Episode 27: William Mcquillan- Building Frontline Ventures
About William Mcquillan:
My next guest on The One Percent Project is William Mcquillan. William is a founding partner at Frontline Ventures. Frontline is an early-stage venture capital fund with €250M under management and over 100 investments across Europe and the US. He was the youngest Partner of a European VC fund when Frontline was founded.
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In this conversation, he talks about:
Why he wears square and circular spectacles?
The US Vs European VC industry and how it correlates to the Asian VC landscape.
Building a brand: Firm Vs Personal.
What is the future of Venture Capital in the next 50 years?
When should founders reach out to VCs and why timing matters?
How does Frontline evaluate it's portfolio with 80% of the portfolio is pre-revenue?
The learnings from Frontline’s gender study report.
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Transcript:
*The transcripts are not 100% accurate.
Pritish: Welcome, William to the 1% project.
William: Thank you. Thank you for having me. I'm glad to be here.
Pritish: Let's start off with a very obvious question, your circular and square spectacles, and your fascination of dressing up. So, why is that and how that has been a part of your personality and how has that worked into your work life?
William: Thank you for starting with that. Let's start with the glasses since you started with it. My mom is an optician and so, when I finished school, I often used to go to my mom's glasses shop to sit down and do my homework on the side and so, I guess I've always had lots of glasses around me, lots of different types. My mom, she loves quirky glasses. Unfortunately, her optician is in quite a conservative, straight laced area of Dublin where I grew up and so not many people go for the kind of slightly odd or quirky or crazy glasses and she always had this small shelf on the inner shop, one was like a flamingo, one was like guitars and she probably would sell one of those a year or something, but she loved those and so, I always kind of grew up with the idea that glasses aren't just a functional thing, but they can actually be a fashion accessory and for me with the square and circle, it is very much that although it's relatively subtle, because there's no clear frame around the glass, it's distinctive enough that many people remember it and I see it as a fun entry point to conversations, I would say at least one in three conversations, I start with people, they start with me asking me about my glasses and then it's an easy entry point, it's a lower barrier to entry for a conversation and for me in a job in venture capital, it's all about building networks; at least I believe it is. So much of it is about building the right networks, that anything I can do to create easier networking or better networking, I'm happy to do it within reason and for me, I do need glasses.
So, this is a double function. It actually helps me see too and then you asked about the costumes. I don't know but since I've been a kid, I've loved a fancy dress or dressing up in costumes and so, I don't know exactly where it started. Halloween originally started in Ireland as a holiday. Ireland started Halloween, it was originally a pagan festival and our Celtic festival and so dressing up was always something we did as kids, every single year for Halloween and then it just grew from there that I enjoy, particularly dressing up with some pretty quirky things. For any of your listeners who want, they can probably go to my Instagram, there's a bunch of different outfits. If you scroll through the different years of Halloween time, and I just enjoy it. I think it's a fun creative way to just have a bit of fun.
Pritish: Let's talk about your journey building frontline ventures, where you started off and where you're at and how has the journey been?
William: So, a good broad question. I would say how we started is maybe the best place to begin with that. So, myself, Will and Shay, we were the three founding partners of frontline, we each came from different angles on it. Shay had been in another venture capital fund where he had seen a venture capital fund build over 15 to 20 years and although it started the way he wanted, it didn't end the way he wanted and he felt that he wanted to start a new firm that had more longevity to it will come from the background where he had been, he was also a VC. But he had been exposed to the US through a thing called the Kauffman fellows, which is like an executive MBA program for venture capitalists, and he had been exposed to a lot of the new things that us venture funds were doing.
William: And that had made him aware that actually a lot of that was missing in Europe, we could talk maybe more details about what specifically are those things that are missing and then from my side, I came from the entrepreneur side, I started a company, I had raised money for it and I experienced the venture capital ecosystem in Europe and then as well as that I was part of a network called sandbox and sandbox at that time was over 1000 young entrepreneurs all around the world and when I would hear stories about the entrepreneurs in Europe raising their financing, and the entrepreneurs in the US raising their financing, it was often two very different stories and we felt like the service offering for an entrepreneur was just not equal here and I know similar to many entrepreneurs, they see a gap in the market; we felt that there was a gap in the market. Most VC funds in Europe at the time, this was back in 2012, 2013, they design their venture capital funds with their customer being their investors.
