Founded in 2016, Afore Capital makes pre-seed investments of between $500k and $1 millionRead more...
Mitchell was the founder and CEO of cloud collaboration company Huddle
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh how times have changed. While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
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.
Alastair Mitchell is a Partner at EQT Ventures.
Mitchell has founded or co-founded three businesses and is investor, advisor and board member of many more. At Huddle he was CEO from founding until 2015. During that time he raised $80 million for the business over five rounds from top tier investors in Europe and Silicon Valley, oversaw expansion from London into five offices globally and led the team to many milestones that include having users in over 80 percent of the Fortune 500 and FTSE 100, being the first SaaS platform accredited for deployment across the US and UK governments, donating free software to one non-profit every working day through the Huddle Foundation and gaining recognition as one of the most important B2B software start-ups the UK as produced in recent years.
Now living in San Francisco, Mitchell divides his time between there and the UK. He remains an active board member at Huddle and is investor, advisor, board member of a growing number of software & e-commerce start-ups, including some successful exits and with the prospect of many more in the future.
VatorNews: What is your investment philosophy or methodology?
Alastair Mitchell: I'll start with some background on EQT Ventures. The EQT Ventures team started investing out of Europe, in Stockholm, Sweden. The Nordics are one of the brightest spots for venture capital. Now EQT Ventures has teams in London, Berlin, Amsterdam,and San Francisco. The EQT Ventures fund is $630 million, which is the biggest first time raise of any VC in Europe. The fund launched about 18 months ago and the EQT Ventures team is working very fast. We have a founder-led model, where we're all founders and entrepreneurs who started a VC fund, so there's not a traditional VC in the building. We've all raised, grown and exited big businesses. Great entrepreneurs have a choice of where they get their investment from, and we sat where they were sitting, so we can be super supportive investors. We offer more than money - we offer a full-service team of people that have been on the entrepreneurial journey before and can support the next wave of founders. This is something 90 percent of VCs say they do but don't really do.
In my background, I was B2B guy so all I do is invest in B2B founders. My last company, Huddle, grew two offices in London and Washington D.C. and a bunch in Europe. We had a great run, then I sold the business and started doing angel investing. One of EQT Ventures founding partners, Kees Koolen, was the founder and CEO of Booking.com, which is now a $100 billion business. We've got partner Lars Jörnow, who launched Candy Crush for King. The EQT Ventures operational team has people from Spotify, Hotel Tonight, Huddle and other B2B SaaS businesses, so we help our founders build big businesses, work across talent, messaging and brands, across hiring, across data and insight, legal employment. It's the Andreesen model but in Europe, as we aim to be genuinely useful in a way that hasn't been done in Europe before.
EQT Ventures is totally unique globally in that we provide a natural landing spot for our venture companies. Being part of private equity group EQT means EQT Ventures’ portfolio companies’ growth is also supported by EQT’s proven track record of developing companies. EQT also has a network of more than 250 independent Industrial Advisors, which features a variety of global business leaders and successful entrepreneurs. This access to expertise, knowledge and potential customers is one of the most useful things EQT Ventures can provide. Others can help raise money, and the best investors can help expand and grow the business, but no one else can bring you access to expertise, knowledge and potential customers on day one. We have a phenomenal ecosystem.
From a philosophical perspective, we're useless if we force a company to go down the wrong path. That is particularly important in early stage investing. The EQT Ventures team has an obsession with product market fit. Most founders think they have it, but they never really had it. Even those with a great business and a great founding and executive team, and the best SaaS playbook you’ve seen, at best they probably have 70 percent product market fit. The difference between 70 and 100 percent, it changes all the time. Many businesses want to grow when the company is not ready. The team tells them to be patient, get a team, and have product market fit all aligned and to go super fast once they have that. The difference is the ability to execute well and fast are dramatically different when you spend time early getting it right. Some are lucky and grow in spite of themselves, others have to work then when they're ready then find investors so they're ready to execute.
VN: What do you like to invest in? What are your categories of interest?
AM: In Europe, as well as globally, what's so exciting in the last 10 years has been that so many great companies have been building apps on the SaaS foundation. We’re now in the fourth industrial revolution where there will be a cycle of amazing core technologies being built in the next 10 years. What's so exciting about that is that these layers are enabling a generation of technology to have success and growth that would have been unheard of 10 or 15 years before the Internet and it's still in its infancy.
The EQT Ventures team has invested in AI, which is a huge buzzword. Most businesses are not really using AI because they're not using any of the basic algorithms. It's very early in the cycle, and all new techniques are hard to do; they take a lot of resources and people. There's lots of talent going into that area who are now building platforms that are democratizing and changing technology. Apps are being built with this technology, using AI as a service and businesses that do that will be the next generation of change. They will change everything from treating cancer to the way a car drives. Everything will be changed by that.
When it comes to mobile devices, we are defaulting to edge computing. Your bed, alarm clock, your filing cabinet, everything will become an edge device. In the industrial world, in factories, all of these devices that are consuming power will share data with each other, make recommendations for a different course of action. All of that happening will blow up the cloud and Internet and drive new demands to share between devices. It will be an even bigger trend to manage data without having to share with the cloud. That's spanning thousands of strands of innovation and we're seeing phenomenal advances everywhere. It will fundamentally and dramatically change how we build great businesses.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
AM: I've done a bunch of angel investing and I hate calling out particular companies since all of them are amazing. At any one time some companies will be doing great, and others will be growing. It's a marathon, not a sprint.
