Disruptive VC: An Interview with William McQuillan, Co-founding Partner at Frontline Ventures

William McQuillan is a Co-founding Partner at Frontline Ventures, which is a leading early-stage VC based out of Dublin and London, founded in 2012 by Shay Garvey, Will Prendergast and William McQuillan. They closed their second fund of $60m in early 2017. Frontline Ventures is sector agnostic and primarily invests in ambitious seed-stage B2B companies throughout Europe. They specialise in expanding their portfolio companies to the US and provide extensive support through monthly best-practice workshops, roundtables, and social events to connect their portfolio community. Eddie Anderson from Pentech connected me with Frontline so I want to say a big thank you to Eddie for helping to organise this! You can read my interview with Eddie here.

William was the youngest partner of a European VC fund when Frontline was founded. He started his career in investment banking, working at Lehman Brothers before being one of the founding employees of Ondra Partners, a startup investment-banking boutique. After scaling Ondra for 2 years, William co-founded Osmoda, a fashion e-commerce company and at the same time, he was also the Global Ambassador for the Sandbox Network, a community of over 1000 innovators under 30. Following these experiences, William decided to join Will and Shay to set up Frontline Ventures.

I had a tremendous time talking with William about Frontline Ventures, his journey to this point, his thoughts on the VC early-stage landscape, both in Europe and the US, and on diversity issues in the VC and Tech industry, which you can read below!

About William and Frontline Ventures

William, thank you for taking the time to join me today. Could you please tell us a bit about your background and how you came to founding Frontline Ventures with Shay Garvey and Will Prendergast?

William: I studied business at university and when I graduated, I got a job at Lehman Brothers. My logic was investment banking would be useful to learn some basic financial skills, some analysis and about working hard, but I didn’t even really get a chance to learn that too much because, after about four months of working at Lehman Brothers, they went bankrupt. Then I was very lucky, Michael Tory, who was the head of UK investment banking where I worked over the summer, asked me to join a new investment banking boutique that he was setting up called Ondra.

It really was an incredibly exciting rollercoaster ride of pitching to some of the biggest FTSE 100 companies, pitching to our investors and growing from a company of three to over a hundred people in that period of time. Fast forward two years and on paper, I should have been much happier because I was working fewer hours and being paid more but I wasn’t. I realised that what I’d love to do was more the startup stuff and not the investment banking stuff.

That made me think I want to get involved in the startup world. Following Ondra, I started an e-commerce company called Osmoda and I got very involved with Sandbox, where I was an ambassador for them in the UK. I spent a whole year organising a lot of entrepreneur events, building my network but also building my own startup. Unfortunately, the startup didn’t work out.

After that, a number of VCs asked if I would be interested in working with them. Two people I also started speaking to were Will and Shay. I knew Will and Shay from when I pitched my startup to them over the previous year and both said no, but what I really liked about them was that after they say no, they gave you really valuable feedback. Lots of people say that you are too early and that’s really easy feedback to give but it’s useless feedback. Will and Shay spent time with follow up calls, giving me advice and connecting me to people that were valuable for my company.

They reached out to me and said we want to run this new fund idea by you. They came to London and we had a long conversation about different ideas in venture capital and how it could be done better. A few days later, they asked if I would like to be the third partner of the fund. It was not something I was expecting. I was very humble because of the incredible experience of these guys and I joined them.

Why did you feel the need to start the fund?

William: Three reasons why we started Frontline. Firstly, we wanted to go early. We didn’t think there were enough good early-stage VCs in Europe. Now 50% of Frontline’s investments are pre-product and 75% are pre-revenues so when we say early, we really mean early. That’s because we focus less on product and traction and much more on the team and the market they are going after.

The second reason is that we wanted to be a gateway for our companies to get into the US because we didn’t feel enough VCs had those relationships in Europe. These startups need to be thinking internationally from day one, in particular with the US, because the US already has large corporates who are very happy to work with startups. Therefore, we spend a lot of time in the US building relationships to help our companies expand and raise capital over there.

The third reason was around value-add. A traditional vanilla VC method is that each portfolio gets equal time from the VC but as the portfolio increases, the time given to each startup decreases. That’s not really scalable. One of the things that really blew me away when I was at Sandbox was the incredible value that people got from peer to peer networking. We saw VCs in the US starting this kind of platform. We wanted to do that in Europe since there was nobody doing anything similar here.

We were the first VC to hire a head of platform or community in Europe. Carolina Küng, who is our Head of Platform, is constantly thinking about what are the challenges across our portfolio and how we can solve them. In the platform VC model, while a portfolio company is getting less time with us every time we make an investment, we make our portfolio of founders grow by supporting each other. Now Frontline has 40+ companies with 80+ founders and there’s almost no challenge you will face as an entrepreneur, that one of our founders hasn’t faced in their current company or previous companies!