William: Whereas frontline inherently believes that our customer is the entrepreneur, not the people who give us money, but the people who we give the money to and our customers are in our mind and when you switch the view of those two customers, you start to build a very different venture capital fund and that was really inherently at the crux of why we started frontline, what gap we felt was in the market and again, that was back in 2012 2013. I would say that it was a pretty difficult time to raise money in Europe. There wasn't a lot of capital available. Most pension funds didn't invest in VC'S.
William: There aren't really many endowments in Europe, which is a big part of venture capital in the US. A lot of family offices were pretty hesitant to invest in VC as a strategy. So, government played a decent part, the Irish government was one of our first investors and then thankfully, we were able to get a bank to pension funds, several self-made billionaires. But when I say it, it sounds very quick, from the point of when we started fundraising to the point of when we'd raised our first full 50 million funds and that probably took almost two years. But thankfully, one of our investors called Declan Ryan, he was one of the founders of Ryanair, he basically said to us, you need to be in the market. So, the money he was putting into the fund, he allowed us to use upfront to start making investments and that allowed us to start before we had all the money, which was amazing for us, and amazing that we added support to do that bus. But that allowed us to get things going. But effectively to have our first full fund, it took us two years really to get all the money and then thankfully, with the second fund, we raised it in about six months.
So, that was that was a 16-million-euro fund and then for our third fund, we should just raise that to 70-million-euro Seed Fund and that one was a bit faster again. So, thankfully, as we prove ourselves more, as Europe proves itself more as an area, we've been able to raise funds in a more efficient way and the other thing is we raised a growth fund last year, many VC funds raise growth funds and the idea is that they raise them because they are investing in all their early-stage companies and the growth fund, then it gets proprietary access to that we actually took a different approach where our growth fund doesn't invest in European companies, it actually invests in the top tier US companies and so, that fund is specifically designed around helping us companies expand into Europe and again, going back to the way we design our funds is around the problems entrepreneurs face, we thought how can frontline small seed fund in Europe get into some of the top growth deals in the US?
And we looked at who were the entrepreneurs, what were the key challenges they had, and one of the key challenges was expansion into Europe and a lot of U.S.A VCs did not have experience with that and so, we thought that's a good angle that we can build experience in and we can hire team around and so, we did that and again, when we think about the entrepreneurs, that was a problem and that has now allowed us to get into some of these top tier deals in the US and then on the seed side, how that's evolved is, again, a lot about international expansion, being able to move quickly and again, when you think about what an entrepreneur wants, they don't want to waste time fundraising, they want somebody who's supportive of them, not overbearing on them, they want someone who can help them with their key challenges and again, we constantly are reviewing with entrepreneurs, what are the key challenges they face across our whole portfolio to try and understand that? And so, that's a long answer to maybe a slightly broad question. But that's what brought us to you today and absolutely, our driving forces are our customers, the entrepreneur, and how can we constantly be providing a better service or products offering to them.
William: You have an observation about European versus the US LPs, specifically with family offices, and why the family offices in the US are relatively easier to work with or raise funds with compared to Europe, at least five years ago. So, can you just expand on that? What do you see the difference was or is?
William: Yes, I can't answer this question without slightly stereotyping. But on a broad level, this is what we've seen and I've spoken to much family kind of wealth managers who have confirmed this same thing to me. But effectively, when I go to meet family offices in the US, usually there are of course some exceptions, but because the US is a relatively new country, compared to Europe, most family offices I meet in the US are two degrees away from where the money is made and that means protection. You and your family office in New York, Boston, San Francisco, Texas, wherever it is, either you made the money, your parents made the money, or your grandparents made the money, usually right for the vast majority of U.S wealthy family offices and what that means is that you either build something yourself, grew up seeing your parents build something, or grew up hearing about how your grandparents built something and then telling you directly what it was like to build something and once you start going past two degrees away, people stop understanding directly what it was like to build something.