I generally tend to be most proud of those that are growing a big business, specifically if they're gone through the product market fit question. If they've spent a year or two figuring this out, they've built a technical founding team, built something better than anyone else and then figured out product market fit, around then if when I can help them grow their business super fast. We have a whole range of companies, early to late, who have a super core technical founding team, amazing commercial sense, and use those advantages to leverage product market fit.
VN: What do you look for in companies that you put money in? What are the most important qualities?
AM: I heard another investor say, 'Investing is like a wave, so market timing is essential.' The most exceptional companies have created their own wave but most don't. I believe there’s only one Uber, for example, every generation and the others are in the wave, and that demands companies that are doing a similar thing. The founding team that surfs that wave best, that when the wave breaks are still on the surfboard, will be the one with the best timing. They've also got the better product and then it's all about the team, and the ambition and desire and hunger to win. There are many ups and downs, they'll hit the highest highs and lowest lows, so they also need the ability to inspire others and the reflection of self to surround themselves with those that compliment their weaknesses. It takes a learning mindset to see where the product isn't great, and to be able to take out emotion but still have the passion to win, along with humility and transparency. They need to be humbled by their mistakes, be approachable, learn from others. So, they're learning all the time, that's how they make themselves great, through a good support network. When I look at what’s driving them I see who is able to help them, if they have a good support network something in their path that will help make them successful.
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?
AM: If you look at early stage investing, from seed to Series A, putting numbers is lazy. For Series A, if you want $100,000 MRR a month or around that, the number is irrelevant. If they have open source technology, rather than if they huge usage and traction, it's important to see where is the product market fit. Are they solving a big problem? Do they or will they spend money or is it in five years now? Are they doing it better than anyone else or through sheer force of will? What are they achieving and why are they? Numbers are only a small part of the equation.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence?
AM: We spend all of our time on team, product market fit and the product itself. You need to go fast and be thorough, because the best entrepreneurs have multiple term sheets quickly. We agree to terms in collaboration, see what's important to them, get the best consortium, but the time get to term sheets, we go very fast. The fastest was four days, but we hope to be able to do it in a couple of weeks.
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. How has that changed where a company need to be to get their Series A round?
AM: It all has to do with expectations and people wanting to move faster. The amount of dry powder available in the UK system is driving the cycle from top to bottom. Companies deploy with more expertise, and they deploy with more money. A $10 million Series A is small now, but Huddle was a $3 million Series A, so there's more pressure to execute, but it does allow companies to go faster. While that does mean more expensive misses, we generally see the quality of teams executing better.
In Europe, if you take the curve of growth, meaning the acceleration of a company's size and valuation, it has been on a tear the last five years. We're still behind the Valley but it's getting there fast. Berlin, London, if you look at the startups that have raised funding, their revenue growth compares very well with companies in the Valley. The fastest businesses are coming out of Europe now, and most of the hottest A rounds are European and U.S. VCs together. That never happened a few years ago, but now we have much faster growth, more ambition and better, more experienced entrepreneurs.
We've had a bunch of great exits from local buyers, and multiple founders. You can go much faster with your second startup, raise double the amount, because you learned from your mistakes. You'll have new challenges, but you've learned the fundamental ones, so you can go straight in and go faster.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
AM: Before joining EQT Ventures, I was an angel investor and previously co-founded online collaboration company Huddle with the aim of helping enterprises and government organizations work better together. Prior to Huddle, I was on the executive team at Dunhumby, had been at the helm of three startups, and held a number of board positions in companies such as uMotif and Permutive. I’ve been passionate for a while about transforming the way that Europe does venture capital due to my experiences at Huddle. The way that the EQT Ventures team was approaching VC in Europe and how the team takes a truly operational approach with an advisory team of full time operational partners was what really attracted me to join the team. The fund, together with support from its parent company, EQT, helps founders by opening doors to knowledge and expertise from large companies, leveraging its network of industrial advisors, and providing access to potential customers. All of this was underpinned by a very impressive fund size of $630 million which allows the EQT Ventures fund to back and develop its portfolio companies to win globally with enough capital - again, something that the U.S. VCs were doing really well and now EQT Ventures can do for Europe.
VN: What do you like best about being a VC? What makes you excited?
AM: What really excites me is being able to help companies build and grow. EQT Ventures’ multi-stage fund ensures that the team can support entrepreneurs throughout their entrepreneurial journey. We’ve seen huge growth in venture in Europe with many companies building innovative tech at a pace much faster than a few years ago. I believe we’re seeing the next industrial revolution at work.
VN: What is the size of your current fund?
AM: The EQT Ventures fund is a $630 million fund
VN: What is the investment range?
AM: We will investment up to $60 million in a co, and we typically start with $5 million to $10 million.
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?
AM: No, we don't have a hard number but ideally it will be above 10 percent.
VN: Where is the firm currently in the investing cycle of its current fund?
AM: We're very early. We've only been going 18 months, and we've done 23 investments, so we’re only a third of the way through the fund.
VN: What percentage of your fund is set aside for follow-on capital?
AM: Almost 50 percent, so if we invest $100 million then we'll do other $100 million.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
AM: We are a multi-stage firm, doing Series A to D.
VN: In a typical year how many startups do you invest in?
AM: We’d likely do one or two investments a month.
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