone else, you know, a fee in order for them to get access to stuff? And, you know, people just didn't understand that, you know, building these Takes the knowledge and the know how and to be fair, getting into the right companies requires access, which, you know, if you're not really engaged in the community, it's pretty hard to do. So, you know, we got told no on both sides of the, on both sides of the pond. Uh, we eventually, you know, most of the people gave us money were people who knew us and they trusted us. Uh, and eventually we got to the right amount of money. We actually raised more money than we thought we'd wanted to raise. So it turned out to actually be a pretty happy story. And then since then, you know, we've been investing in kind of our portfolio, I think speaks for itself. I think we're in a bunch of really great companies.

• 11:11Speaker 02

  Um, and you know, we're, we're, we're really proud to say this, we're out of the J curve, which means we're kind of, you know, in the money now on, on the fund. You know, for a, a fund that's just going to become two years old in two weeks, you know, that's, that's pretty fast to, to be able to get out of there. So. You know, we, we're very proud of what we've actually been able to build now, but it, it was not easy going by any stretch of the imagination.

• 11:32Harry Stebbings?

  And were you tempted then to, to take a job back in, in Silicon Valley and back in a traditional venture fund and, and build your career the right way?

• 11:40Speaker 02

  Yeah. So, you know, both Rob and I spent a bunch of time out in California and, you know, we talked to folks before we started the journey of, of, of building a European fund. And, you know, this was really tugging at us, right? We really thought that the market here was underserved. There were some great big established venture funds, but there weren't very many newer next generation funds, which if you look in California or in the U S, right? You have first round capital, you have true ventures, you have floodgate, you have all these next generation kind of micro, micro cap funds that really were able to shake up the market. We thought the same thing would happen in, in Europe and it would be very complimentary to the big funds, the whole ecosystem and kind of strengthen. And then this really tugged at us. But, you know, we spent a bunch of time in California and, you know, we were, and this is, I, I got one offer from a, from a big venture fund out on the west coast.

• 12:22Speaker 02

  And basically what they said, look, you're a smart guy, you know, you went to Stanford, you did a bunch of startups, um, you know, you, you built them reasonably successfully. You know, you kind of moved up to Seattle, which is a little bit of a puzzlement, you know, why would you leave the Bay Area? It's Microsoft, it's a, it's a leading software firm, you know, you ended up kind of distinguishing yourself at Microsoft. You know, you, you did, it was, it's still okay. And then you just made this very odd career choice of, of moving to London. Uh, and you moved to London and you joined Axcel, which is again a top, you know, it's a great firm. Uh, and so obviously you know what you're doing, but you know, London just doesn't really make all that much sense. So why don't you come back home and we'll give you an office. We'll cover your costs. So, you know, you'll get a salary, but it won't be a huge one. You'll cover your costs. Uh, prove to us that you're smart again.

• 13:07Speaker 02

  And, and, and that was literally the conversation, right? Prove to us that you, your Rolodex works, that you can call up the right sets of people. Cause you know, you're so dis- the feeling for most people in California is once you leave, you're so disconnected from the ecosystem. This is not really true, right? You know, one of my good friends from undergrad, who was a grad student at the time, became the founder of Cloudera. You know, our, our Rolodex is very live and current, right? We ended up backing this company, we called the chief scientist of the security division at Cisco. Right? He's now the CTO at RSA. You know, our, our network is very good in California. But I think the general philosophy is once you move out, you're disconnected. We're not so sure if it's real. Prove that it's real. And then we'll talk about giving you a job in about a year. And that was, I think the general California mindset for people who leave California,

• 13:50Speaker 02

  especially to a place like Europe back in the mid two thousands. The good news is I think all of this has changed now, right? So I think this idea of European venture or European startup investing, which looked very strange back in two thousand nine, two thousand ten, is now, you can clearly see it, right? They're, they're companies. So I think, and there are many, many more California firms, spending a lot more time out here, uh, than they, than they used to be.

• 14:13Harry Stebbings?

  Absolutely. I think we've seen a massively growing trend of US funds investing in European startups.

