Transcript: Webinar — investing in the ‘new normal’

Watch the webinar: Investing in the ‘new normal’

What’s the reality of private market investment amidst COVID-19? How will the ‘new normal’ differ from the past? How can companies attract investors’ attention and capital — and what’s next?

Hundreds dialled in to join ‘Investing in the ‘new normal’ (video / highlights blog), our webinar with some of the world’s leading investors:

  • Harry Nelis (Partner, Accel)

Below, the transcript:

David Kelnar (00:00):

Good afternoon everybody. A very, very warm welcome to today’s webinar. My name’s David Kelnar, I’m a managing director at Numis and firstly and above all I hope you and loved ones are staying safe and well. Obviously amidst what’s been such a difficult time for a lot of people, my thoughts are very much with those who are most affected at the moment. A quick word of introduction from me. I have the privilege of leading the Growth Capital Solutions team at Numis, and our goal is really to help the world’s most ambitious private company achieve their ambitions. And so our team deliver strategic advice, relationships and capital for global investors, as well as best in class transaction expertise to help growth stage companies.

David Kelnar (00:51):

In the last 12 months we’ve helped some of Europe’s most exciting private companies raise nearly a billion dollars of long term investors, and we’re partnering with a really exciting range of disrupters to support them along their journey.

David Kelnar (01:07):

For today’s webinar I’m absolutely delighted to welcome three of the world’s leading investors in high growth companies. Harry Nelis, partner at Accel. Richard Watts, portfolio manager at Merian, and John Doran, general partner at TCV. And I’ll ask folks to introduce themselves and their funds momentarily, but suffice to say these firms have backed some of the most iconic and successful companies of our time. Including Airbnb, Facebook, GraphCore, The Hut Group, Klarna, Netflix, Spotify, TransferWise, Twilio. It’s a real privilege to have their perspectives so a huge thanks to my guests.

David Kelnar (01:47):

Now I’m delighted that today we can talk about investing in the new normal. Obviously Covid is re-shaping and accelerating disruption in a way I think none of us quite anticipated, and as founders and investors try to position for success, understanding the reality of what’s happening and what’s to come has never been more important. So I though we’d divide the hour today into three parts. We’ll begin by exploring the reality of investment amid Covid-19. Beyond the headline, how activity levels [inaudible 00:02:20] dynamics and valuations changing thought the pandemic. We’ll then explore this new normal at which we find ourselves. How will the post-Covid word look different, what consequences will that have for consumers, for employees, for disrupted companies and investors. And then we’ll focus on advise for founders, how can founders best capture investors attention and capital today, and what’s separating the best founders from the rest as they prepare for the new normal. We’ll finish with just a five min quickfire round which we’ll get our guests to agree or disagree with some reasonably punchy propositions.

David Kelnar (02:59):

Ahead of the webinar we read dozens of your questions, so thank you for that, I’ll be waving those into the discussion as we go. And do feel free to submit questions during the webinar as well. Drop them with capital solutions team here at Numis email. That’s, and we’ll try to incorporate them. So without further a do, thank you sincerely to our guests, thank you there are hundreds of people online, so thank you for joining us. Perhaps can I ask each of our guests just to begin by telling us a bit about their firms and some of the unique strengths that they have. Harry do you want to kick off?

Harry Nelis (03:35):

Thank you David. My name is Harry Nelis, I am a partner with Accel, based in London. Accel aims to back, and be the first backer, of entrepreneurs would like to build really iconic businesses. The way in which we can help these entrepreneurs is by being on the ground with them in wherever location they are based. We have offices in San Francisco, London and Bangalore India. But besides being on the ground locally, also providing them with a global radar screen so that they can see what’s happening globally in technology. We have been doing this for the last 40 years in the United States, for the last 20 years in London, and have an approach that very much is focused on being sector specialists. So we have this internal thing that we call prepared mind initiatives. Where we try become really smart in particular areas, and then identify the companies that can make a real big difference there, and then invest in those kind of themes and those kind of companies.

David Kelnar (04:50):

Great stuff. Richard do you want to do the honors next?

Richard Watts (04:56):

Yeah thanks David. I suppose our backgrounds a little bit different to others. Our heritage at Merian, before we were Mutual, was in listed equities. Particularly in UK [inaudible 00:05:12]. The desk has been running for around 20 years. Over that period of time we’ve met many growth investments, names like, Righmove years ago, Just Eat, Autotrade. And over the years we were getting increasingly frustrated that some of the most innovative fasting growing companies that we were coming across were choosing to stay private. We often describe ourselves [inaudible 00:05:44] group of the largest investors in IPOs in the UK. The desk size is around six billion if you go in, of assets so we’ve corner stoned many IPOs. And for us it was a logical step whether you [inaudible 00:05:57] or further than that and invest in companies whilst they were still private, if they were choosing to stay private for longer. But that really was where Chrysalis was born.

Richard Watts (06:10):

We launched Chrysalis in November, 2018. We raised about 400 million pounds into that strategy. We’ve got eleven investments in the vehicle now, the likes of TransferWise, the Hut Group, [inaudible 00:06:26], Starling, Klarna, probably some of the better known names I would say. And ultimately I think our [inaudible 00:06:33] slightly different, we work very closely with these companies. I think we give them a different perspective. We come from a listed world and we like to think that we understand very well the expectations or requirements of investors in listed equity. And I think that perspective can be very valuable to these later stage private companies in particular.

