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Co-founder of the Climate Corporation recently joined Atomico to drive VC investments in Europe
There has been a big debate the last few years over whether the Series A crunch is real or not.
What everyone can agree on, though, is that there are definitely more seed and early stage funds now than ever before, and more people willing to give money to young companies looking to make it big.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Siraj Khaliq is a Partner at Atomico, based in Zurich and London, where he focuses on sourcing, evaluating and negotiating new investment opportunities, particularly those deeply-rooted in technology.
He is also the co-founder and former CTO of The Climate Corporation, a San Francisco based technology company at the forefront of precision agriculture. Started in 2006, the company created a large-scale computational model for agronomy that formed the basis of an online service for analyzing and improving crop yields. Climate was acquired in 2013, at 150 employees, by Monsanto Company, and now operates as a wholly-owned subsidiary.
Prior to this, Siraj was an early hire at Google, working in a variety of engineering leadership roles, including on the Google Books and Patent Search projects. He holds an MS degree in Computer Science from Stanford University, and a BA Hons. in Computer Science from the University of Cambridge, UK.
VatorNews: Tell me a bit about your background. What led you to the venture capital world?
Siraj Khaliq: I’m a computer scientist by background. I went to school in Cambridge University in England, then went to Stanford to do my master's around 2000. I met up with Sergey Brin around then when Google was a tiny company and he invited me to join Google. So I started working part-time for Google. It was a fantastic time at the company—200 people, one building, and bright, idealistic, change-the-world kind of people.
Naturally, when I finished my master's I joined full-time. I was there in a variety of engineering roles. The project I worked on was Google Books Search, where I was one of the founding engineers. I stayed through 2006, when Google had around 6,000 people. Another ex-Googler and I got an itch to leave and start something, which is the reason I’d gone to the Valley in the first place.
So we started something called The Climate Corporation. We started out in the fintech space dealing with weather data, and we realized there was a real need for a financial product to protect businesses from the effects of bad weather. Through three rounds of funding, we evolved that into the premier ag tech company. In fact, ag tech wasn’t even something people paid attention to until we were successful. We were acquired by Monsanto in 2013.
My wife and I decided to move to Europe, I started to angel invest, and I realized Europe’s time had come. It was so different from when I left in 2000, when there wasn’t a great deal going on entrepreneurially, even if you take into account what was happening before the dot com bust.
Europe was and is buzzing. There were a lot of low-hanging fruit ways I could help startups through my own experience. VC was the natural way to scale it, so I reconnected with my old friends at Atomico (who had invested in our series seed). I spoke with other prominent VCs in Europe, and it just became clear that Atomico is just a fantastic company, has a great vision, and is very entrepreneurial because of the culture. It was started by Nikos Zennstrom, co-founder of Skype, so he’s a bit of an icon here in Europe. That was about two-and-a-half months ago now, and it’s been fantastic.
VN: What is your investment philosophy or methodology?
SK: Fortunately, it happens to be Atomico’s philosophy and methodology. The core premise is Atomico is very much an entrepreneur-led investment firm. Having been entrepreneurs ourselves, we have a feeling for some of the problems that occur, some of the issues you can help entrepreneurs with.
Second, because of the Skype heritage, Atomico has a very strong global network. Whether you want to enter Asia or launch in Brazil, there are a lot of things that have to happen—not just connections, but how to talk to the market—that Atomico is uniquely able to help with. So this idea of founders helping founders or entrepreneurs helping entrepreneurs with much more than money, and then helping companies to realize that the world is their prize. There’s so much more out there than North America. That’s a way I look at my investment philosophy.
VN: What do you like to invest in? What are your categories of interest?
SK: We’re pretty sector-agnostic. There should be some vision behind it. As a firm and entrepreneurs, we’re much more about the big vision.
Personally, given my background as a computer scientist, anything that’s deep in technology (software-as-a-service businesses) would naturally make sense for me. Fintech, insurance, and ag tech are also compelling based on my experience. And there’s a lot of good stuff going on in all those sectors.
The other thing I’m excited about is machine learning. It’s come of age. A lot of things that were problems over the last 3-4 years really changed. Computer resources can now match up with what’s needed. Neural networks are practical. There are new models and certain types of deep learning that are changing the way computers operate. What we call “intuition” in humans—something akin to that can be developed in computers now. As I’m sure many of your readers know, AlphaGo’s stunning win over Lee Sedol is just a fantastic example of the coming of age of machine learning.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
SK: It’s early for me to speak about Atomico investments since the cycles are long. Angel investment-wise, I tend to look at more pure science companies doing interesting things in the real world space—ag tech being one example. I generally focused on investments that are not entirely obvious, so businesses that are closer to my recent experience.
