Hector Mason, General Partner @ Episode 1 Venture

Hello everyone, welcome back to The Graduate Guide. Today I'm joined by Hector. Hector, welcome to the show.

Hi, thanks for having me on.

Normally I would introduce you and kind of give everyone the summary of what you do, but because you do so much, I'd rather kind of pass over to you what is that you do for the listeners.

Sure, so, um, primarily I'm a general partner in a fund called Episode One, which is a pre-seed and seed fund here in the UK, in London, and we invest in B2B software companies at pre-seed and seed. Um, within B2B, we do a lot of AI, as you would imagine, at the moment. We have a couple of AI PhDs on the team, and so we're well positioned to invest in hopefully the next breakout companies, some of which are becoming that, fulfilling their promise. We, yeah, we invest checks between $200K and $3 million in those companies, often as the first check, and we'll often speak to founders even before they've come up with the idea. You get people, very smart people at university or working in companies like DeepMind who have the itch to become a founder but don't have the right idea. And you'd be amazed at how bad an idea even a smart person can have. So we help them sometimes ideate and sort of craft their idea to something that's backable by venture capitalists. So really early-stage investor. I also do some angel investing on the side. And then second to those things, I'm a podcast host. I have a podcast called Riding Unicorns. We've done a couple hundred episodes. We speak to unicorn founders and the investors who back them, really find out about the founder psyche and what makes them tick and hear about their journeys and what's led them to the success that they've had. The other thing that I do, I actually co-founded a business called Focal 3D. 3.5 years ago, which has become one of the top 5 global demo day businesses. And globally, we attract about 5,000 companies each year to apply. We partner with 200 or 300 VCs around the world who vote on those 5,000 and vote on which ones they'd like to see pitch at a virtual demo day that we hold twice per year. And so at those virtual demo days, we have approximately the top 1% of startups globally pitching to an audience of thousands of people, including all of the preeminent angel investors and VCs from around the world who are looking for their next company to back. So those are the 3 key parts of my work life. And happily, they all feed very nicely into one another. And a whole host of the guests from Riding Unicorns have invested in our funded episode 1. Um, we've invested in a whole bunch of companies that have come through Focal. Um, and so you see that, um, hopefully around episode 1, we're building something that's greater than just an asset management firm, and, and these different things all play into that.

Amazing. I mean, I'm, I'm glad I passed over the introduction to you because you did a better job than I could have. Um, in terms of that, the first thing that comes to mind, I'm sure comes to mind for a lot of our listeners, is how do you balance all of that? How do you kind of stay on top of everything and make sure that you're, you're doing everything to a good level? Because I know with, with students who are maybe trying to balance multiple different projects or work, it it can be hard to kind of keep that level of quality high. So yeah, how do you balance them?

Delegation. So having a great team around me, for sure. We've built an amazing team at Episode One, which has helped lift me out of the weeds and focus on the really high-impact stuff, like finding the next unicorn to back, meeting enough founders to meet that one or two every few months that we want to, you know, throw everything at and win a deal to back. I think also, yeah, just ruthless prioritization. So, you know, if I think back 5 years when I started my sort of this, this career, I had a career before as a founder, but, um, you know, I was saying yes to everything. And, um, because you never know where the next opportunity is going to come from. There's a great quote, I can't remember who it's by, but it's to do with marketing, and it's that you, you know that 90% or two-thirds of your marketing budget's wasted, but you don't know which two-thirds. And so there was always this thing in my mind which is like I'm saying yes to everything, but I know that most of what I'm saying yes to is, is, is a waste of time. And I've definitely become much more ruthless with saying no to things that I have an instinct isn't going to be valuable. So saying no to more, delegating, focusing on the really high-impact things has, has definitely helped me balance the time, balance my time. I think it's also easy to overestimate how much time these different things take. So we have a full-time management team at Focal, which means that I don't have to be particularly involved in that on the day-to-day. And on Riding Unicorns, you know, I don't do much on the bookings and the distribution and the logistics side. So 90% of my time, 95% of my time is on Episode 1, and the other 5 or 10% is doing things that actually do feed into the, the episode 1, um, and, and sort of much the benefit accrues with episode 1.

So, and so the value is clear of why you're spending your time there.

The value is clear. And, you know, so it's also important to, um, I've also become more comfortable with, uh, just letting things slip through the net. So if something doesn't feel super important, rather than what I used to do, which is set reminders for, you know, every email that comes in and that I reply to and that I want to reply from, to follow up if I don't get the reply. It's now I'm only doing that for the ones that really matter. And it's just accepting that some things are going to slip through the net, some things aren't going to materialize. And, um, that's a more healthy mindset if you don't want to go crazy.

