Robert Whitby-Smith: Investing Trends, Niches, and Success Stories with AlbionVC #220

Hello, hello everyone. This is your host, Akhil Jubbar, and welcome back to another episode of SaaS District. In today's episode, we'll be talking about investing trends, niches, and success stories with Albion VC. Today we have our guest Robert Whitby-Smith joining us. Robert is a partner at Albion They are an independent investment firm that backs visionary founders with long-term capital and scale-up expertise. With $1 billion of venture, venture funds invested in over 50 companies, Robert focuses on deep tech and B2B software startups. His extensive experience in corporate financing and board-level work allows him to provide strategic guidance on everything from culture all the way to fundraising. So welcome, Robert. Super excited to have you on the show today.

Likewise, Akeel. Thank you very much.

Would love to hear, you know, start off the conversation today by just hearing a bit about your story and if you can share your background before we get into the deeper niches of it.

Yep. Thank you. So, I started off in finance, corporate finance, working for firms like KPMG, Credit Suisse First Boston, ING. And then, After just under 10 years, moved into VC. So, that was about 18 years ago. And I've been investing in B2B software at or around Series A ever since.

Awesome. So, how long have you been with Albion VC now?

So, 18 years.

18 years. Wow, that's impressive. And can you start off, maybe people listening in, you know, we have founders of all stages. Can you speak more about your investment thesis? What are you looking for in a company? And what makes— what was an attractive business for you?

Yeah, fantastic. Thank you. So we, as I mentioned, we focus in terms of stage at or around product-market fit. So Series A, we can invest either side of that, but that's our key focus area. And we focus on B2B software. And within that, we are thematic investors. And currently our key themes are sustainability, climate, data and AI, deep tech, digital health, digital risk, and fintech. And so, yeah, we're looking, as you mentioned, to find the best visionary founders and to help them scale and deliver returns to our investors.

And are you investing all over the world, or are you just specifically in the UK founders or in different locations?

Yeah, we focus on UK-based founders. Okay, awesome.

And how do you— I mean, interestingly, before, there's a lot of founders right now who are looking to raise capital or in between rounds or maybe looking to restart a startup. And it's been an interesting time these last few months. And I actually saw an interesting tweet this morning with a graph that showed the number— it's the highest numbers of shutdowns yet we've ever seen of startups basically shutting down has been in Q3 2023. It's almost— there was 212 This quarter compared to last year, which was 125. It's almost double the amount of startups that are shutting down. So it's been a very, very interesting time. How would you describe, I guess, the current investment landscape for startups from your side in the UK, and maybe your network?

Yeah. So undoubtedly, it's much tougher than it has been, or it was in peak of the market, 2020, 2021. But actually, I would say it's probably, if you were to compare the landscape, the funding landscape for startups, it's probably flat on 2022. And we're probably back to the sort of average levels of, you know, let's say 10 years ago, 2014 to 2018.

Mm-hmm.

So, you know, deal activity has, is, you know, amount being deployed is just over half what it was at the peak of the market. But it is, I think I saw it's about 4 times what it was, for example, back in 2014. So there's a lot of dry powder. There's a lot of appetite to invest. And investors are very excited about the change going on in the world at the moment and the opportunities for investment. So I think it depends what you compare the base to. If you compare it to the 2020, 2021, it looks like a fall off a cliff.

Yeah.

But if you look at that longer-term chart, as you're referring to, if you take out those few peak years, it looks like a steady upward trend.

Yeah, that's a good point. You've been investing for over 18 years now, you said, right? And investing across different companies. And obviously, the horse, or as they call it, of the— not the horse, but you're betting on the horse, but in this case, the founder is a big part of that, right? And I'd love to hear from you any trends or any qualities you've seen specifically across founders over time that where you say, okay, this is how I know I can, you know, that gives you trust or that you can invest in this company, besides, you know, the metrics and the numbers to look at?