How was the experience of raising a second fund vs. the first fund?

William: Let me take a step back because there really is a very big difference between raising a fund in Europe vs. the US. Firstly, unfortunately, Europe as an asset class across all venture capital has not performed well. I think that’s changing but historically when you look back at the data, you would not invest in VC in Europe.

Secondly, if you look at the US, a lot of the venture capital funding in the US comes from university endowments, which basically don’t exist in Europe. The second big area of funding is pension funds and the problem is that most pension funds won’t want to write anything less than a £20m cheque. They also never want to be more than 20% of your fund. This means you need to be a £100m fund. As a seed fund, who in Europe are generally smaller than £100m, it’s very difficult to get money from pension funds. Then there are family offices, who play a big part in the US. In the US, they really care about capital creation, whereas in Europe, a lot of family offices focus on creation preservation. They want to make sure the lifestyle they have now is still the same for their children and their grandchildren.

Therefore, 3 of the biggest sources of capital in the US are not as dominant in European VC. Thankfully, a lot of governments have stepped up to try and fill that gap, but there are strings attached to government money. They don’t just want to get a return but also want the money invested in their chosen geographies and to create jobs.

Going back to the original question, raising Fund I was tough for us. We were very lucky as a wealthy family office gave us some money to start with, but it took us almost two years to raise the whole fund and we did five closes, which is very rare and very painful!

We made some really great investments and had a few exits such as Logentries, which meant that we could go back to our investors and say we’ve already returned some money to you. When we went to raise Fund II, we got it mostly together within six months, which was really great. A caveat is that if you have smart investors in the fund, you should be able to raise Fund II because realistically they know that there’s not that much you could prove and that they’ll be good early signs in between Fund I and Fund II because these are only three to four years apart. On the other hand, when you are raising Fund III, you should be showing good returns from Fund I. So really if someone can raise a Fund III, that’s when you send a congratulations card or a bottle of champagne.

About the VC and Startup ecosystems

How do you think Brexit will affect investments in startups in the UK?

William: I think the UK is still an amazing ecosystem for startups. There are lots of amazing founders starting companies here so there will always be people investing in the UK. Equally, it is becoming harder for our portfolio companies to hire European talent. Historically they are companies that hired great people from Europe, but a lot of those people are now hesitant to move until they know what Brexit means.

Secondly, we’re seeing a lot of founders who are choosing to not start their startup in London. They’re starting them in their local ecosystems, which are growing and they’re not moving to London anymore when they raise their funding since there’s more local investment.

Thirdly, there is a slowdown in the growth of capital. I have not seen too many investors say I’m not investing in the UK, but there’s definitely some who are doing less of it. Equally, we don’t know what Brexit means so that could change. Realistically, it’s hard to think that it won’t affect it. The UK is about to go from a market where you could hire talent from a 250m labour force market in the European Union to 30m in the UK. Building companies is so much about getting access to talent so this is likely going to make it harder for growth companies.

One of Frontline’s specialities is to help expand startups’ operations into the US so you have a lot of experience working in the US. How do you think the early-stage startup space differs in Europe vs. Silicon Valley?

William: I think the most obvious difference is that there are a lot more angels investing money in the US than in Europe. It’s much easier to get early cheques in the US. There are a lot more venture capital funds at this stage in the US too. Overall though I would say that the differences are getting smaller. There is of course still more investment in the US but I think the UK governments’ EIS and SEIS initiatives has brought a huge amount of angel investing into the ecosystem. Also, there are a lot of great new funds in Europe that have been raised in the last few years. There are more investors, who think like us with similar growth mindsets and risk-reward appetites.

Also, the US is more open to frontier investing, whereas in Europe, investors are more conservative but there are more investors that are starting to think like the US funds so I think the gap is shrinking.

There has been a lot of talk about introducing diversity into the startup and VC landscape. Frontline was one of the 10 British VCs to start sharing diversity data with DiversityVC, the British Business Bank and BVCA. What do you think of the diversity problem in the VC and Tech industry and how do you think we can overcome it?

William: Let’s start with diversity in VC. Part of the reason why Frontline wants to be involved in that initiative is that we are very aware that we have five white Irish, college-educated males as partners, two of which are called Will and two are called Stephen, so we don’t even have name diversity in the five people! We can joke about it but it is something that’s unfortunately not just Frontline. That is endemic across the whole venture capital ecosystem in both the US and Europe.