No, I love that. I think it's something that especially when, when I first started my career, I was definitely guilty of, and I am sure many other people are, of— yeah, you never want to kind of feel like you've let something slip or you've fallen time, because I guess it can kind of somewhat bruise your ego. Um, how did you, how did you shift that mindset?

Um, I don't think so. For me, I'm not sure it was so, so there's probably some ego in there. I think the, um, I just didn't want to miss an opportunity. Yeah, um, I think the, the key thing for me was accepting that there are enough great opportunities in my life at any one time. Um, and that there's enough going on that I think can move the needle at any one time. It's just getting better at creating some stack ranking of the different things that are on your plate and thinking, right, which do I need to focus on? And then really doubling down on those.

No, I love that. I love that. And in terms of kind of Episode 1, how did you first get your role there? How did you get your first role at Episode 1?

So it wasn't a typical route into VC.

Is there ever a typical route into VC?

I don't know. Yeah, I think there's a sort of Yeah, there's a conventional wisdom which is, you know, you've got to go consulting or you've got to be a banker, and increasingly nowadays it's you've got to have been a founder or something like that. But, um, 5 and a half years ago when I moved into VC, I didn't know about VC before I started applying for Episode One. And, um, I— someone sent me a job spec that they were advertising, that Episode One was advertising on their newsletter. for an associate role, which is a junior role in venture. Um, and I thought it looked like an interesting role, so I started researching venture as an industry and became completely obsessed. And, um, so there were quite a few opportunities, um, to actually innovate, um, in venture. Um, so ended up applying for Episode One. They rejected me. They'd had a whole bunch— they'd had hundreds of people apply, many of whom had, um prior VC or founder experience, and founder experience. And so they rejected me. I went back to them and said, I'd urge you to reconsider. By this time I'd become obsessed. I'd read all of the Medium articles that I could find, read the books, etc., and felt like it was the perfect job for me, kind of this intersection between startups and investing, both of which I loved. And so happily— well, actually, I turned up at their door unannounced as well. I turned up at the office because I was just like, I'm going to do whatever it takes to get this job. It was the only job I'd applied to, and I was currently working a job that I really didn't enjoy, um, so I wanted it a lot. And they came back to me saying, due to your persistence, we'll give you a phone interview. And obviously I end up getting the job, um, and 3, uh, 3 and a half years in, I was made general partner, which— an equal partner with the founders of the firm, um, who had extraordinary backgrounds. One sold their business to Amazon ran Amazon UK and Europe for Jeff Bezos, has all stories of penthouse negotiations with Jeff, which, uh, you, um, which, which are entertaining. Um, so it worked out. And, um, uh, yeah, that was my, that was my routine. It's not the same as everyone.

Amazing. And like you said there, there's never really one traditional route into VC. And I think there's a lot of students now that are actually considering VC as a career when they, when they leave university, or young people in general are considering switching to VC. What advice would you give them to give them to give themselves a kind of a leg up, give themselves more likelihood of actually being able to enter the industry?

Yeah, I think, um, I think there are a number of concrete things. I think the first thing is you need to stress test whether you really want it, because I think the first thing that a good VC is going to detect, um, is, is someone applying who doesn't want it enough. Our job as VCs is to spot outlier talent and to detect passion in people about what they're doing. So you probably won't pass that sniff test unless you've done your research and, um, uh, just really want to get into venture, and that will come across. So, um, do your research, do your reading, speak to VCs, speak to founders who've worked with VCs, understand whether you feel that pull towards venture, because even if you can bluff your way into venture as someone who's not sure about it. You're not going to get very far, I don't think. So that would be the first step. I think the more concrete things to do would be things like investing on Crowdcube and investing on Seedrs and building some track record that I don't think any venture capitalist, when you're applying for a job at their firm, is going to say, you know, to ask particularly about your track record and, you know, what your returns have been like. It's more another signal that backs up your story that you're passionate about startups and you want to be in VC.

Yeah.