That's a very good question. I guess, I think, as a venture capitalist, you're always learning. And I'd say that, you know, the pattern matching and what you look for refines over time. I think one, One thing is not to— one thing I've learned is not to over-index against a specific picture or vision in your mind for what the ideal founder is.

Mm-hmm.

I think, you know, you've gotta get the right team for the opportunity. I think that's very important. And to do that, you've gotta work out what the right opportunity needs and kind of work through that. But I think there are some qualities that, You mentioned, you know, trust and integrity and values. There are some qualities that don't change over time. But I think, you know, for example, today, I would say pace is much more important than it was, you know, let's say 18 years ago, even much more recently than that. The world moves incredibly quickly.

Yeah.

And, you know, to take advantage of opportunities in that very fast you've got to move fast.

I agree. Yeah, we're extremely excited here at Horizen, where most companies are, you know, they said maybe we're slowing down, we're in particular, but, you know, we're seeing a lot more activity, a lot more, you know, companies coming up, and, you know, we're ready to— we've been ready and we've been doing deals in these last months. So this is exciting and interesting times. But yeah, as you said, things change rapidly and you have to be ready for these moments, right?

Yes.

Yeah.

But I think there's also, there's also, um, Many more repeat founders, either as part of the founding team or inputting into startups, which I think is fantastic. Because yes, a lot of innovation is about first principles, but also learning lessons from the past, I think, massively increases your probability of success.

Absolutely. What advice— we're speaking a lot from the investment perspective, from the investor side, but from a startup and From the CEO, as SaaS founders and CEOs who are looking at this, they're at this stage now, they're looking to raise capital. What advice do you have to them? Maybe one, maybe looking to grow their company, and then at that stage, you know, maybe looking to secure investment.

So in terms of growth, it's probably, you know, the biggest driver is having the right people. Most problems boil down to the wrong people for the opportunity or running out of money. But hiring the best people and managing, motivating people are very much learned skills. And I think there's gathering in experience from, and advice from people around you to hone those skills. For example, we have, a few years ago, we invested in a platform function where we've got a you know, head of talent, helping people optimize their hiring process. It is where most of the money is spent in VC. And, you know, most of the mistakes are when those— and very expensive mistakes— when you make the wrong hires. So I think, you know, really optimizing, never compromising on the quality of people, trying to find the best people for the opportunity, I think is how you best grow your company.

Mm-hmm.

And I think in terms of securing investment, we always say have an always-on approach to fundraising. So as soon as you've closed your round, engage with the investors for the next round.

Mm-hmm.

So if you've just closed a seed round, you should be talking immediately to the A investors. In fact, you've probably had a large outreach from A investors because they've seen the seed deal. And it's in a space they like. So, and then, you know, choose an appropriate number of VCs to nurture over that period of time. You know, making sure, you know, qualify them in properly, that they've got, you know, money to deploy, that it's a really good fit, that's cultural fit, you know, on values and alignment. But you are both sides, both the founder and the VCs, obviously going into a very long-term relationship. There will be bumps in the road, it will be tricky. And I think both sides will make better decisions and build convictions quicker if they've had a longer period of time to get to know each other. You don't marry someone on a first date.

Yeah.

So I think that relationship building, good teams, founders will be doing that with their prospects on customers and partners, spending years potentially building a relationship. should be doing that with the founders you want.

Hmm.

And then I suppose the other bit of advice is, fundraising is tougher, particularly at later stages. So I guess we were talking about scale-up and growth, just making sure you've got enough runway to achieve your milestones, or if you've got to the stage, ideally you have a choice as to whether or not you fundraise or not.

What do you mean by, I guess, later stage, just to define clearly for our audience? And then why do you think that is, that it's more challenging right now than for earlier stage?