• 14:19Speaker 02

  Yeah, they're, they're saying two thirds of all the money in, in, in London, at least in the tech community at the series B stage, is, is now funded by American VCs. And when I say American VCs, I don't mean Axcel in the UK. I mean guys who are in the US, who are flying over and doing it. So, you know, big, big ship. So I think a lot of the stuff that we, and this is the problem, right? When you're looking at early stage companies or even early stage markets, it looks really raw and weird at the early days, right? And you try explaining it. Airbnb to someone before Airbnb becomes successful. Uh, it just looks like a weird idea and this whole idea of European investing, we we can see why the fundamentals were good. But it was it was different and because it was different, most people didn't quite see the pieces connect.

• 14:59Speaker 02

  And now that you can see the pieces connect, you know, you start to see money kind of plow in. So this is actually a really good time to be in venture in Europe.

• 15:06Harry Stebbings?

  And you mentioned the importance of the network there. I mean, how have you then ma- managed to maintain your incredible network in Silicon Valley in San Francisco? Uh, where where it seemed previously impossible to do so.

• 15:18Speaker 02

  Yeah, so you know, the you know, a lot of this network is built on on very longstanding relationships, right? So when you go to undergrad with someone, when you work in the trenches at a startup with someone and you. You know, we were lucky, you know, you go to Stanford, you work for good quality companies. You know, a lot of the people who are around you will go on to do really exceptional things and and that's because they're exceptional people. And so a lot of those exceptional people are now decision makers and a lot in across across the industry in California and they're. Kind of they were the right age group, right? They've kind of come up through the ranks and, you know, I've ended up in Europe and they've ended up. In really senior positions at companies or venture funds. And so I've known them since, you know, the early, you know, since my early twenties. It's very easy to pick up the phone.

• 15:58Speaker 02

  Now, the the one caveat is, I think when you're really disconnected or far away, you need to spend time face to face with folks. Cause people forget, right? And, you know, there's a lot of human interaction that just happens face to face. And a lot of information sharing, this is what makes Silicon Valley such a great ecosystem, because this happens very naturally, because it's so dense. And it's such a mono industry town. But when you're out in Europe, you kind of need to go back out there and go hang out with folks again and. Just by being physically present there once in a while, and for us, we go there every like six to eight weeks. You know, you you get back into the flow of information and, you know, people remember. You know, hey, so and so is working on something. I should really connect him to you so you guys can have a chat.

• 16:37Speaker 02

  You know, this kind of stuff, which happens very informally and and happens very naturally when you're physically there, but when you're far away, just people forget to Skype you or send you an email, right? Cause it just doesn't make as much sense. But if you go and spend face time, you know, all that stuff kind of builds on each other and that's what we do and. It's it's a it's it's a schlep, right? I mean, I was in the US yesterday, landed this morning and took a red eye, right? I, you know. You have to do this, but you know, you go look at First Round Capital, which is based in Philadelphia. Josh Koppelman's blog is called Red IVC. It's, you know, that's kind of, that's the explanation. That's what you have to do to be in the ecosystem, but you can be in the ecosystem and still be far away. You just have to go back and forth.

• 17:15Harry Stebbings?

  Is that how you would say that you've established the Hoxton brand? Because obviously Hoxton being a new venture fund, you have to establish yourself as kind of the smart money in London and the new smart money in London. Is that how you say you've established yourself as smart money through being that physical presence?

• 17:32Speaker 02

  Yeah, I think, you know, kind of what, if you boil down to what we stand for, right? So we're, we're very much of an early stage fund. You know, and there are a lot of other early stage funds, but we like investing, we kind of being the first guys in. We're very, very, very focused on outliers. So we're trying to find these next generation, you know, billion dollar plus companies. Uh, we're, um, you know, and we're happy to invest super early into them. We're very focused on new market creation. So more than anything else, you know, what we're looking for is new industries that are kind of being formed and then backing a company that can turn out to pioneer that industry and, and watch that industry kind of grow and mature into a real industry. And a lot of these things at the inception don't look like real industries. I mean, today we talked about the on-demand economy, but in the early days of that industry, you know, there was no term for an on-demand economy, right?