William: And then their portfolio strategies often change quite a lot. So, people who've been within two degrees away from where money is made, usually their portfolio strategy is all about capital creation. They have a certain amount of wealth that they're managing, and they want to build on that wealth, create more wealth, because that's the DNA that they grew up with that either they did themselves, or they grew up hearing about. Now in Europe, there are of course, family offices within two degrees and that's where almost all the family offices that in fact, all of the family offices that frontline have in our funds are within two degrees. So, there are of course those family offices in New York but a huge amount of the family offices in Europe are more likely to be five to 10 degrees away from where the money is made.
William: And there's nothing wrong that, there's no judgment or anything like that. But those people, because they are much less attached to the capital creation of how the wealth originally was built, what you tend to find is that their portfolio strategy or their investment strategy is not capital creation, it's capital preservation that they have, they have a large pool of capital that they inherited or came with their family.
William: And their goal is to make sure that their kids and their kid's kids continue to have the same lifestyle that they have and again, there's absolutely nothing wrong with that strategy. It's a very viable investment strategy. But if you have that strategy, venture capital is a risky asset class, and you're much less likely to want to put capital towards venture capital and because we're about creation of capital, or losing it, in the sense that a venture capital fund is either going to be very successful or it might even lose money and that's a very risky strategy for a capital preservation portfolio. Whereas that is a perfect fit for capital creation portfolio that they're willing to take risk to potentially make money and so, that's why that's one of the things we've seen that a lot of European family offices are not used to investing in assets like venture capital, and hopefully, as venture capital in Europe continues to prove itself. As people hear more about big companies being created in Europe, I think they are starting to see families wanting to get more and more access to what an exciting asset class is. So, the FOMO is starting to happen, and we are seeing more of those family offices change their investment strategy, or at least some of their capital being put towards these riskier assets. So, hopefully, it will continue to evolve. But let's see, that's a very interesting trend, which I wouldn't have thought of before I started frontline. But now I've seen continuously over the last eight to 10 years.
Pritish: I think that's a reduction and you probably can extrapolate that to Asia, specifically Mainland China, how aggressive they are about actually investing in venture capitals or becoming a part of it, because they're one or two generations away from where the wealth was made. So, I would say they're less risk averse and potentially the second or third generation which is investing into venture capital funds from Asia have seen or learnt about wealth creation, almost one or two degrees away. So, that explanation actually, potentially is a similar thought process within Asia as well.
William: Yes, this is something I just should caveat that sometimes when I say this debate or discussion or viewpoint, some people think I'm critiquing old money versus new money, that's not the point of this conversation. It's more of what you're seeing is a trend of portfolio strategies, depending on the type of family offices they are and one of those investment strategies is much more suited to invest in venture capital than the other and so, it's more of a view to that than anything else. Obviously, I am biased, I would love everyone to be investing in venture capital. But that is definitely a very biased view.
Pritish: Will you build a brand as a firm or as an individual?
William: Yes, this is something that I debate with people a lot. What's interesting is that it's one of the most kind of common debates that I've had with other GPS. When I say most common debates, it's not that we talk about it all the time. But it's the most common where it's a polarizing view in venture capital. You're most venture capital funds from an operational marketing, etc. perspective, are relatively similar. But when it comes to this, I have had dinner where I've had a venture capitalist around the table, and it's been split 50/50, and people usually have very strong views one way or the other, should a venture capitalist focus on building their personal brand, or should we focus on building our firm brand and for me, although I'm on a podcast with you now, which is in part building my personal brand, and the reality is that in frontline, we very much have the view of the firm brand and the reason for that is a few things. So, first of all, at that same dinner that I talked about having 8 people at the table, I specifically said, okay, how many partners? Does everyone agree on the table that Sequoia is one of the best firms in the world? And everyone was like, yes, and it was pretty clear, and people may disagree about the best firm in the world. But everyone puts a Sequoia in their top three to five for sure and so, I said, okay, name me three or two partners at Sequoia and it was amazing. These are people who are in the industry, who've just agreed that this is one of the best firms in the world and I got one name from the eight people.