So I think if you look at the level of activity of growth investors, it has fallen significantly, both in 2022, and then it fell again in 2023. We do a survey of Series A and growth investors every quarter. And for example, when we surveyed them at the start of this quarter, they were forecasting 60% less deployment than they predicted a quarter earlier. So I guess the outlook, or I think growth investors, until the exit and IPO windows open up more fully, Mm-hmm. those that are investing in the stage before those, will find it more difficult. And so it's, that's gonna, it's, I think growth invest, the growth stage is gonna remain challenging for a while.

Yeah, fair enough. And, you know, we, we, we talk about, you know, so maybe there's folks listening in who are maybe at that stage, they're maybe struggling to maybe overcome some of these challenges or obstacles that they're looking to scale, right? They're at their scale stage and they're looking to maximize growth, but maybe they, they don't have access to the capital. Is there any, you know, with your experience working closely with SaaS startups, Is there anything you can share with them on how they can maybe overcome these challenges effectively and give them extra runway until they're able to secure the next round?

So if you can't secure external, new external investing, or it's gonna take longer, I guess one other source is your existing investors, to see if they will support a bridge round or a convertible. Another source would be venture debt to extend runway. You can also look at what, you know, whether you've got customers or partners who could, you know, would be willing to pay more upfront.

Mm-hmm.

So rather than monthly in arrears, if you can get someone to do 3 years in advance, that might make quite a big difference to your cash flows. And then, of course, there's the— that's the revenue side of it. On the cost side, considering whether you do need to make a reduction in force to ensure you have enough runway to get to those milestones.

Yeah. And what if you're at that situation? We're hearing this a lot. If companies are shutting down, they're literally at the brink, at the end of their— what they're capable of. capacity, right? So, if I'm a founder right now and I have 1 month left to, you know, of expenses and, you know, I'm on the edge of deciding whether to shut down or— but even though we're growing, we have a great team, but we have bills to pay. What do you suggest to them at this stage of their startup?

Goodness. That's a pretty tough situation.

Yeah.

Yeah. No, I don't think there's much you can do once you've got down to that. And I suppose it depends how big the financing need is.

I mean, have you seen this in your own portfolio of companies before? Have you seen in the past, in the 18 years, where a startup has come to, hey, we're in the last months, things look good, but we just— or is this something new and you haven't experienced before?

So we're always tracking runway within our portfolio companies. And, you know, we typically, once a company is getting below 12 months, we're monitoring it quite closely. And once it gets down to 6 months, we're advising, you know, they course correct. If they're not able to, you know, raise that support from existing investors or venture debt or any other source of funding, then it means a reduction in force.

We're— And then at what stage do you reduce forces? Like 3 months in or, you know, what stage is it like, we have to cut costs?

So I think the problem is if you're— you need to have enough time for it to make a difference.

Exactly.

So the cuts you would need to make to survive if you've only got 1 month left are, I guess, pretty fundamental or existential.

Yeah.

So I think at 6 months' point, we typically, if we're a current investor, Then we've spoken to the other investors, we've established whether or not there's appetite to invest further. And if there isn't, we've communicated that to the company such that they can course correct whatever they need to do to survive. And also, I guess the other option is seek an exit.

Exactly. That's what we're seeing more. So folks who are maybe considering shutting down, And cutting costs, there is another option here. If you can't secure investment for your next round, exiting is a great option, I guess, even though it maybe sucks for some of your investors, because you may not get the value you're hoping for, but at least you're getting some value out of the work, right?

And it may suck for everyone. It may suck for the founders too, but it really depends. But I suppose that decision around exit probably needs to be taken With about 12 months runway, unless your existing investors are willing to bridge to exit, i.e., if you started the project, because it's going to take a while to market something properly and get a decent amount of value for it.

Yeah.

But so somewhere between 12 months and 6 months, you need to have started that process.

Yeah.

Fantastic.