David Kelnar (06:57):

Thanks Richard, John?

John Doran (06:59):

Yeah hi everyone. John Doran, I’m a general partner at TCV. TCV is a global investment firm. To position it relative to what you’ve just heard, we’re much later stage than what Harry mentioned. Think of us as kind of late stage venture, growth equity and also majority deals. We focus really on three categories, enterprise software, internet, typically kind of marketplace type businesses and fintech. What we’re looking for is businesses that are category leaders, typically have big markets and substantial tailwinds. We will typically write larger investments, our typical investment is somewhere between 75 and 150 million as a first investment. And we will double up and double down from there. We’ve often known to do a lot of crossover investing, so many of the businesses we’ll back will ultimately go public. We’ve had about 62, 63 public offerings during our time. And we will, similar to what Richard just mentioned, we’ll hold companies in the public markets for a very long time.

John Doran (08:05):

So we’ve been on the board involved with Netflix for 20 years. We’ve been involved for more than a decade with similar companies like Zillow, EA, Spotify etc. So that’s part of our model. And great be here today.

David Kelnar (08:25):

Fantastic. It’s all really valuable and quite complementary perspectives here which is particularly exciting. Let’s make a start and discuss the reality of investing through the pandemic. In particular maybe could you start by telling me a bit about how your investment activity has evolved through this. I know that you’re going to say you’re open for business, which is great, but is it fair to say that given allocation of time capital to your portfolios, that the number of new companies you’ll be able to back, perhaps in the rest of this year, will be a little bit lower than before? Or can you see something different? John do you want to start from a later stage perspective?

John Doran (09:06):

Yeah. I would say, absolutely right in the sense that the crisis caught us be surprise. Just the rapidity of it and how fast things changed. And so there was a lot of time in early March, and throughout March, really understanding the impact on a company by company basis, doing some portfolio analysis across the portfolio. Trying to make sure that companies had enough cash, trying to think about what the outlook would look like for the rest of the year. And really trying to get companies in a safe position to weather this storm.

John Doran (09:44):

In answering to your second part of your question, I don’t think it means less dollars for deals in 2020, to be transparent. I think there are probably some practicalities that would make it harder. I think first and foremost, maybe it’s just what we’re seeing, but it does feel like deal [inaudible 00:10:02] are slightly down. Just seeing less deal flow. I think it’s probably harder to make new investments remotely in companies were you don’t have a pre-existing relationship. I think that may change as we all get used to this new world, but I do think most of the deals that we still keen to look at are businesses that we’ve had a pre-existing relationship and know the companies well. And I think it’ll probably be harder to build that rapport that you need to build with a manager team, with a CEO, remotely. I’m not saying it can’t be done, I think it will be done, I’ll be part of the new normal as we talk about. But, I think that that will just take some more time, and also probably learning some new skills on our side and also on the side of the entrepreneurs.

John Doran (10:54):

The last thing I’ll just say is, I think in times of uncertainty there’s always some caution on the investment side. So we’re looking to invest in category leading business, great entrepreneurs and, like I said, with big markets. Whether those companies are raising today, what the valuations look like etc. is also something that we haven’t really figured out. I think we’ll figure it out over the next few months and years. But I don’t see it as us thinking about allocating less capital in 2020, its just if the opportunity’s there I think we’ll go for it.

David Kelnar (11:42):

Got it. And Harry your unusual on the panel in having a dual focus, both on earlier stage companies and on growth. Are you seeing a similar dynamic with earlier stage investments, or is there a bit of a divergence now between activity, earlier verses growth?

Harry Nelis (11:59):

Our early stage activity is still very high in fact. The interesting bit is that, in the early stage we invest more in people than we invest in companies. Companies of course are impacted by what’s happening right now, but people by and large stay the same. So it’s also important to note that some of the great companies today have been started in some really dark and difficult times. So what we try and do is we try and keep the pace and do the work that we all did before Covid. But have a bit of a different mindset, especially with regards to getting to know people. Of course pre-Covid there was a premium to getting to know people in person. Instead we rely much more on proper referencing. And one could argue that we should rely on proper referencing no matter what, and maybe we don’t learn as much in person interactions as we think we do.

Harry Nelis (13:11):

So it still is perfectly possible for us to make investments in the way we did before, with proper referencing with people who are referencable. It becomes harder when people come from networks where we have less interaction and where it’s just hard for us to reference people.

David Kelnar (13:31):

Got it. Richard I’ll come to you presently, but just to tie this off. In practical terms, just John and Harry, what does this mean for founders? If it that, when rubber hits the road, rounds take longer, it’s tougher to meet a bar when you can’t [inaudible 00:13:50] in person. This greater selectivity, or something different from that?