We’re a big believer in diversity leading to better decisions and diversity doesn’t necessarily mean we have to have a woman on the team or someone from an ethnic minority on the team. Diversity in our belief is a diversity of thought and the easiest way to get that is to bring people of different backgrounds together. One of the things that we are promoting is unconscious bias, so with Diversity VC, we are conducting an unconscious bias course. So far, we’ve done it for 22 different partners in 19 different VC funds in London. We are doing it in a further 12 in Dublin as well.

The idea is to get people to understand that we have many different biases. The reason why there are fewer women getting funded and the reason why there are fewer people from ethnic minorities getting funded is that people don’t realise these tiny little biases that they have. When someone comes to pitch to them, they are statistically more likely to get funding if they are like the VCs. There’s a lot of studies in the US that say that most investors invest in people like them. In the long term, I hope that we will have a diversified venture capital ecosystem with people from many different backgrounds, cultures, religions, ages, gender etc.

I think in the startup ecosystem, there are lots of different opinions about this and it’s great to see companies actively addressing gender and ethnic diversity. Another big disadvantage that we are very conscious about, and that plays an important role, is socioeconomic background. We see many entrepreneurs that have built everything up from scratch, clawing their way to survive. Then, there are those who have been fortunate to benefit from generous family support, or that have secured critical clients via personal connections — bootstrapping can have two very different realities here, and it is important to take this into account in investment decisions.

There’s no question that diversity needs to get better. What we need to be doing is looking at all angles. At the top end, you need to make sure that the decision makers aren’t making biased decisions, then at the bottom end, we need to make sure that people, who might want to start companies, are able to take those risks. Part of the reason we love to invest early is that we are usually investing pre-product. Hopefully, a lot of the time that means an incredible entrepreneur with a really great idea doesn’t need to slave for a year to prove something.

Quick fire round

If it wasn’t for investing, what would you be doing right now?

William: I’ve never met anyone who has a job I prefer. I genuinely love what I do which is super cheesy. If I had to be doing something else, I would say something in travel. When I was in college, I wrote an entire 50-page business plan for a new travel company that I wanted to start. It was like a travel agency but I reimagined what a travel agency could be.

I saved some money and I went to a global travel event in London. There was a big competition for the number one exciting travel company. The company that won it was called Black Tomato and I swear to God, the founders were mind-blowing and it was like they literally read my business plan page by page and emulated it. So if I wasn’t doing what I am doing right now, maybe I would be doing something in travel.

I read that you are a very eager adventure traveller. What is your favourite activity/experience that you have done?

William: I do a new activity every year. I hate going to gyms but at the same time, I need to exercise. I live in London where it’s cold and rains a lot so being motivated to run outside in the winter is not a good motivation. Instead what I do is I pick a physical challenge every year to do. Then I tell everyone about it so I am socially motivated to do it.

With that, I have done a bunch of different things. I did the five peaks challenge, which is climbing the tallest mountain in England, Ireland, Scotland, Wales and Northern Ireland in 48 hours. I ran from Bilbao to Santander which was like a marathon per day for three days in a row. This September, I am kayaking from England to France. I do these because I like pushing myself and I like the challenge and it motivates me to work out more.

Probably the most individual, amazing experience I’ve ever done was Gorilla trekking in Uganda. I think there are only about 500–1000 mountain gorillas left in the world and I’ve seen around 20 of them! You get to spend time with them and they’re so human and it really was amazing.

On the activity side, the most fun activity is white water rafting. There are a few reasons why. One, I love adrenaline. Two, with white water rafting you can really go off the beaten track and get to places which you can’t get to by road. Three, what I love about white water rafting with six to eight other people is that you have to work as a team. I love the idea of getting everyone to coordinate as a team to manoeuvre and manage the rapids. I think the Karnali river in Nepal is the best place in the world to go white water rafting. There is also amazing white water rafting that I have done in Uganda, Argentina and New Zealand as well.

Thank you very much for your time, William. It was brilliant to get a deeper understanding of Frontline and its aims, as well as the various developments in the startup ecosystem. I definitely learned a lot from this meeting! Readers, I would recommend you to follow Frontline and William for the latest news from them.

If you work in the VC space and are really excited about the development of the startup industry, please get in touch by replying to this post, LinkedIn or Twitter!

By Abhilash Dubbaka

Abhilash Dubbaka is currently undertaking a Master’s in Computing Science at Imperial College London and is actively involved in the startup community. Previously, he worked in Investment Banking for 3 years. He is an investor with a passion for the technology sector, as well as a tech writer speaking to ambitious founders, industry leaders and venture capitalists. If you have any comments, please contact Abhilash through LinkedIn, Twitter or reply to this post.