As a firm, Atomico has made some fantastic investments. Supercell is a great example: it’s the world’s biggest mobile gaming company, with number of successes. We invested in them and helped considerably with their Asia strategy and partnerships. There’s GoEuro, which is a fantastic company in the travel space changing the way people across Europe book and travel on trains and other public transport. There’s Knewton, a knowledge company we’ve helped. So there’s several companies we’re excited about. If we talk again in six months, I’ll be able to add a couple of mine to that list.
VN: What do you look for in companies that you put money in? What are the most important qualities?
SK: As a firm, we look for early signs of vision and the kind of founders that we interpret ourselves as having been. These are things many VCs look for. One thing that's a little different is we’re a pretty sizable fund. We don’t make a lot of investments. We don’t have a shotgun approach. We look for companies that are at some sort of inflection point where the basic business model is not in question, so we can really help them accelerate in terms of nailing their pricing strategies, how they go global, how they solidify and strengthen their internal culture, how they hire top talent. These are the kind of things you do after you figure out some of the basic business model questions. The only companies I would exclude from this list are really early-stage companies that haven’t quite figured that out yet.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
SK: It depends on the type of company, who their customers are—there are many variables that go into that. I wouldn’t want to turn away people who might be thinking of approaching us based on them thinking they don’t have traction. It’s very case-specific. If you were to think about a company in the machine learning space, that is more pure technology, they may not have a lot of customers but they might have fantastic product.
Generally, in terms of traction, companies will want to have shown that they have some paying customers, recurring revenue, and are beyond selling just a few trials. With the right kind of pipeline in place, they can accelerate what they’re doing.
VN: These days a seed round is yesterday's Series A, meaning today a company raises a $3M seed and no one blinks. But 10 years ago, $3M was a Series A. So what are the attributes of a seed round vs a Series A round?
SK: Ultimately, these are labels. It used to be that you didn’t call anything series “seed.”
That said, Series A rounds generally tend to have more legal structure around them. There’s a proper term sheet, some rights you will have as an investor, and certain ways of structuring the transaction, whereas series seed tends to be a little less formal. That’s broadly the difference.
In terms of business model, seed-stage companies historically don’t have proven business models while Series A companies are ready to scale. That’s not necessarily the case these days. Plenty of Series A companies are still working on core business questions. To an extent these are just labels.
The further an entrepreneur can go with seed money and proving out where they are, the better the terms will be in their Series A. Series A will typically lead to professional VCs as opposed to early-stage rounds. Again, I don’t want to draw hard lines because these are getting blurred. Generally speaking, it’s structure, it’s some of the players involved, and (less and less so) it’s stage of the company idea-wise and execution-wise.
VN: Given all the money moving into the private sector, I believe there's more money going into late-stage deals in 2015 than there was during the heyday, back in 2000. Do you think we're in a bubble?
SK: It’s a good question but not necessarily in the context of the year 2000. The fact is we’re a very different world versus then. People got caught up in the hype back then, and most people did not have a broadband connection. The only people that got excited about tech we’re generally in the tech community.
Now we’re in a different world. There’s a critical mass of people online. Grandmothers use it to video chat with their grandchildren. It has reached the mainstream. Therefore, we’re in a different place, so there should be more money going in than there was then.
The more interesting way of looking at it is: where is this relative to whatever intrinsic valuation you can say a company might have? The honest answer is we don’t necessarily know. Humans are prone to irrational exuberance, and there’s probably some of that going on.
Luckily for us at Atomico, we focus on Europe primarily, and that’s our core geography. And we feel Europe is a lot more cautiously valued and there are a lot of good opportunities around. We’re not too worried about they’re being a bubble right now. There’s obviously knock-on effects: you need to be careful around expectations from companies in regard to future rounds of raising. But in terms of opportunities, we’re seeing plenty of good ones that are fairly valued.
VN: If we're in a bubble, how does that affect your investing?
SK: It’d be foolish not to think of macro-scenarios. Certainly, that’s worth thinking about and affects the investments we look at. Does the model work for this company? Or does it need a huge amount of money to execute? And can that money be dialed down if the market picture turns sour? These things will affect our views and investments in some ways, but a lot of companies have very solid fundamentals and would succeed even in a down environment. And those are the kinds of companies we look for anyway. As long as we are doing that properly, that should be a core part of our investment pieces.