Harry Nelis (13:59):

It very much depends on what sector you’re in. I think the crisis has bifurcated a market, in a certain sense, between the haves and the have nots. There are certain businesses where the tailwinds have actually accelerated. If you think about areas such as remote collaboration, or business models based on offline to online transitions, or [inaudible 00:14:32] medicine. I think those areas are really benefiting in this situation. And I think those rounds are super competitive, happen as quickly as they did before, at valuations as high as they did before. Then there’s other areas where things have slowed down a bit because of the crisis, and I think those rounds will take longer, will probably happen at prices that are a bit lower or on par. Also, those companies may actually choose to delay their fund raises to next year. So what I expect is that many companies who realize, 2020’s not going to be a great year for me, it may not be so easy to raise money in 2020. I think a lot of those companies probably reason we should reduce our burden, make it into 2021 and hope that the situation is better then.

Harry Nelis (15:26):

So I think right now in 2020, we’re seeing the companies raising money who know that they can raise a lot of money quickly at high valuations. And I think in 2021, we may see the companies who have been prudent enough to avoid 2020, for that reason.

David Kelnar (15:47):

And Richard, just picking up on that, how are you seeing ground structures and participation changing? Are big front footed, probably priced, growth rounds still viable to the right company in this environment? Or is much of this here going to be about small convertibles, top-ups and so on?

Harry Nelis (16:14):

I think the environment was actually changed very quickly. If you think of what we’ve done, we’ve been pretty active through this, we completed an investment with Featurespace. Which we announced two weeks ago. I honestly believe, for great companies, that are disrupting and competing in big markets, where there’s just a strong natural [inaudible 00:16:43]. I think those companies are every bit as desirable, if not more desirable today than they would have been, even at the start of the year. I think the reality is, everywhere you look, I think the channels shift towards digital businesses, online businesses. Because it’s been accelerated, and we can see this, in listed equities and in the private businesses that we own, and I think the market has recognized this very quickly. So I think for those kind of assets, I think the demand will be great.

Harry Nelis (17:12):

I kind of think about this in probably three areas really. When you think about cash burn. So those companies with a big pressing requirement for capital. I think there is an opportunity there to negotiate valuations down, versus what would’ve been previous expectations. And I think the market is still active. There’re probably some players that have tapped back a little bit, once they assess the shape and condition on their portfolio, the requirements of the companies that they’re investing in. So I think there is an opportunity for high cash burning companies to negotiate valuations lower. But the reality is, most [inaudible 00:17:51] businesses, I don’t really see valuation being impacted greatly [inaudible 00:17:58].

Harry Nelis (17:57):

I think what also might change is, companies and founders. It’s crucial to partner with the right people, and I think this is what this environment might remind people of, is that ultimately, it’s going to be a choice sometimes between valuation and choosing the right partner. When I say the right partner, people that can help businesses with strategy, but also with capital. Who’ve got big balance sheets themselves they could deploy, to support a company to its growth. I think that’s going to be increasingly important going forward.

David Kelnar (18:43):

We’ll obviously talk about the new normal in a moment but, collectively, [inaudible 00:18:48] how’ve your selection criteria changed in light of Covid? Are you leaving to different sectors and themes, or is it more around prioritizing companies with different kinds of characteristics? Say capital efficiency over growth, or otherwise. So are you prioritizing different things? John do you want to?

John Doran (19:13):

Yeah sure. I would say it’s been a bit of a mix of, what the crisis has done, I think Harry alluded to it earlier and there’s been a lot written about this, it’s accelerated I think the impact. Well it’s accelerated the changed that we’ve been trying to invest behind. And so I think about things like Taylor Madison for example, a charity manager I think, that type of transition from offline to something like that. We’re only going to see it in acceleration. I think things like banking and payments, digital payments, will equally see an acceleration. So for us, as a typically later stage investor, some of the themes that we’ve been tracking which we probably thought were opportunities we’re going to see, or really get deeper on, in 21, 22. I think it’s probably going to happen earlier. So for me it’s really about, I don’t need this kind of new themes per se, maybe there are at the edge but, the themes remain the same. Its just that the opportunity I think is possibly bigger, but also is here now earlier for us to try to invest on it.

John Doran (20:20):

I think another category that we’ve always struggled with has been the last [inaudible 00:20:27] delivery area. And I think part of the reason we struggled with it was because of economics and things of that nature. But I think you have to put your hands up and say Covid-19 has changed the game for those companies dramatically. And so I think we’ll probably see some big winners emerge. We’ve already seen some business that look like they’re winning but you’ll see some real big winner emerge as a result of that.

David Kelnar (20:54):

Let’s see, well that segues very nicely actually to think a bit about the new normal and what’s changed. Maybe Harry, let’s start with you, what long term change are you most confident that Covid will drive? And how is that changing your [inaudible 00:21:12]?

Harry Nelis (21:15):

I think the trend that we’ve been investing behind for several years now, in the enterprise sector, really has been digital transformation. At the end of the day, every company will have to be an Amazon in their own area because it’s a requirement. Every company today, whether you’re in the shoe business, or the travel business, you will become a [inaudible 00:21:45]. Which means that you need to transform all the processes that you use today. And I think what’s happened in the last two months, we probably have seen, in the last two months, digital transformation worth a couple years. That whole process has become much, much stronger. And I’m absolutely convinced that that will continue to happen. So in enterprises across any kind of vertical, whether it’s oil and gas, finance, manufacturing. That’s a trend that we have been investing behind with companies such as UiPath. Robotic process automation, or Celonis in the case of process mining. And I’m absolutely convinced that that trend will continue for many years to come.