William: And that's a testament to Sequoia building one of the strongest if not the strongest, firm brands, and not putting enormous pressure to build individual brands.
William: Obviously inherently people build individual brands because of their performance and because it but Sequoia is a great example of firm brand over individual brand. On the flip side of that, I then started asking people like, can you tell me what firm Mark sister, Brad Feld, etc., work for? And okay, people we're able to guess around the table. But I know that a lot of people didn't know that answer. They all knew who they were. They all knew that they were very famous venture capitalists, but they didn't know what their venture capital firm. It's like if I ask most people, what's Mark Cuban's venture capital firm, and they all know who Mark Cuban is and so, I'm a believer that if I only wanted frontline to exist for my lifetime, then I would focus it all around building my and maybe one of the other founding partners, personal brands. But if I want frontline to be a multi-generational firm, that evolves and grows over time, we believe that firm brand is substantially more important than individual brand. Because I don't want if I get hit by a bus tomorrow, or if I decide for personal reasons that I just don't want to do venture capital anymore, which again, I hope I don't but if I did, I wouldn't want frontline to be caught or hanging on my brand. I don't want to start throwing people under the bus literally or figuratively. But I've seen where a firm was too dependent on a person's brand and when they left for personal reasons, that really hurt that firm and that firm has not survived as a VC firm and so, I don't want that front line, if I build a company, and this goes to the crux of your podcast of company building. If I want to build a company, and I'm building frontline, I am not just building frontline as a vehicle to invest in cool companies. I'm building frontline to be a standalone vehicle, a company in itself that is building products to serve entrepreneurs and in our first product, we wanted to serve early stage b2b entrepreneurs in Europe and our second product is to serve later stage entrepreneurs in the US, and over time, I expect us to have different product offerings and we might stop certain products if overtime, they no longer are valuable and so, I am trying to build a company around serving entrepreneurs, product offerings, and I want that company to survive and live well beyond my lifetime and again, not to keep pointing to Sequoia but they've had an amazing transition and generational change right back to the early days of Don Valentine when he started it and up till now, there's been at least five or six different kind of CEO, general partner, managing partners of that firm and so, yes, that's the sort of firm that I want to build for frontline. Equally, if it were about me doing something before, I retire, I'm just saying, hey, I've got 10 more years before I want to stop working, doing a VC fund would be fun to do that. I'd make it all about me and I double down on my personal brand. I'd hire a PR firm to get me quoted in MSNBC and talking everywhere and stuff like that. But we try to make sure that our entire PR is built around reinforcing the firm's branding, not just that I'm great or that Will's great or that Shy is great.
Pritish: Yes, absolutely. I think you brought up Sequoia, I'm sure a lot of people won't be able to say how old Sequoia is. It's almost 50 plus years and I completely get you that if you're looking for a generational brand name, it has to be the company or the product that you're building, it cannot be an individual.
William: One other really important thing is that branding is one thing, but you can't have that multigenerational firm, unless you also back it up with the economics of the firm and so, what I mean by that is that as frontlines partners will be transitioning out over time and new people either grow up in our firm, or we hire new people in those people get a lot of the economics of our firm and there is a great example of Don Valentine, who started Sequoia and I'm sure he's very comfortable personally in his life, but he made substantially less money than some of the partners today do because he's given up all of his economics to allow new people to move in and so, that's an important part of if you want to have a firm for any venture capital people who are listening, if you want to have a firm brand over an individual brand, you also have to back it up in the way that you manage economics too.
Pritish: What is the future of venture capital in the next 50 years?
William: What's funny is usually venture capitalists often hear about all these exciting entrepreneurs, you people always ask us, what are the trends of companies and what I always like to say is that I don't think that I am a predictor of the future. What I think that I am very good at it my team is very good at and it is picking people who I think can build great things. So, we frequently invest in companies where we have big question marks about whether or not this technology or this market is going to be important in the future. But the one thing that's unified across all of our investments is that we're really confident that these founders or entrepreneurs are the right people to build something and so, the reason I bring that up is that when I think about what's the future of venture capital, I don't know what the future is and that's why our strategy is not around at supporting products for our investors. Our strategy is around building products for entrepreneurs and so, we're constantly evolving, hopefully, what we do offer. Now, what I would say is 50 years is a long way away and we do this strategic thing in frontline, where every year we sit down, and we talk about kind of what of our core long term goals, how we are achieving those and one of our guiding principles is that in 50 years, frontline has to have such a great product offering that we don't even need to offer money and entrepreneurs will still give us ownership in their companies, because our product offering is so good.