• 18:17Speaker 02

  This whole sharing economy stuff, there was no term like that. Social gaming, there was no term in social gaming when we at Xcel did Playfish. You know, so, so you, you back these new industries. So we stand for that and we, we're very much connected to California. And I kind of, our value proposition to our entrepreneurs uh, is that we're pretty good about providing shortcuts to people, you know? So one of our security companies called me up, said, I really want to talk to CloudFlare, you know, which is one of these top, you know, potential unicorns in the security industry. You know, and I, I picked, you know, he was going to be able to get there on his own. You know, he'd find a way to network and get to the right person and decision maker. You know, I picked up the phone and called the founder and, you know, two days later they were having a conversation. So we kind of try and make this a, a lot easier for our companies.

• 18:59Speaker 02

  But, you know, our brand at the end of the day is not us, it's the companies that we back. So the companies that we back turn out to speak volumes about how we do as a fund and what we stand for. So we're, you know, a year ago, I think it looked It was too early, right? You couldn't really see very much in the fund. We thought we had great companies, but the world didn't see this. And today you look at this and you know, Darktrace is a great company, Yieldify is a great company, Deliveroo is a great company, Super Awesome is a great company. So we have a list of these things now and you know, that's kind of how you establish your brand and people try and then work, work with you because they see those companies and the affiliate, you know, you're you're kind of part of the journey. To be fair, we have very little to do with the success of those companies. Those companies are great with or without us.

• 19:41Speaker 02

  But you know, people then kind of correlate this stuff with you, right? And that's how you kind of build a brand and a reputation. And that's what Sequoia does well, and that's what Axel does well, and that's what Benchmark does well, right? We think those firms are great because the people who they back turn out to be exceptional and that kind of rubs off the right way on the firm.

• 19:57Harry Stebbings?

  And you mentioned those great companies there. You know, we, we both know there's a large amount of sources of capital now in the seed stage. So do you believe, sorry, that there is the potential to view this industry as too much capital chasing too few deals? Is that something you come across?

• 20:13Speaker 02

  I think that's definitely true or more true in, in California. I don't think that's true in Europe. You know, you look at B C per, per capita, like on a GDP basis. You know, London is pretty far advanced, but it's still about a third per capita. I mean, the numbers that I saw the other day were, you know, London in the, in an entire kind of financial quarter, uh, sorry, New York in an entire financial quarter raises as much money as London does in a year. And you know, London and New York are very comparable. They should be raising the same amounts of money. The companies are very, very similar. In many ways, they're kind of at the same stages of kind of growth in terms of cities, you know, in, in the tech industry. So there's just a lot more money floating around in the U S than there is in London and everything outside of London,

• 20:53Speaker 02

  you know, in, in Europe or in the continent is much, much smaller. Berlin is much smaller, for instance, than London is when it comes to kind of fundraising.

• 21:00Harry Stebbings?

  So would you say there's even more room for seed deals, uh, and seed funds in London?

• 21:05Speaker 02

  Yeah, and so I, you know, I joke, but you know, I would love to see another four or five Hoxtons and another four or five Mosaics and another four or five Highland Europe's kind of appear in Europe. Because that would strengthen the whole ecosystem, right? You, you know, you have to remember when you're doing one of these seed deals. A lot of people are gonna say no, right? Now, a lot of people who see Airbnb in the early days for very legitimate reasons are gonna say, we don't get it. And you're gonna say no, and you need kind of one to say yes. And sometimes the odds are you need one in twenty. And the problem is, we don't have twenty great venture firms that are established in, in, in Europe that can do that, right? So it, it just strengthens the whole market when there's kind of critical mass and we're subcritical mass today. So I, I think it's the opposite in Europe. I actually think we need more money in Europe, not less.

• 21:48Harry Stebbings?

  What, what venture firms do you most respect and admire there then?

• 21:52Speaker 02

  You know, so the, the big ones here are Index, Axel, Balderton. Those are kind of the household names. You know, Felix is great, Mosaic is great, Connect is great, Passion is great. You know, and then every single geography, you know, in, in Sweden, it's Crandham and Nordzone. You know, in France, it's Partech and It Invest. You know, so there are a bunch of these firms all over. But, you know, you know, if you were making a list of the Silicon Valley firms, you know, you'd easily come up with ten really high quality names. And if you sat there and you'd probably be able to build twenty or thirty very, very high quality names. That starts getting really thin in Europe. Um, we just don't have that density. So, you know, and that's something that I think the entire ecosystem here has to work on because, you know, we need kind of critical mass so that our companies can get funded the right way and then scale up to become massive companies.