David Kelnar (22:41):

Richard, from your perspective, what new behaviors that we’ve seen do you think will be permanent? And which will revert to pre-Covid norm?

Richard Watts (22:56):

I’m not sure really because when I think about it, this digital transformation. In our view, and I think we’ve seen that, I think this is the biggest channel shift in the history of the internet quite simply. Pretty much every online business, or digital business, that we look at is seeing strong growth in new users and new customers. Because frankly, consumer behavior’s been changed. People have been forces to go to these online businesses, or digital businesses. And we think about this a lot, because we’ve got a lot of businesses rooting in the old world, or the old economy. I think the reality is it’s a big channel shift, in times things will settle too.

Richard Watts (23:42):

Look at the businesses that have been impacted, travel businesses for instance. Do I fully believe that people will travel around less, I think probably for work yeah, doing Zoom. Everyone’s using Zoom or Google Hangout or whatever it might be, but video conferencing. So I think behavior there will change quite significantly. Or has been changed significantly. I think that carries on. But travel for leisure purposes, I’d expect that to come back more quickly. So I think it’s going to be a real mixed bad. I think where behavior’s been changed, and people understand that the new things that they’ve been trying are better than how people used to do things before, I think that would be more of a permanent shift.

David Kelnar (24:32):

John, from your perspective, again what kind of things do you see as being one way [inaudible 00:24:39], in terms of behavior shifts verses areas where people have got a little [inaudible 00:24:43] in terms of extrapolating prolonged stuff?

John Doran (24:49):

You make a good point, I do think the tendency is to extrapolate for the long term, overly so. That said, I would agree with everything that Harry and Richard have said. I think if you’re not… One of our themes is acceleration of everything in the Cloud. If you don’t have your data and business applications in the Cloud before this, I think for certain you will be working on that and making sure that’s the case. I think work from home, I see benefits to being in the office quite frankly. If I think about this business, if I think about being an accountant or a lawyer, many professions I think there’s a big part as the apprenticeship model, like learning from superiors, learning from people that are more experienced that you. So I think that we will see people going back to the office in large numbers. But, looking at it from just what I’m hearing within our organization and also within our portfolio, I do think people are taking a second look at the amount of travel they’ve done, especially business travel, and can you do a video conference, a Zoom call or a Google call instead.

John Doran (26:07):

That said, I would caution against that. If I think about in a world that’s competitive and, in fact if you are a CRO at an enterprise software company, or you’re scrapping it out trying to take away market share from some of the big incumbents, will you try to get in front of customers to meet people face to face. I was going to say press the flesh but obviously in this environment that is no longer the case. But being in the same room as somebody and really building up rapport, if that can win you the deal then I think it’s going to be hard for other people not to do it. They’ll just lose the deals over time. So I do think it’s hard to extrapolate, but there’s definitely some changes. I think work, business travel, I personally think people will be… they’ve seen how easy things are with Zoom, and they will change that behavior somewhat.

John Doran (27:05):

I also think about, for example in our own house, I think a lot of people have gone online with groceries and they’re like well after using it for a while they’re like, well hold on a sec… Once you make that shift, that offline to online shift which Harry was talking about, whether it’s groceries or payments, whatever, you kind of ask yourself why would I go back. I think some people will, but I think a number of people won’t. And so I think those things will be permanent. But it’s very hard, as you said, to extrapolate long term. Nobody knows.

Harry Nelis (27:36):

I think you make a very good point on the work from home bits, and the travel bit. I think working from home is very easy when everybody’s working from home.

John Doran (27:45):


Harry Nelis (27:45):

It becomes much harder if part of the company’s working from home, and the rest is in the office. So right now we’re not really in a realistic scenario because right now everybody’s working from home.

John Doran (27:59):

Yeah I head the same thing Harry with Zoom calls. So for example, one of the things I’ve noticed with board meetings have been really efficient. They start on time, they’re very filled with content, and then they end much earlier. But if you think forwards to your point, if three of four people are in the room, and then you’re one of the guys on the Zoom call, it’s a different dynamic to everybody being on the Zoom call. And so it’ll be interesting to see how that plays out.

David Kelnar (28:24):

[inaudible 00:28:24] human behavior and motivations are harder to change in the long term.

John Doran (28:31):


David Kelnar (28:33):

Got it. Richard do you think, I’m generalizing here, but a lot of companies will become really remote first? Or is it eating away at the edges of it?

Richard Watts (28:46):

When you say be more, in a sense of-

David Kelnar (28:50):

Working from home as standard?

Richard Watts (28:54):

I think what this has done is opened companies eyes to the possibility that they can just change the way they work, and it doesn’t mean that they don’t have offices anymore. But it might mean that they can have less office space. It might also mean that they can have office locations that are in cheaper areas, outside of London for instance. And I think ultimately, what we see with our investments is, they were built in the Cloud, so those businesses naturally work very well to remote working. And largely they’ve not missed a beat. This is, I suppose probably, the most stressed environment that a company could operate through. Suddenly shifting and having pretty much your whole employee, business working remotely. And lots of companies have sailed through this because they’ve been built that way. I think it will change, I don’t want to overplay it, I think the reality is when people can go back to the office I think behavior will change again. But I think a lot of what we see will prove to be permanent, I think people will work from home a lot more.