William: So, one overarching thing over time is that capital has now become a commodity and so, just offering to invest money is not as important anymore. It's not a competitive advantage, unless maybe you're writing enormous checks. But for the seed and series A and Series B stage, capital is a commodity and so, you need to be consciously thinking about new product offerings and so, where that comes in is interesting, and you're seeing things now are companies like clear bank, who are one of our portfolio companies and what they do is they've again, looked and said, hey, venture capital is not suitable for all types of companies and there is a burgeoning group of E commerce and sass companies, who, if we access their e commerce engine, or their payments engine, whether it's like a stripe, or whether it's like a shopify, or hybris, or Demandware, they get enormous amounts of historical customer data, that they can then analyze and decide, hey, based on this trajectory of this company, I will lend them 1 million to 10 million in capital and they know that that's a very good investment, because they can see the historical data on that company and so, they can make not only very quick decisions, because it's a data engine that looks at all their historical data there. But also, they're offering different sorts of financing to that entrepreneur that come with different terms and their terms are very quick money. So, clear banks case, they can make a decision within 24 hours to lend up to millions. Very few VCs can make that sort of speed in timeline. Secondly, their lending is at a fixed interest rate, and therefore is effectively probably much cheaper than a VCs capital, who takes equity right now; obviously, it has to be paid back. But if you're a certain type of company, that sort of capital is actually potentially far more suitable than venture capital and so, what we're seeing is more types of companies offering alternative forms of capital in a world where capital is more of a commodity. People are structuring that capital in different offerings and I think that's quite interesting and also, what we're seeing is more firms specialize. Historically, VCs were generalists and there was either tech VCs or healthcare VCs. Now what we're seeing is lots of people who are becoming razor focused on certain areas, like there's a bunch of VCs that are just IOT focused. There are a bunch of VCs that are just enterprise data science focused. There are a bunch of companies that we see that are just environment tech focused and so, that's something that we're seeing and I'm going to steal this trend from this guy called Ollie Gram water, who is the head of EIF. So, EIF is the European Investment Fund. They're actually for people who don't or haven't heard of them before. They're the largest investor in venture capital. Globally, people don't realize this, but it's actually the European Union has an investment vehicle, the European Investment Bank, one of their vehicles is the European Investment Fund and that fund is the largest investor venture capital globally.
Again, it's all focused on European VCs, but it's invested in so many and so much capital into them that they are the largest and so, they have enormous foresight on what's happening in the industry and how it's evolving and one of his big vision points is that he thinks in the next 15 to 20 years, every VC fund will be some form of impact fund and again, a lot of people historically have seen impact as social entrepreneurs or charity. In reality, he views it as that technology and sciences are having such enormous impacts on the world for the better that he thinks that every fund will be structured around being impactful to society and also be measuring the impact they're having on society, on the environment, etc.
William: And so, that's maybe another trend that I probably see less of in my own firm focus. But it's something that he speaks a lot of and he has a very big, macro view of venture capital. Those are some very high-level ideas. But as I said, I'm not somebody who predicts the future and 50 years away, it is a very long way. Hopefully, one thing that will happen in 50 years, if frontline does it is that frontline will still exist; it may be offering completely different products to entrepreneurs. But hopefully, frontline will still exist if we build the firm in the right way.
Pritish: When should the founder reach out to a venture capitalist or a venture capital fund?