Yeah. That's great advice for, you know, so anyone listening in, you're at that stage where you're 6 months away from you know, uncertainty, I mean, if it's something to consider, you know, I think this is fantastic advice here on how to approach that problem. And, you know, post-investment from Albion's team and yourself, could you provide maybe some examples or stories of how you guys worked with, supported the founders, highlighting maybe some of the factors that what really contributed to their growth and success? I know you mentioned one, which is about the hiring process, but maybe go a little bit deeper on what you— how you guys helped them there.

Yes. So, as I mentioned, we've got a platform team, and they help with— talent is number one. And the second one is, second biggest area we help with is go-to-market. So building a scalable enterprise, you know, software go-to-market. We also have a, you know, our portfolio is about 50 B2B software companies, and we have communities in there.

Mm-hmm.

of CEOs, CTOs, CFOs sharing problems and trying to find solutions. So I suppose those are probably the 3 biggest areas where we help. When we're typically joining the board, if we're leading a Series A, and as part of that, you know, we often introduce non-execs who we think can be, you know, additive, helpful. As well as on the talent side, helping them build out, scoping out how best to build the team and the organization, and helping them build the best team. But it depends on the experience of the founders. For example, one of our exits, a company called Grapeshot Oracle, it was a founder, it was his third rodeo, and therefore had a lot more experience of, you know, what a great go-to-market process looked like, you know, what great marketing looked like. And so our level of input on go-to-market would've been, was a lot less. Whereas with some of the startup companies, you know, perhaps where they're, you know, technical founders and they haven't got, you know, they haven't got the experience in marketing or sales, then Then we have more input there.

And on the talent side, so I completely agree, that's definitely one of the most important parts, and that's why you focus on that, helping them build out the team. Are you guys, you know, like helping them build their org chart down to, you know, do you have a team internally for HR and also always kind of sourcing and having a pool of developers or whatnot to hire from, or executives or marketers, or how does that work?

No, it's more an advisory function.

Okay.

So it is that, as you mentioned, designing the org chart, the right org chart for this stage of the business, how to build the best culture, and then what the best hires will look like. So building scorecards for each of the roles you're gonna hire, helping them select the best headhunters, and running, you know, sitting alongside, you know, in the passenger seat alongside whoever the key decision maker is on the hire, getting the best out of that process.

So you're with them across on every kind of stage of that, you know, by their side to help them make better decisions, right? Which is the most important part of this, right? Yeah.

Yeah, not doing the recruiting in-house or ourselves, but really advising them on how to do it best. And that's based on a huge amount of experience. Our talent partner has been doing it nearly 30 years across other funds, including Balderton EQT, and is a real expert in her field.

Love it. This has been awesome, Robert. Anything else you want to add to this before we go move to the second part of the interview, which is the rapid fire and personal questions?

I should come up with something to try now. No, no, that's— I think that's really good. Yeah, thank you.

No worries. All right, Robert, what's that one activity you enjoy outside of work that gets you into flow state?

Um, I'm gonna answer with a lot more than one.

Okay, go for it.

Yeah, so, so, um, I discovered yoga in, um, in lockdown, uh, and I really love that. That definitely, uh, you know, whenever, whenever I hear the words flow state, I think of yoga. Um, but also, you know, playing sports, reading, um, you know, good films, uh, Yeah, lots of things get me into a flow state.

Yeah, love it. Robert, what's, uh, one piece of advice you wish you had known, and if you can go back, uh, you would tell your 25-year-old self, say?

I'm terrible at giving one answer to anything, but, um, so if you'll forgive me, I'll, I'll, uh, I'll stretch it a bit. So I think one is understanding and appreciation of mental health. I did a mental health first aid awareness course a few years ago, and I think that's fantastic. And when, if you think about what founders, you know, if someone founded a business maybe 3 years ago, they've been through COVID, they've been through layoffs, they may have had those near-death experiences you're talking about, they've been through down rounds, it's really tough.

Mm-hmm.