Richard Watts (30:08):

So you might go into the office three days a week, you probably work from home one or two days a week. Again I think, look we’ve got investments in real estate and we think about this a lot, in terms of demand for office space. So I think there si going to be a change, but the longer this goes on, then the more permanent those changes become I think. [inaudible 00:30:29] now. But look, let’s just see where we are at the end of the year.

David Kelnar (30:33):

Yeah. Harry, what do you think is most misunderstood about the new normal that we’re going into?

Harry Nelis (30:44):

Who were you addressing this question to David?

David Kelnar (30:47):

To yourself.

Harry Nelis (30:48):

Okay. I think what’s most misunderstood is that nobody knows. I mean, anybody who’s telling us what the new normal is, honestly cannot know. And there’s so many cognitive biases that play into what you think the new normal is. I think the best positional that you can adopt is, nobody knows. And in the same way as there can be an out lie or event on the negative… And by the way, the guy who, I forget him name now, who coined the term the black swan, is very upset because-

John Doran (31:34):

Nassim Taleb. Yeah.

Harry Nelis (31:36):

He’s very upset because he says people are referring to Covid as the black swan, and if there ever was a white swan, it’s Covid. A bit of a distraction, but many unexpected bad things could happen, but many unexpected good things can happen as well. We’re just biased in how we think about these good or bad things given the situation that we are in right now. So I think the best attitude to adopt is, we don’t know. And it’s okay.

David Kelnar (32:10):

Of the areas where, does seem to be a direct travel, so a bit of remote working [inaudible 00:32:18] to say, help [inaudible 00:32:18] etc. What do you think the secondary consequences will be of those becoming more popular? I read something earlier, it’s a little bit of a distraction but, that was talking about how organ donation had declined, because there had been so much less travel that fortunately we’d had fewer accidents, but it had meant that it’s quite challenging for people on a waiting list. And I hadn’t even begin to think about those kind of [inaudible 00:32:56] implications of all of this. And I’m just curios, are there any areas where you see quite strong second order implications from what we’re seeing?

Harry Nelis (33:07):

I think the first one is, in the UK, I think the high street will be changed forever. I cannot imagine how the high street is going to not change. And again, I hope it’s going to be for the better, but there will be a period of transition. I cannot imagine how independent retailers, small independent retailers, can survive this. Or restaurants can survive this for a long period of time. So I think a lot of them will go out of business. Something will come back instead of it, I just don’t know how. And when. We may go through a long period where we’re in the middle and it doesn’t look so nice.

David Kelnar (33:58):

John what about yourself? What do you see happening?

John Doran (34:04):

The question is what are the secondary effects that I see that are… To be honest with you I don’t really know. I’m totally in Harry’s camp when he said nobody knows. I think there’s probably a number of known unknowns, which Harry you’ve described. Which is the outcome of what happens in the high street, or what will happen to real estate both residential and commercial. Richard made a good point, even though I do think that people will go back to the office, I don’t think it’ll be the same where everyone needs to have a desk. I think it’ll be much more streamlined in that sense. I’m already seeing our CEOs [inaudible 00:34:52] to talk about that. I do think you have fully distributed workforces in some companies, we’ve seen that. I think that’ll become more popular.

John Doran (35:02):

I think the residential side, if I just think about, Harry you mentioned I think, thinking about London for example, it’s always been important to be close to the hight street.

David Kelnar (35:11):

Oh, we’ve just got an interruption on his video.

John Doran (35:22):

Get your coffee from preference perspective. There’s probably a bunch of unknown unknowns, like things we just haven’t thought about, that I don’t think we can think about, that it’ll really only play out over the course of the next number of years. Depending on how this gets resolved, which I don’t have a good view on right now.

David Kelnar (35:42):

Richard, to pick up on that. I guess [inaudible 00:35:48] if the one thing we can all agree on is that we don’t really know, and that we’re in a time of unprecedented lack of visibility, how does that affect your investment decision making? Are there themes or success factors that are attractive to you or? What’s [crosstalk 00:36:12]?

Richard Watts (36:14):

I agree with the view that we don’t really know. I think there are some things that we know tho. I think what feels very clear to us is this whole channel shift and digitalization, and the translation to a digital economy and [inaudible 00:36:28] that has been accelerating and that will continue. So I think for us, there are lots of consequences to this when you think about, Harry made a point the high street. A third of high street stores today in the UK, or before the pandemic, were [inaudible 00:36:45]. And those stores, they weren’t viable anyway. And what this has done is really accelerated their demise. That means that the channel shift to online really have to be permanent. Stores just won’t be open in many cases, so that will be permanent.

Richard Watts (37:01):

I think things like business transformation as well, where you look at many verticals and categories. I think about beauty, and we’ve been investing in the Hut Group. I feel for the beauty category. Big brands like L’Oreal and Estee Lauder, only about 10% of their sales are online. And if you’re those businesses, the reality is, you’ve got no ides if another Coronavirus comes along. Or there could be that second wave, or third wave, or we get a new virus in two or three years time. So I suspect, if you sit on a board who have one of those companies, you’re going to be looking at your business and how you engage yourself into the channels that you go through and I think business transformation is going to be a big big thing. Because companies have to future proof themselves. You can’t be in this position again quite frankly.