William: Well in frontline, we actually do like people to reach out early. But what I mean by early is whenever they're ready to raise capital, so, we've invested in people who had just left their jobs within a week or two, so, ideas on pieces of paper, and on the term sheet, we have to say that you have to register a company and open a bank account before we can send the money to you. So, we have no problem investing really early in entrepreneurs. But one thing I do find that VCs often say is, we want entrepreneurs to come to us as early as possible way before they want to raise money and I slightly disagree with that, because I think its advice is in the favor of the VC. So, if you have a company, and you want to pitch it to me, but let's say you only want to raise money at the end of the year, if you come to me now, I'll collect all that information and I will then judge you based on the information that you tell you perform to that and so, you're giving me more power in that situation. Whereas if I meet you now, and you're trying to raise money, and I didn't meet you six months ago, effectively, what that means is that you create the narrative right now, on what the history was.
William: Whereas if you're giving me multiple data points, the narrative is pre created by those data points, and that you might not live up to those data points and so, sometimes, even if you still perform well, if you had said to somebody, you were going to perform twice, as well as that, they might not see it so well and it's about setting expectations. Now, the caveat I give is that also VCs always give the reason for doing that is that it’s always good to build relationships with the VCs in advance and of course, I've known you for years, and we have a relationship and so, if you wanted to raise money now, the fact that we've built a relationship over years means that I know who you are and that makes sense. But if you were trying to raise money six months from now, and I only met you six months, six months is a very short time and we might have one maximum two coffees in that time, or whatever, or to meetings in that time, that is not a lot of data points to really build relationship. So, I think VCs say this, to try and get access to deals earlier, and to try and get more data points to make their better decisions. In reality, I don't think you build much of a relationship in six months. If you want to build relationships over years, fine. I think that's a true development of data points over time and understanding of somebody. But over six months, you don't get that. So, if your plan is to rise in six months, what you should be doing with that six months is figuring out the best introductions and ways to get to those VCs, the best VCs that you should be targeting, and not just VC firms, also individuals and firms and that's not about branding, that's about their experience, or the deals that they do.
William: And then line all your ducks up so that as soon as you do want to rise, you press the button and you build momentum, because everything's happening all at once and rather than kind of the slow drawn out, building relationships over six months, that's something that I believe strongly and most VCs disagree with me, because it's giving advice to entrepreneurs that works against us but works in their favor. So, I'll let your listeners decide for themselves.
Pritish: The founders are your true customers.
William: Yes well, that's again, to the point if I'm going to be investing in you or anybody else; I'm going to be working with you for five to 10 years minimum if we're investing at the pre seed stage. So, I want to start developing relationship where you realize that I'm not trying to give you bad advice to my advantage, I want you to trust me, so that when I do give you advice for your company, you trust that it is honest, transparent, uncomplicated advice that I am willing to just create an offering for you. Because the better you do as an entrepreneur, the better I do and that's what I want and that's the best joint success.
Pritish: 80% of your portfolio is pre revenue. So, what kind of data do you use to evaluate them?
William: Yes, and actually, and 50% of that is pre product, so, we don't even have a product to look at a lot of the time. So, when it comes to evaluating them for us, it's all about two things. So, when you've got no revenue or product, there's no traction or tech really to look at. So, what you're really looking at the market and the team. So, with the market for us, it's much more confirmatory that we want to make sure that the market exists or will exist.
William: So, sometimes the market doesn't exist yet. But we have to believe that either it already exists, and it's big enough, or that it's going to be big enough because it's growing. Secondly, we want to make sure that this is actually a proper pain point for the target customers in this market, we often get people pitching us companies that are nice to have and not must have, and you can still build an ok company with a nice to have but it's extraordinarily rare to build a venture sized company from a nice to have and then and then we want to look at the competition to see who else is doing this, how competitive it is, how hard is it going to be to compete with the other people in the market. So, that's on the market side, we want to make sure that all that makes sense and although it probably varies slightly person to person to the frontline team, that's probably about 20% of our opinion and then the other 80% of our opinion goes down to the team or founder and really what we're looking for there is many different characteristics. So, actually, we had a team that came to our investment committee this week.