And I think you need to, appreciate in the same way, you know, people's physical health, you know, for, you know, the people on your team, your colleagues, your family, your society, everything. I think it's something that, I think awareness generally has increased over the last few years, but I think there's so much further to go. The second one is around pace. When you invest with a 24-month runway, I mean, a lot of people, or in the past, I've seen them, you know, we've closed our fundraising, you know, let's relax a bit. That was a very tough process.

Yeah.

And no doubt it was. But actually, if you're talking about that 24 months, and you want to have raised before you're down to 6 months cash, and having to make some, you know, reduction in force type decisions, you've only got 18 months to deliver your milestones. And when you start to think how long it takes to hire someone, You know, notice period, onboarding, sales cycles, you really have to hit the ground running and run fast. And if there are any slips on the way, you know, you've gotta course correct and still get it done within that sort of 18-month window. So I think just appreciating the importance of pace, I think, is a second one. And the third one for me is product-market fit is a thesis, which you have to constantly test. And I think often people start, or you perhaps misidentify product-market fit, or a company loses product-market fit, and you're still pumping lots of money into go-to-market. And sometimes perhaps you even dial up your go-to-market spend to try and make up for the fact that demand's not there. But I think you've got to be very honest with yourself and keep asking the question, have we really got product-market fit? I love it. I'll stop at 3. I'll stop at 3.

Yeah, that's great. I was just pondering on all of them. But, you know, the first one we should talk about, which is about the mental health, and we talked a lot about here about startup success. You know, we share about accomplishments, but, you know, failure is a big part of this as we're seeing. And, you know, we take that lightly, but that is very challenging for people to accept as entrepreneurs. We're go-getters, we're A-players, we are creators. We like to build and seeing what we create fail. in the eyes of the market is very hard to accept or swallow. So, I imagine it's difficult times.

And also, yeah, I mean, if you've, you know, the personal responsibility you feel towards your early investors and more towards your early hires, you know, they may have left, you know, secure jobs, you know, maybe they've got a family, and you're having to, you know, lay them off. It's a tough decision. And most successful companies have been through a near-death experience. one way or another. So, I don't know. Yeah. Is it— I think it's Snowflake. I think it was their Series E they struggled to find external investment for.

Oh, yeah.

Yeah. Is that the best B2B software company ever? So, it's really hard. It can be really hard. So I think appreciation of what people are going through, and what they might be going through at home, and what your colleagues might be going through, I think is really important.

I completely agree.

Yeah.

What are some of the biggest challenges you're currently facing, I guess, as you're working to continue to grow Albion VC, the existing portfolio, and maybe trying to grow it?

So I've alluded to it, which is the growth funding market. So we're investing at Series A, And I guess what we're trying to do is get companies from A to B. And the Series B, Series C market is very quiet at the moment. So our big question is, when's that going to return? And I think that itself, as I mentioned, is driven by sort of M&A, IPO market. And again, when will that recover? So those are the big questions we're We're scratching our head over. Because if we're not confident, for example, the next stage of funding is available when the company needs it, then our company's got to course correct again and extend runway, which typically means, I guess, a reduction in force or lower marketing program spend or whatever it might be.

Mm-hmm.

But dialing back growth because there isn't confidence in that growth funding.

Yeah. Is it the, uh, do you guys go, you know, provide kind of mostly bridge financing at this point if they're at that stage, or, um, are you just, you know, waiting on the sidelines?

Yeah, there's been— I think bridge funding has definitely been the theme for most VCs over the last, um, last year or two. Um, but, but I think there's only, there's only so far, you know, you can, you can essentially bridge. And also the bridge is not, not the same as the next round.

Exactly.

It's going to be a fraction of that. And it is— it's always a shame when you see an amazing company having to purposefully dial back growth, because they're cautious around the funding market, or the next stage of the funding market. So it's painful to watch. But I think everyone thinks growth funding will come back next year. The question is when.

The question is, yeah, that's interesting, right? So even if you have these great opportunities coming towards you and you want— you'd like to invest in them, if their next round isn't available, you know, still doesn't help the case rate of investing in the company.