• 22:36Harry Stebbings?

  And talking about brand new markets now, you mentioned obviously that you look for brand new markets. So what do you think those are? Where's your analysis led you to believe that there is the potential for market creation?

• 22:48Speaker 02

  So this is, this is, this is a hard one to answer. So the, the, the answer is, I don't know. You know, and I think what happens is in these next generation markets, you get a bunch of smart people who. Around the same time, start approaching you kind of at the edges of that market with kind of the same idea. And so you can do, we used to do this Excel inside of, uh, inside of, we used to do this exercise inside of Excel called the Prepared Mind. And you can take kind of a market thesis as to where you think the market is going. To be fair, you really refine it when these folks who are building the companies come and talk to you. And you start seeing that all of a sudden, people are talking kind of about the same stuff. Which means that there might be something going on under the surface.

• 23:27Speaker 02

  So, you know, one area where we were a little bit more proactive when we started about three years ago is we took a very big bet on kind of cybersecurity. So, you know, we thought that the range of attacks, the sophistication of attacks and the pace of attacks were only going to increase. And that's kind of what's happened over the last three years. Yeah. And so we started looking to see what can you do, what can you build? You know, that can find, you know, that can automate some of this stuff and take the load off of the security staff or the IT staff inside of an organization. We backed one company off of a sheet of paper as a bunch of ex-canonical guys, they, you know, they built, a canonical build Zubon two Linux. Um, who had a great idea. They've just come out of product, they've landed Survey Monkey as their first customer, it's great there, you know, they're, they're talking to a bunch of folks now in California.

• 24:09Speaker 02

  On the venture side, it looks like they're kind of, they, they could potentially become a rocket ship, they're a little bit early still. Uh, and then we, you know, through a, a family office called Talis, uh, we, we bumped into Darktrace. Uh, and together Talis and us ended up investing in, in, in Darktrace and that, you know, that clearly is turning into a cybersecurity winner. Um, but again, it's really hard for us as venture guys to proactively figure out where the opportunities are. You, if we were gonna do that, we'd be entrepreneurs and to be fair, most venture guys are not as good entrepreneurs as the entrepreneurs that we back. The entrepreneurs are the, the, the guys who have all the ideas. But what you can see is you can start to see a coalescing and you can take kind of a direction. You know, today, you know, we spend a lot of time thinking about next generation healthcare.

• 24:52Speaker 02

  And there's just a lot more technology that can gather all this data. You know, we have no idea what that business translates into. But we're pretty bullish in terms of trying to figure out what other people who are much smarter than us are thinking and where they think it's going. And then, you know, one thing that we can do well is we can pattern match to figure out if there's gonna be a big business or not. Um, you know, I think a few years ago, you, you know, in Excel, I started this, which is financial services, kind of the disruption of financial services. And today, there's a whole host of companies disrupting the financial services industry. You can basically take the HSBC webpage and start tearing it apart. There's a startup, you know, for every little pixel, right, on the HSBC webpage doing a different service. There's a startup going after them, right?

• 25:33Speaker 02

  It's a bunch of piranhas attacking, attacking, uh, attacking the big financial services guys. Um, you know, whether it's TransferWise or World Remit or Eberry, you know, or, you know, there's so many of these, or Zopa or Prosper, right? And a bunch of these guys, Funding Circle, all going after the kind of little bits and pieces of these financial services guys. But I think that thesis started four, five, six years ago, so you would have had to be much earlier. The problem is when these markets look like they're almost self-evident, it's almost too late to invest at the early stage anymore, right? So you have to kind of see these markets at the formation stages. And that's again, you know, venture guys are good at maybe spotting it, but we're not so good at figuring it out. Entrepreneurs have to figure it out. We're really good at once we. It's kind of one of those things when you hear it, you're like, oh, wow, that's actually pretty spot on.

• 26:17Speaker 02

  I think I want to write a check behind that, right? But it's really hard for you to figure that out, kind of in a vacuum.

• 26:22Harry Stebbings?

  Yeah, if it's okay with you, we're gonna dive into a quick fire round now.

• 26:26Speaker 02

  Shoot.

• 26:27Harry Stebbings?

  So your favorite book and why?