So it's a concrete demonstration of that interest. And it's an easy thing to get started with because you don't need to invest big sums. You can invest £10. But I think having some track record and, yeah, demonstration of the interest is important. I think there are other things that then you can go on to do. You can be working with founders. You maybe have founded businesses before. And by the way, it does depend on what kind of venture you're wanting to go into. So if you're wanting to go into late stage and growth investing, you're probably going to need some, some pretty specific skills, like maybe you've been an investment banker before, maybe you've done some, you know, CFA or ACA qualifications. But at the earlier stages, it's— there's more of a focus on the founders when making investment decisions, and so it's less important to um, have the sort of numerous skills. I mean, you need to be very numerate, um, but you don't necessarily need the formal qualifications.

Yeah, yeah, no, that makes complete sense. And in terms of what you mentioned there about earlier stage especially, you need to be able to kind of assess the founder more. What do you in particular look for in a founder at that stage? I think that's useful not just for people aspiring to be VCs but also for people that are looking to, to found their own business.

I think there's a mixture of things. So, um, It's a bit of a catch-all, so I'm cheating, but people who are incredibly smart and, um, you can just tell that they have a big brain, that they're a deep thinker, often they're a creative thinker. I think, um, founders don't get enough credit for their creativity, and I think, um, you know, people think of creativity as being someone who can paint or create music, but actually you can be a creative thinker You can be a creative mathematician in the same way as you can be a creative dancer. So, it's just where you direct that creativity, and I think founders are incredibly creative, and you have to be, because you're always looking for where the next product's coming from. You know, what's— how are you— how can you link your customer problems to the products that you're able to build and the technology that you're able to build? Drawing those links that haven't been linked before is often where the most value accrues and can be generated. So creativity, I think people who are incredibly commercial, it's very important to be incredibly commercial, or at least to have someone on the founding team who's very commercial, who's kind of a missile to money, you know, who can just look that 2 or 3 steps down the line and think, You know, what can we build here over the next whatever time period that people are going to pay for that's solving a real customer pain point? And then all the things that you hear all the time. So grit, you know, there's going to be a million bad, tough times where you're just going to have to dig deep as a founder to get through it. And often staying alive is the most important thing. So keeping your own spirits high and ideally your team spirits high in the tough times as well as the good times is really important. So that grit, that determination, um, and then ambition, which I think comes in so many different forms. And there's a lot of, um, virtue signaling, I think, that founders, um, yeah, it comes in different forms, and there's no one form that is right or correct. It can be ambition to make an impact, a positive impact on the world. It can be ambition to make huge amounts of money for yourself. It doesn't matter what the ambition is, um, but it's got to be there. You've got to really often want to prove something, I think, to the world. And it's, it's not often talked about because it's a bit unglamorous, and it's kind of talking about the flaws of yourself as a human. So I don't think people love to talk about it openly, but I think often people do have a chip on their shoulder when they're founding a business, and they do want to prove stuff either to themselves or to other people.

I think that makes sense though, right? Like you said, there's, there's a lot of grit needed. You're gonna have to push through a lot of bad times, a lot of times where you feel like you're not going anywhere and your business isn't going to succeed. And I think if you don't have that chip on the shoulder, something that's really going to drive you beyond that, it can be really difficult to kind of keep pushing through.

Absolutely. And I think, I think there's that, and I think there's the, um, I think there's also a restlessness um, often in founders, not, not necessarily always, but we talk a lot about wanting to back founders who've— we call them iconoclasts, people who whatever they direct their energy at, they excel at. So whether that's they've been a professional footballer— I know you were talking about you were a semi-pro footballer before— they've been a professional footballer and then they, um became a policeman or woman, and, and then they decided actually they wanted to go into banking. They rose up through the ranks of an investment bank quickly, and then they were like, this isn't for me, I'm going to become a founder. Um, these people who put their minds to something and are high achievers in whatever they do, um, and who can garner respect from the people around them, who can inspire those around them, um They need to be persuasive and inspiring in one way or another. It doesn't need to be that they're necessarily a natural orator. It could be that they are just— they have extraordinary academic skills that anyone smart notices and respects. Because the, the speaking skills are important in some respects, because as a startup founder, you do need to be able to attract great talent. You need to be able to attract investment and early customers to use your product when it's terrible, or sometimes terrible. But yeah, that, that, that respect, I think, and that persuasiveness can come in different forms. And if you're a quantum computing business, you probably don't need to sell anything for the next 5 years because what you're building has no real-world use. But you need to be respected by academics who are going to come and join your team because it's a talent game and the successes in the space will come from the companies where there's the greatest talent density.

Yeah, no, that makes complete sense. I guess a very interesting question, you may not have a direct answer to this, but what made you decide to kind of go into VC and be on that side of the game versus founding your own company? I know technically you have founded your own company, but more so committing all of your time to VC versus being a startup founder.