Well, it means, it means you have to, um, think differently about the, about the, the plan, the business plan you're backing. So for example, if it's— let's say you, you would typically invest with a 24-month runway. And that, you know, you're aiming to close the next round 12, 18 months after your investment. Unless you're confident the market's there, then you might need to invest with a longer runway. Or you go in with a lower burn so that you can course correct, you can be more flexible.

And would you set that as kind of a— does that change your investment thesis and requirements from the founder? So you're having this conversation early on, you know, a new founder comes to you today. Is that kind of the conversations you guys are talking about and thinking about?

Yes, yes, very much so. And I think, I'd say that probably the VC industry as a whole should have been having those conversations a few years ago when it was growth at any cost. But yeah, the attitude to being flexible and being willing to course correct, I think, is really important now.

Robert, could you share maybe some, maybe who or what are some of the best 3? I know you like 3, so 3 resources. It could be books, mentors, or people you follow in the space who you'd say have been most instrumental to your success over these last few years.

So because you've said 3, I'll probably go for more than 3. Stop me when I've—

Sure.

So I think in terms of mentors, it's more, I've learned most from the people I've had the privilege, pleasure to work with. So it's the founders, the non-execs, 'cause they're often former CEOs, colleagues I've probably learned more from than, people I follow, for example, online.

Okay.

I would say books. I definitely agree with the leaders are readers statement. I mean, there are some fantastic books I'd recommend to people if they haven't read them, like Andy Grove's High Output Management, Patrick Lencioni's 5 Dysfunctions of a Team, Jeff Moore's Crossing the Chasm, Sebastian Mallaby's Power Law, Peter Thiel's Zero to One. I think those are all fantastic books if you're either a founder or going to be investing in early-stage technology. And then I think also, if you're becoming an investor from that side of things, then I would definitely recommend people read Warren Buffett and Ben Graham's Whilst we're growth investors, and Ben Graham is the father of value investing, those sort of basic investment principles and what makes a sound business and a sound investment, I think, are always good to have within your toolkit.

Love it. Yeah, all fantastic books. I agree. We'll put all those links in the show notes, guys. Those are at least 6 books, so we'll put them in the show notes for people to check out. So thank you.

My pleasure.

Robert, what does success mean to you today? How do you define it yourself? You know, whether that's personally, business, financial, life, there's no right answer.

So number one is a happy and healthy family. I'm, yeah, I have a wife and 2 children. I think that's number one. Number 2 is, is doing my job to the best of my ability. So that's, you know, supporting, finding and supporting the best founders, um, and, and delivering attractive returns for our investors. Um, then probably number 3, as you pointed out, I like to do things in threes, um, is, is, um, to give back and contribute to society. Um, so that's probably how I'd define success personally. Yes, love it.

This has been fantastic, Robert. I appreciate all you, you've shared on the show today. For any founders who are listening in and they want to get in touch with you, learn more about you, Albion VC, or maybe just chat with you for advice, where would be the best place to go?

So my email is on our website, but it's fairly simple. It's robert@albion.vc. I'm on LinkedIn, all the usual channels, or you can go through Albion VC website.

Okay.

But I'm reasonably easy to get hold of.

Okay, awesome. We'll add Robert's email, website, and his LinkedIn on the show notes if you guys want to reach out. So thank you. Thank you so much, Robert. This has been awesome. Appreciate your time today.

Akeel, thank you very much.

Cheers.

Thank you all for watching this episode and joining SaaS District today. Don't forget to like, subscribe, and hit the bell for future episodes where we interview top leaders in the SaaS industry. If you're a SaaS company looking to grow and unlock the true value of your business, get in touch with us at Horizon Capital and myself or one of our consultants will provide a free assessment to help you get there and hit your goals. If you have any feedback or suggestions for this podcast, please comment down below and help us improve our content for you all. Thanks again and see you See you on the next one.

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