VN: What do you like best about being a VC?
SK: What makes me excited about VC is that these are the household names of tomorrow. If I can in some small part help enable those or increase the probability that they’ll be successes, that’s great.
Having been a founder myself, founders should remain in the driver’s seat. There should be no doubt that they’re the ones making the magic happen, but VCs can play a supportive role and increasingly that role is beyond money. It’s through sharing experience, connecting companies to partners to enable their business, and even helping companies learn from my mistakes. How early you should define your culture, your mission, your values. How you should approach hiring. These are all things I’m very happy to share. Later on I find that people have taken that to heart.
It’s just fun for me. It’s the next best thing to actually starting and running a company yourself.
VN: What is the size of your current fund?
SK: Fund III is $475 million.
VN: What is the investment range? How much do you put into each startup?
SK: It varies. What’s traditionally happened is that European companies end up with issues when they start to raise later-stage money. We’re looking at this as long-term partnership, and invest with a view that over time we’ll invest more: those early checks from $3-4 million to $50 million (recently we put $25 million in LendInvest; in February, we announced FarmDrop, which was about a $5 million investment). For entrepreneurs, the right time to talk to us is as soon as possible, because when the time comes to raise the bigger round it helps for the relationship to be a warm one.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
SK: It depends on the situation. Sometimes it makes sense for us to do an entire round ourselves (as with LendInvest), sometimes it makes sense for us to lead a group, and sometimes we participate in a group. When we do participate or have other people in the group, we like to look at what the group as a whole brings. With Mapillary and FarmDrop, we brought in a number of high-value angel investors that add real value to the company, can and should benefit from their own investment, but also improve probability for us.
VN: Where is the firm currently in the investing cycle of its current fund?
SK: I’m not able to share specifics, but we’re raising our fourth fund right now.
VN: What percentage of your fund is set aside for follow-on capital?
SK: It’s so dependent on the stage and business model of the company. If this is a long-term partnership, which we expect every investment to be, then how much money will this company need to execute? And to what extent will we see that money come from other partners or VCs? I can’t share the exact amount but we definitely have significant follow-on reserves for companies.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
SK: We don’t do seed investments. We do Series A in our core geographies and Series B and beyond in some non-core geographies where the companies are trying to go global.
VN: In a typical year how many startups do you invest in?
SK: Hard to say for sure since it also depends on the macro-environment (for example, if things go south and we’re not seeing the same kind of quality). But we’re actually pretty active. You can probably extrapolate since we’ve made four investments already in three months.
VN: Is there anything else you think I should know about you or the firm?
SK: Now is an amazing time to be a European entrepreneur. A lot of things have come together that were previously only together in Silicon Valley. It’s the right kind of early support to the right kind of money later on, plus a lot of talent. Europe actually has more software engineers than the U.S., when you look at it as a whole. There’s this tendency for technology hubs to build around a lot of these things occurring. Now we have London, Berlin, and Stockholm starting to become those hubs. So it’s a really good time for Europe and tech in general.
And secondly, for Atomico, I think it’s a fantastic time for the same reason. Entrepreneurs are starting to really appreciate that VC isn’t an adversarial relationship anymore. VCs can materially help and, in many cases, can be very founder-friendly. So that has changed quite a bit. Atomico is at the forefront, in terms of the number of ex-entrepreneurs we have here. Over time you’ll see some great investments from our portfolio.
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Related Companies, Investors, and Entrepreneurs
Joined Vator on
The Climate Corporation's mission is to help the world's people and businesses adapt to climate change.
The company protects the $3 trillion global agriculture industry from the financial impact of adverse weather—the cause of over 90 percent of crop loss—with fully automated weather insurance products.
The company's unique technology platform enables the real-time pricing and purchasing of customizable weather insurance using proprietary global weather simulation modeling and local weather monitoring systems.
Unlike traditional insurance, The Climate Corporation's products pay out automatically based solely on measured weather conditions, requiring no claims process and no waiting for payment.
For more information, please visit http://www.climate.com or follow the company on Twitter @climatecorp. The Climate Corporation was formerly known as WeatherBill.
The Climate Corporation is Hiring! Watch a short video here: http://climate.com/company/careers/
weather, weather risk, weather risk management, weather insurance, climate change, agriculture, crop insurance
Joined Vator onWe are entrepreneurs with a global perspective who invest in passionate entrepreneurs with disruptive, powerful ideas.
Through our experience building Skype, Joost and Kazaa, we understand the value of game-changing business models and have created a worldwide network to help accelerate the growth of the companies in which we invest.