Yeah, I looked at venture. I mean, so I was a founder before. I founded a business, um, an online marketplace. I found another business which is an IT consultancy. Um, and, uh, so certainly have the founder mindset. And as you say, I founded Focal, um, a few years back. The reality about venture is that there's an irony where despite investing in startups the whole time and innovation the whole time, venture particularly in the UK hasn't actually changed that much, um, over the last 10 years. And it is, it is changing now, but there's a huge opportunity to build a venture fund that does things differently. And I talked about Focal and how that's feeding into what we do at episode 1, and the same with the podcast Riding Unicorns. All of these things feed into a bigger picture where actually you can build a fund, and we are building a fund where there is structural defensibility. There's a moat, which is all, you know, we talk about this when we're backing companies. It's what we want to see when we're backing companies. But investors in VC funds don't ask these questions of the VCs they're putting money into. And actually, where's the next generational VC fund going to come from? It's not going to be one of these traditional funds that does things the same way that they've been done for the last 30, 40 years. It's going to be a fund that builds stuff around the asset management firm that gets them consistent proprietary deal flow that others don't see, or at least allows them to see those companies earlier, see those founders earlier. And it's going to be a fund that builds a community around, around the fund that helps them nurture the, the talent and the startups that they do back. So the reality is that although I am labeled as a VC, um, it's perfectly reasonable to be a VC that actually is also a founder. And in fact, that helps. Having that founder mindset helps when you're trying to win deals in competitive situations because you ask questions that founders can relate to. You have a better conversation than the conversation that that founder is having with the ex-consultant turned VC who's asking about, you know, how's the cost of goods sold going to increase over the next 4 years or decrease over the next 4 years? These aren't things that founders frankly want to talk about in depth. They want to be talking about the vision and the product. So there are different things going on, but I think, you know, I would still consider myself a founder that invests, which maybe is a slightly funny thing to say, but I think there are lots of us out there.

No, I get that. I think that the, the answer is great because, yeah, I can see what you mean now in terms of Episode 1 being different to the traditional VC. And so really it's like founding your own startup just in that space, in the investment space. So that's really, really cool. And in terms of of what you mentioned there about kind of community. Obviously one of the biggest goals you have with a lot of what you're doing, including the podcast, including Focal, including Episode One, is all about building a stronger community. What have you learned about doing that? Because I think often communities can be tough to build. There's a lot of communities that are popping up that honestly feel a bit wishy-washy, and they don't really feel like there's any genuine connection there. So yeah, what have you learned about building true authentic communities?

That it's really hard. Yeah, community is really, really hard. Um, You, you know, when you boil it down in a slightly unromantic way, it's quite transactional. And, um, you need to— there needs to be enough there for a community member to participate. And so, like, if you're starting a community from zero, what can you offer the people who are going to be the early joiners of that community for them to be engaged? And, um I think when I say community, I'm not talking about necessarily the communities that you might find in sort of normal life. I think it can actually in our world be us sharing a deal with a bunch of founders in our portfolio who also angel invest, and 3 or 4 of them saying, oh yeah, I'd like to take an intro, and 2 of them angel investing in a company which we're going to co-invest in. And then those founders start to build a mentorship relationship with the founder they've just backed, and which reflects well on episode 1. And it's creating these links between the different stakeholders in our world, whether that's portfolio founders that we're backing, portfolio founders, or founders that we want to back, investors in our fund, and people in the wider ecosystem who we want to perhaps, you know, work with more closely and eventually have as investors in the fund. So We as a fund need to offer enough to people that they want to be associated with us and reciprocate the favor by sharing stuff with us as well. So it's not— it's— we're not— we're not necessarily creating a forum, you know, where people are, you know, exchanging messages daily and talking about, you know, whatever's going on and sharing memes. Um, but you know, maybe there is an angle which you can build towards.

The interesting thing is that I think it's still somewhat similar. Like, if someone was out there building a forum or a networking community, for example, then I think that the principles are still very similar. Like, you still need to give those people enough so that they're willing to commit to the community, and they actually then feel so strongly about the community they share with other people, which allows you to grow through that word of mouth. So I think, yeah, whilst it's different, that the principles still are very much similar. Um, also going back to what you mentioned about episode 1 being trying to be something different, trying to be structurally different from the traditional VCs are out there, and mentioning as well about how UK and I guess European VC as a whole hasn't really changed much in recent years. What do you see as being kind of the most important changes that are needed there so that it can kind of catch up with the US, for example?