Richard Watts (37:54):

So we think about the banking sector, similar to the high street. The big banks in the UK who’ve probably spent the last 10 year ripping out the service counters, and essentially having bank employees walking around the branch with IPads and sofas and that type of stuff. Is that going to be the same? Do you want to go, to bank branch and tap on an IPad when lots of other people have been doing the same thing? So I think again the banking sector’s going to have to change. So I think lots of these things, to us are probably more clear, but whilst [inaudible 00:38:33] we accept [inaudible 00:38:34]. But I think of a number of areas that seem quite clear to us.

David Kelnar (38:38):

Got it, and just before we move on, Harry what themes or success factors are attractive to you at moment [inaudible 00:38:50] live with this uncertainty but see what’s unfolding?

Harry Nelis (38:54):

We have been investing heavily on the enterprise side. So typically we have two sectors that we are involved in, the consumer side or the enterprise side. We focus mostly on the enterprise side. And we’re spending a lot of time in pretty specific areas, for example when I think of security, we are spending a lot of time in authentication and authorization. So sub-sectors. We are spending a lot of time in DevOps, in developer operations and security. Sub-sectors. And again our approach there is to try and get to know entrepreneurs early, spend time with them, and back them at their [inaudible 00:39:42]. So one constant as well that I forgot to mention is, there will always be great entrepreneurs. So no matter how bad the economic environment will be, there will always be great entrepreneurs, and it’s our mission just to find them early and start work with them.

David Kelnar (39:59):

And John you mentioned [inaudible 00:40:00] delivery as an area of interest and so are there other themes or characteristics that particularly effect the environment?

John Doran (40:08):

Yeah I think some of the ones that Harry mentioned are very interesting to us. I think on the consumer health side is interesting. Not just [inaudible 00:40:18] but wellness, education I think is going to be massively changed. Potentially because if you think about just universities, both here in the US, is people are going to remote what are they actually paying for. I think that’s something that we’ll see some changing. I would say on the digital entertainment side, we’ve already seen a big impact in streaming with the likes of Netflix or Spotify, I think we’ll see more change their. On the video games side, e-sports side. The impact on sports I think will be pretty big. I think Harry mentioned automation, that’s a big theme for us. Automating work forces, allowing them to do more from home. Driving towards developer productivity, developer tools, is another area. And then I would say, the thing we’ve talked about already, if you are working from home and if you are home I think in-home spend is going to go up.

John Doran (41:21):

So at TCV, I think I mentioned, some of our biggest investments still are Netflix, Spotify, Peleton, EA. All of those four have kind of benefited, we’ve had other ones that haven’t benefited, they’re just success stories. But I think people are going to be at home more, until there’s a solution here, and I think the spend there will continue to increase. And I think that there will be some behavior that will change. Maybe, to backtrack much earlier, while we don’t know the outcome here I think it’s inevitable some behavior will change and we think that’s within the home spend, that’ll be a big area. So there’s some of the themes that we’re looking at.

David Kelnar (42:09):

And I think of that latter point is the rise of the home economy if you like is one way to put that.

John Doran (42:13):


David Kelnar (42:14):

Yeah. Okay. There’s lots of founders on the line. It’d be great to give some perspective for them in particular. What do you think is the most misunderstood by founder in the current environment? Say Harry.

Harry Nelis (42:41):

It’s a hard question because I don’t think there are many misunderstandings, about now verses before. If there were any misunderstanding namely it’s hard to get financing today, that is not true. We’re eager to back great entrepreneurs and help them build great businesses, and we realize that it doesn’t matter what kind of economic environment you start in. And we realize it’s typically a 10 year journey so if that misunderstanding were to exist I would like to dispel it and say no we’re open for business.

David Kelnar (43:23):

And Richard, from the other end of the scale, particularly with an eye on public markets as well, are you seeing any disconnect in conversations you’re having?

Richard Watts (43:34):

I don’t think we’ve seen any disconnects. It’s very interesting, I mean obviously founders are very entrepreneurial people, and I think the reality is history has taught us that disruption gets accelerated though recessions. And what we’ve been very keen to do is to support businesses and founders to recognize that there’s a real opportunity here to accelerate their business models. Because they’re very disruptive in nature anyway. So I’ve got to say I think investors that we’re in, I think they’ve seen the opportunity and, I obviously don’t want to diminish the human tragedy of the pandemic, but from a business perspective there is an opportunity here to accelerate these business models in their growth. And I think we’ve been very pleased that the founders that we’re involved with recognize that. And I think just in terms of disconnect. I think what’s very apparent in this environment that raising capital in the private world, whilst there’s been a lot of capital around and it has been easier, the reality is, in times of crisis, and let’s face it March was the time of crisis [inaudible 00:44:51] crisis. It was [inaudible 00:44:51] some company to raise capital.

Richard Watts (44:51):

And I think whilst we’re sitting here today feeling that life for some of these companies is a lot better and it’s a lot easier to raise capital, ultimately it might not have turned out this way. This pandemic has accelerated trends that [inaudible 00:45:12] companies generally are performing well. But ultimately I think if you’re a big company, that might be thinking about IPO maybe in three years time. Maybe thoughts around that are actually, do we do it earlier. Because what’s very clear, if you are a publicly listed company, it’s so much easier, and so much quicker, to raise capital when you need it.