• 26:29Speaker 02

  Favorite book, Flowers for Algernon, and I forget who wrote it. Uh, it's a really sad story.

• 26:34Harry Stebbings?

  Advice to founders entering a seed round?

• 26:37Speaker 02

  It depends on what the advice is, right? So, you know, have a good idea, you know, have a pretty good thesis of what you want to do. And, you know, the best way to get any kind of round done is do the social engineering that you need to do to make sure other people in the market who are pretty well-regarded are, are talking you up. Because that's the best way to get venture firms super excited.

• 26:55Harry Stebbings?

  Your most read blog or newsletter?

• 26:58Speaker 02

  Uh, Abnormal Returns, uh, uh, great, great newsletter on the, a great blog on the financial services industry or on, on things that are relevant to financial services.

• 27:08Harry Stebbings?

  And then when I say successful VC, who's the first person to come to mind?

• 27:13Speaker 02

  Uh, Mike Moritz.

• 27:14Harry Stebbings?

  Okay. King Acquisition, cheap or more expensive and and not possibly gonna work out in the future?

• 27:22Speaker 02

  Hard for me to say, I'm not a public markets guy. I I think it was about right, given where the company was trading.

• 27:28Harry Stebbings?

  Okay.

• 27:29Speaker 02

  You know, this the tough part about gaming is you've got to keep doing it, right? So that's, I don't know if, I don't know if King dot com will continue to build the, you know, the next generation candy crushes. But I don't pay that much attention to that space, so it's hard for me to know.

• 27:41Harry Stebbings?

  And then your vision for Hoxton, uh another round coming in the next year, I imagine?

• 27:47Speaker 02

  Yeah, yeah, we're we're starting to think about our second fund, um you know, where uh. I we'd like to be a really good early stage shop, you know, that founders want to choose in in Europe. Uh I think we're a little bit subscale today, we're small, we're a small firm, we're always gonna be a small firm, but I think we can be a little bit bigger. Uh so that we can support our entrepreneurs the best way, but. You know, we wanna be, I don't think we wanna be a big firm, I don't think we wanna be uh and doing growth deals. We just wanna be the guys who do the seed and series A deals really well in Europe.

• 28:14Harry Stebbings?

  And do you do follow on rounds?

• 28:16Speaker 02

  Yeah, yeah, almost always.

• 28:17Harry Stebbings?

  And then your most recent investment and why you said yes?

• 28:21Speaker 02

  So our most recent investment uh is a digital healthcare company that we backed, um. You know, that wants to change the way healthcare works on your phone. It's kind of the same idea as what WebMD and Healthion did way back in the day. We we love this kind of stuff, there was a bunch, there were a bunch of great ideas in the nineties that everyone had, which just weren't possible. And I we think of Deliveroo and in many ways you think of Cosmo back back in the day in New York, which is very well backed company. They didn't quite get there, but you know, that was pre-smartphone, they couldn't run the logistics network with pagers and with with, you know, phone calls and payphone calls. Uh you can do a lot more with smartphones, but kind of same directional idea.

• 29:01Speaker 02

  This one's in the healthcare space, doing a bunch of artificial intelligence and then a bunch of live video uh with physicians. Um basically triaging, so you don't actually have to go see your your NHS GP, you can just simply use an app. Uh and the app will tell you whether something's wrong with you or not. You know, we think this is gonna be pretty transformative if it works. And that's all, there's always that big if in in venture, right? So we're early stage guys, we don't know definitively if something's gonna work, but we think we think the market's definitely there for something like this.

• 29:29Harry Stebbings?

  Well, Hussain, thank you so much for giving up your time to be on the show today, I'm so grateful and it was so fantastic to have you on the show.

• 29:36Speaker 02

  No, thank you very much for having me, and thanks for thinking of us.

• 29:40Harry Stebbings?

  What phenomenal insights from Hussein there and if you would like to catch all the resources mentioned by Hussein in the show today, head on over to our site at www.thetwenty minute vc.com, all in letters, where you can find the links to all the resources and items mentioned in the show today. And if you want to be in with a chance of winning Brad Feld's venture deals, signed by the man himself, just sign up for our newsletter on the site and you'll be entered into the competition. As always, thank you so much for your continued support and we look forward to seeing you in the next episode.