Bernard Liautaud, the managing partner of London VC fund Balderton Capital, smiles when asked if there is too much funding for startups in London.
It’s a problem many investors in London are keen to talk about. Saul Klein, partner at LocalGlobe, told Business Insider in May “you could take at least half the money out of the markets, particularly at the late stage, and there would still be too much money chasing too few good opportunities.”
Liautaud, however, was slightly more measured in his response.
“Right now we have plenty. It’s hard to know if it’s too much. In a situation like this I actually like to have a bit more than a bit less because it’s going to create a lot of momentum,” he said. “Out of that there will be a lot of filtering, maybe there will be a lot of failures, some seed funds won’t survive. It’s more of a Darwinian way of growing the ecosystem.”
Balderton Capital, the fund that Liautaud leads, is one of the best-known venture capital funds in London. It has invested in a string of companies, including fashion startups Thread and Lyst, navigation app Citymapper, fintech companies like Zopa, Wonga, and GoCardless, and media startup The Tab.
It’s expensive to invest in food delivery startups
One type of startup that Balderton hasn’t invested in, however, is delivery companies. Home-grown startups such as Deliveroo, Jinn, and Just Eat are taking on US companies such as Uber and Amazon, which have expanded their food delivery businesses to Europe.
But for Liautaud, it’s just too expensive to get involved in the food delivery game.
“We’ve stayed away from it so far, primarily because we feel that … in order to win you need to inject an enormous amount of money into it,” he said. “These are investments that we feel are not necessarily extremely capital-efficient. It will be hundreds of millions of dollars for them to win. It’s essentially a question of having the largest fleet in order to be the closest to your clients and build a brand. It’s expensive.”
Liautaud also says it’s rare that US funds will come into a European company at the early Series A stage. Instead they typically wait until the B or C round to put money in.
“It’s very hard to do an investment and figure out what’s good and what’s not good when you are 5,000 miles away,” he said.
That presents an opportunity for Balderton to act as talent spotters in London, finding decent startups, and then handing them over to US funds with more money to spend on later rounds.
The US market is still attractive for UK startups
One thing that many Balderton startups have in common is an international focus, which often includes expanding to the US. Lyst is hiring in New York, with 10 employees there so far, and The Tab also opened an office in the city. That focus on the US market is one way to rapidly grow a tech startup, and it seems to be informed by the previous experience of several of the firm’s partners.
Liautaud was one of the cofounders of business intelligence company BusinessObjects, which went public on Nasdaq in 1994 and grew to be valued at $7 billion (£5.7 billion). And general partner Suranga Chandratillake founded Blinkx, the video ad platform that expanded to the US and grew to a $1 billion (£818 million) valuation (although its valuation plummeted following his departure in 2012).
Is it still vital for a UK startup to expand to the US? Liautaud suggested that, yes, at some point in a startup’s growth, the US is key.
“In software,” he said, “the market is very much driven by US companies. You certainly have to be extremely successful in the US. You cannot be successful without having shown that you can win against US competitors.”
Liautaud is also keen for startups to eventually open offices in the US.
“So far the winning model has been, if you start in Europe, you probably leave your product and your R&D in Europe, but you move sales and management to the US,” he said. Sure enough, that’s the sort of model that many Balderton companies are following.
Of course, it takes ambition to grow a startup from a cramped office in East London to expanding internationally. It’s easy to look at the UK’s startup scene and see failure — where’s the next Google or Facebook?
But Liautaud thinks that, gradually, UK-based founders are becoming more ambitious.
“A lot has been [a] lack of role models,” he said. “But it is changing now. It’s not about just building a nice, good little business that will get acquired for a few hundred million. It’s building a global company that will acquire US businesses.”
Being a unicorn isn’t all-important
One of the biggest goals for many startups is becoming a “unicorn” — a term used when a startup reaches a valuation of $1 billion. There are even lists dedicated to tracking unicorns around the world. But Liautaud referred to that mythical valuation as a “smoke screen”.
“The key measure of success is the actual size of your business,” he said. “The valuation itself, you can have a very small business that attracts a billion dollar valuation because one investor fell in love with it.”
Liautaud described himself in 2013 as a careful investor who doesn’t make gut decisions. Nothing has changed since then, apparently.
“I like to be rational,” he said. He also admitted to keeping an eye on what competing VC firms are doing. “It’s a competitive business,” he said. “You need to be really knowledgeable about what your competition does.”
Sometimes the best thing governments can do is just stay out of the way
Liautaud was born in Paris and is keen to promote French technology companies. He explained the country has excelled in areas such as artificial intelligence and machine learning, for example.
But France hasn’t always been seen as a perfect place to build a technology company. The French government repeatedly blocked deals to sell French video company Dailymotion to foreign investors, which led to headlines such as “How France Is Killing YouTube’s Main Competitor”. (Vivendi, a French company, acquired 80% of the company in June 2015.)
Liautaud referred to the Dailymotion saga as a “tribulation” and a “mistake” but insisted that the French government “has done somewhat of a 180-degree towards realising how important the businesses are for the prominence of France in the world”.
Business Insider asked Liautaud how the UK government can help VC funds like Balderton Capital.
“Primarily what governments can do well is create the proper conditions for businesses to grow,” he said. “We don’t need direct help.”
He went on to recall the words of a colleague in France who was asked by the government there what it can do to help startups. Liautaud’s colleague responded with: “Please don’t do anything”.
“That would be the best,” Liautaud added.