I think the, um, the talent is, is, is number one. So I think actually there have been huge improvements over the last, like, 10 years, even the last 5 years that I've been in VC. You know, we saw this crazy time where, um, there's just billions of capital flowing into the UK and, and globally. But, um, what that meant is that companies here could scale very fast, um, in, in a similar way to US companies had. Um, and what that meant is there was suddenly hundreds, thousands of people, um, who'd been through those kind of growth journeys, um, at startups and had seen the zero to one or even the zero to 100, um, and who'd picked up all sorts of insight along the way. So what we're seeing now, and the kinds of founders that we love to back, are people who were early employees or even founders of those companies from, you know, 5 years ago. Who saw the scaling journey from 0 people, couple of founders, to hundreds of people. And they saw the pitfalls, they saw the mistakes that were made, and they know how to avoid many of them. And so what you really have is kind of startup building playbook that is known by more and more people in the ecosystem. And that's a compounding effect where you start to get companies reaching the same, you know, levels of revenue and maturity quicker than was the case 5 years ago. And that's something that the US has had going on for a little bit longer, but is— you're really starting to see in the UK and Europe now. So I think that's been one of the big changes. I think the— one of the other big changes has been private markets and sort of liquidity and, you know, exchange of shares, etc. And that's a space that's maturing quite fast now, which is great to see because unlike public markets where you can broadly freely trade shares and, you know, online using online platforms or whatever, it's relatively easy. Private markets are pretty illiquid, and so if you're an investor in a fund or you're a founder of a startup or you're an employee of a startup with options and you've earned shares through your tenure, then it's quite hard to do anything with those shares and to realize the gains that you've you've theoretically made. But as those markets become more liquid, the ecosystem will just be more appealing to many, many people. And we're starting to see a lot of infrastructure being built that allows greater liquidity and makes it much easier for these companies to trade their own stock or employees or investors in funds.

That's very interesting. The second point is something that I hadn't really considered as much. The first point was something definitely I had. And so On that first point, that's just a matter of time more than anything. It's just kind of allowing the time for that talent to compound.

Yeah, I think it is. Yeah, I think, um, we're definitely seeing it compound. I think you can speed things up. You know, actually, the government here in the UK is pretty good in terms of supporting startups. So we have all sorts of tax incentives to encourage, um, private individuals to invest in very early, often idea-stage businesses. Amazing.

And so Also, is there any element of it that, that requires more people to be involved in startups and then go into VC? The reason I asked is I know that in the US, for example, that the makeup of VCs tend to be a bit different in the sense that a lot more people that work in VC would have been past founders or previously worked in startups, whereas like you said, in the UK it can often be ex-consultants or ex-investment bankers. Do you think there's a shift there needed, or do you think actually that the makeup right now is, is fine for, for the ecosystem?

The makeup's, um, I think the makeup's okay. It sort of became a joke that the, um, late-stage VC was where all MBAs would go, whereas a few years ago it was consulting.

Yeah.

Um, and that you could get really relatively unqualified people with very little industry experience moving into late-stage venture. Um, and I think, you know, maybe that was true. Um, I don't particularly know about the return returns of these late-stage funds, I think there's a lot more capital. And so my suspicion is that the returns are lower. I think that's backed up by the data, actually. But yeah, I don't think there's been any huge shift. And I think if there's been one shift, it's more startup founders and more startup employees being considered really carefully for roles in venture.

OK, no, that makes complete sense. And just to wrap things up, thank you so much for all the wisdom you've shared so far and all the insight into the industry itself. Just to wrap things up, what would be your number one piece of advice that you'd share to students or young people listening today?

You should have prepared me for this question.

It's always better when you put people on the spot.

Yeah, I, I think, um, just really trying to put yourself out into the world, um, increase the surface area for luck and opportunities to land on from as early as possible because, um, the sooner you can find the thing that you love, the sooner that you'll be doing a job that doesn't feel like work. Um, and, and that, that's a great feeling. Um, and so I, I, yeah, I think get yourself out there, speak to people, um, try different things, because what you don't want is to be 40 doing something you don't enjoy but, um, being unable to get out of it and change.

Amazing. I think that's a great piece of advice. You did well considering how big on the spot there. Um, thank you so much again for coming on, Hector.

Thanks for hosting me. Cheers.

Thank you. Cheers.