David Kelnar (45:39):

John how do you think founders can best attract investors attention, capital, today amid such a tumultuous environment?

John Doran (45:55):

I don’t think it changes. I’m kind of in the same camp Harry [inaudible 00:45:59]. I think for the great companies that are doing well despite this, I think it’s continue to do what you’re doing, focus on the product, building a great team and taking market share. Even for companies which, and I think there’s some great companies that have been hit for six with Covid, there’s some really interesting travel companies that, no matter how good an operator you are, it’s been very [inaudible 00:46:28] situation. In that situation I think, in those type of companies, and it’s not just travel there’s a lot. Hospitality etc. Not to go back, what Richard said, but it is an opportunity, a crisis is an opportunity, and it’s very hard to make wholesale changes with a business that you’ve always wanted to make, while you’re driving a hundred miles an hour. And so I think the ability to really dig in on the engine of the product during this period can also be an opportunity.

John Doran (47:02):

I also think everybody agrees, on this call I’ve heard it said many times, if you look at the crisis of 2000, as one .com burst [inaudible 00:47:15] and then the [inaudible 00:47:17] crisis of 07, 08. Some great companies came out of there. Not just the ones we all know but there’s a long list. And I think the ones that can get through this with enough cash and with a great product will go on to thrive. But, that’s my perspective on it.

David Kelnar (47:35):

And Harry, as we move from the flattening phase of the pandemic, to the fight phase of the response, what behaviors are you seeing from the best founders that maybe separates them from the rest?

Harry Nelis (47:57):

What amazes me in the best founders is the speed with which they can make decisions. And the accuracy and the amount of good decisions that they have ended up taking. So the best founders are the ones who can take difficult decision rapidly, and come out ahead. And I’ve seen that again in this period where many people just stood up to the challenge and made some really hard decisions. But I think at this moment in time still look like the right ones. So it shows you that everything depends on the right kind of founder. And if you’re backing a great founder, they can steer the ship though even difficult times like this.

David Kelnar (49:07):

John, from your perspective what sort of founder behaviors are you seeing among the very best that’s maybe [crosstalk 00:49:13].

John Doran (49:13):

I think it’s exactly that. I would add a couple things, I think speed, no question. The great founders tend to be very data driven, and this has been one where it’s hard because the data, things move so fast. No matter how data driven you are you didn’t see it in the underlying business, but still I think speeds very important. Decisiveness, very very important. What I would say I’ve noticed is, and I see this, actually there’s been founders I’ve disagreed with and I’ve turned out to be wrong, is that the really good founders have a great way of blocking out the noise. They really have to focus on what matters, it’s their business, it’s their baby. And so they hear all this noise that’s on the side, but they’re able to really channel and focus to make those decisions which are possibly tough calls that Harry mentioned, or even to just agree with others around the board who may have a different perspective.

John Doran (50:05):

I do think that that is something that I’ve seen. Its kind of a mix between blocking out the noise and an independent view of where things are going and not just following the group think around the table. That to me has been something that I’ve noticed over the course. I think time will tell whether people are right there. It’s still too early to say that you are, we’re two months in. I would actually challenge on thing you said Richard is, I still think we’re kind of in a crisis, I think we’re in a relatively benign period of during that crisis. But to me the lockdown may not be as severe but the full solution here, we’re no closer to as far as I can see it. It’s not quite clear in my mind. So I do think the jury’s out on that stuff but I do think that the founders that have really impressed me have reacted quickly, been decisive and just been able to block out a lot of the noise that’s surrounding this whole crisis.

David Kelnar (51:13):

Should the very best companies be using this window to raise capital to press [inaudible 00:51:21] advantage? Or do you think that’s often not the right approach? Maybe Harry do you want to say that?

Harry Nelis (51:31):

I think many people are doing so. John and I have a joint experience here, so there are companies where the investment thesis was offline to online transition. And with the lockdown, sometimes the offline solution well that’s not available, because we were on lockdown. So suddenly, a whole bunch of customers who used to go to the offline solution now have to look for an online solution. So in scenarios like that it makes ultimate sense to invest more, and try and acquire those users who now suddenly are looking for an online solution. So there’s many situations like that where it makes ultimate sense to invest now in customer acquisition etc. because we’re at a unique point in time.

David Kelnar (52:37):

Yeah Richard what do you think?

Richard Watts (52:38):

I think that’s exactly our view as well. This is a period of time, for many of these businesses, that it might not be here in three weeks or six months. The opportunity could be gone. It depends on the nature of the business, whether it’s a capital consumptive business mark over. Ultimately if you think it’s the right thing to do, and we use the right thing to do for a company to [inaudible 00:53:05] some money, to accelerate their pace of growth in an environment that is going to potentially only last six months, nine months. Whatever the time period could be. I think it’s absolutely the right thing to do.

David Kelnar (53:20):

And just lastly, because we’ll need to get to the end of our time, but just Richard in particular you’ve got an interesting perspective on this. Public markets are, shall we say, more resilient that many would’ve thought. What impact does that have [inaudible 00:53:36] do you think the private market activity and some of the dynamics that we’re seeing around that?

Richard Watts (53:45):

We were arguing this back in March. It’s very interesting, typically recessions are reasonably long drawn out affairs. The GFC was 15, 18 months played out. And the reality is when you’re in that environment you never really quite know where the bottom is. And so you tend to find that listed equity markets, they basically share prices track [inaudible 00:54:13]. And so if you look at the GFC, company [inaudible 00:54:16] the [inaudible 00:54:17] fell 50 to 60% and the market was down about 50. I think this time our view is very different, because it was very fast down, the fastest or deepest recession in history. But likewise taking on board John’s point, we don’t really know if we’re coming out of this, but I think it’s clear that the second half economic activity it’s going to be better automatically than Q2. And what you’ve seen with listed entities is significant government and central bank support. And obviously you’ve seen the reaction with stock markets because it recovered very very strongly from the lows and you would’ve never have thought that US markets would [inaudible 00:55:04].

Richard Watts (55:05):

If someone told you at the start of the year that you’re going to have the biggest recession in history, and would the US market be [inaudible 00:55:11], you wouldn’t have believed them. But the reality is it’s happened so quickly. And so people have looked through the recessionary impact and they’re trying to look towards recovering. But this could be a [inaudible 00:55:22] all over again. But what it does mean, if this does persist, it means that we’ve got the winners in the stock market. We all know who the winners are, it’s Amazon, it’s Netflix, it’s Spotify. Our pride of businesses look more like those companies than they do the old world companies that have born most of the brunt of the market action. And I think ultimately, I think my thoughts on this has probably changed than I was at the end of March to where I am now.

Richard Watts (55:51):

I think for the best in class pride of businesses, that have navigated the pandemic very very strongly, this will be something that those companies can point to when they decide to list and say actually we’ve been tested in the worst recession in history, and we came though with flying colors.

Richard Watts (56:10):

And if you’re on of those businesses, I think the reality is the stock market will be prepared to pay a very very high valuation multiple. So I think from my perspective, in the UK in particular, there aren’t many companies that look like that that are listed. Where we do have them, names like or for instance the Trainline, [inaudible 00:56:32] Capital, which is like a digital media business. Share prices will be great, and so I think ultimately, we might find that some of these private businesses, particularity the bigger ones that have been private for a long time are getting quite large, this could actually accelerate their idea around an IPO.

David Kelnar (56:53):

Fascinating, thank you. We are pretty much at time, just a min or two left. Could I just finish with a quickfire round. Just one of two word answers each please, if I may. A few propositions to put to you. Agree or disagree, there will be an economic depression in the coming year?

Richard Watts (57:15):


John Doran (57:17):

No idea.

Harry Nelis (57:20):

Don’t know.

David Kelnar (57:23):

Agree or disagree, major stock markets are highly overvalued?

Richard Watts (57:29):


John Doran (57:33):

I will answer the rest of the questions, this one is I still don’t know, I’m not a public market specialist so I’ll just say long term we’ll know.

David Kelnar (57:40):


Harry Nelis (57:43):


David Kelnar (57:45):

Okay. Agree or disagree, in time corporate travel will rebound to, let’s say, within 20% of pre-Covid levels?

John Doran (57:54):

In the long term yes.

Richard Watts (57:57):

Yeah I agree with that.

Harry Nelis (57:57):

I agree.

David Kelnar (58:00):

Agree or disagree, governments responses to Covid have generally been sensible?

Richard Watts (58:10):

Personally I disagree.

John Doran (58:13):

Hard job all around, but I agree. [crosstalk 00:58:16].

David Kelnar (58:16):


Harry Nelis (58:20):

Going at from the United States, disagree.

Richard Watts (58:24):


David Kelnar (58:25):

And penultimately, agree or disagree, for many remote working will become the permanent default post-Covid?

Richard Watts (58:34):

I’d agree with that.

Harry Nelis (58:35):


John Doran (58:36):


David Kelnar (58:39):

And finally, a bit of fun, the first thing I will do post-lockdown will be?

John Doran (58:47):

Go to the office.

Richard Watts (58:49):

Go to the pub.

Harry Nelis (58:51):

Go out for dinner.

David Kelnar (58:55):

Some breadth in the economy to look forward to. Super, I think that’s our time today. Gents a very sincere thank you, it’s been fascinating to get your perspective on those areas. Some points as I would’ve expected, some surprises, and very much the richer for it so thank you. Harry from Accel, huge thanks, Richard from Merian, John Doran. Very much appreciate your time. Thank you very much and we’ll certainly follow up and share notes and recordings of this with everyone, but I hope everyone stays safe, and get in touch if we can help with anything. And thank you all.

John Doran (59:29):


Richard Watts (59:29):


Harry Nelis (59:31):

[crosstalk 00:59:31].

Richard Watts (59:31):

Bye bye.

Harry Nelis (59:31):

Bye bye.

Richard Watts (59:31):


Head of Numis Growth Capital Solutions. 2x start-up/scale-up CEO/CFO. Love tech, scale-ups, trends and triathlon.

Head of Numis Growth Capital Solutions. 2x start-up/scale-up CEO/CFO. Love tech, scale-ups, trends and triathlon.