William: And we gave them an offer, we haven't actually heard if they are going to accept that offer yet. I'll hear on Monday, hopefully they will. But what was great about that team was that it actually had four founders, and they were all incredibly complimentary. So, the CEO had really understood the pain point of the customers themselves personally, they also had a very strong product and strategy background. So, we really believed that they could lead the strategy and product vision of the company, because they understood the customer and their pain point. Then one of the co-founders had worked with that CEO in the previous job for four years, almost every day, they loved working together and that person's background is mostly upper and operations, finance, and a great, perfect combo. That person is the COO, and for third co-founder, they brought on somebody who was in college with the CEO and has been a friend and worked together on outside projects as well. So, again, they've worked together, so they know they work well together, they've known each other for years, so they understand each other, and this person's background is all sales and marketing in that target area and then the final person they brought on is the CTO of the company for where the CEO and COO worked.
William: Now, they weren't the CEO, the CEO of their previous company, but they worked directly with that CTO of that company a lot. They know him; they know he has all the right skills to build what they need in that product and he can build out a great team. So, straightaway, you have four people who have all been very successful in their careers, who complement each other, who are very ambitious in what they're trying to build in a big market. That's really exciting for us. Now, one thing I didn't mention there, but that we also actively look for is self-awareness and so, self-awareness is something that you don't hear a lot of investors talking about. But we think it's one of the most important things in being a great leader and building a big company and the reason why is that, when you're at the early stages of a company, it's easy to do very well I have no self-awareness. Because what is self-awareness, self-awareness is basically understanding what you are good at, and more importantly, also what you are bad at and people who have poor self-awareness, tend to hire people like themselves, because they have achieved and therefore, they think, to achieve people should be like them.
William: They also hire people, who they tend to do what they're told, and therefore they micromanage them. Now in his early-stage company, it's totally okay for the CEO to micromanage everybody to hire people like themselves. But as your company scales, that starts to fall apart very quickly once you're at 20 plus people in your team. If you're micromanaging people, you're not running your company, because you're spending too much time micromanaging. Also, if you've hired too many people like you, instead of people who are complimentary to you, your team won't be able to do the different roles and skills as your company evolves and so, we often have seen entrepreneurs who have poor self-awareness, really fall apart, and build their teams very poorly. So, that okay, they might push and scrape their way to get a good series A, but they really won't survive past that and that's on a good day. Most of them won't even get to this series A because their team will already be starting to show problems. So, that's another thing and again, that to use that example of that team that we saw this week, we saw that the CEO had incredible self-awareness, because she was able to see, hey, here are things that I am not good at. She is not somebody who's super passionate about doing operations, finance, or sales. She's a product visionary type and so, she immediately brought on two people that she both knew she worked well with and were very complimentary to her skill sets. That shows amazing self-awareness to us and so, those are the things that we look for. But it's because we invest, as you pointed out 80% pre revenue, most of what we're looking at is the potential market and the early team or founder or founders.
Pritish: Your frontline has actually done a gender study recently, and it was actually a lot in the news. So, tell us about it, and what key learning did you get out of it.
William: And so, frontline is a big believer in tracking data. So, we track as much data as we can to help us improve our firm to help us make better decisions and so, since we started eight to nine years ago, we have been tracking every single deal that we've done and we track a bunch of data around that like, what geography it's in, the founder's names, backgrounds, contact details, what they were raising, what industry it's in, how we source the deal, etc.
William: So, that was since the beginning. Now, even why we reject a company, we track all of that as well. Almost exactly five years ago, I was sitting on a panel discussion, I was talking about this data that we track, and someone in the audience asked, well, do you track gender in your deal flow? And what percentages of the companies are female founded?
William: And I said, actually, we don't. But I thought I said, roughly speaking, it's probably around 12%. What was interesting was that I am somebody who I doesn't like giving woeful answers. I like hopefully having more factual or database answers and so, when I was asked that, I realized they didn't have a database answer. So, I actually went back through three months of data. This was five years ago, at the time to look at, well, what actual percentages do we see and I went through all the different pitch decks that we'd seen and took up quite a few weekends. But I did it and the results actually pretty shocked me and the rest of the team, it wasn't around 12%, it was actually more like five to 6% of our companies had female founders. We also then looked at our portfolio, and it also had 5 to 6% female founders and the easy answer for us to say is like, oh, look, well, the market is showing us 5 to 6% and 5 to 6% is our portfolio. So, it's not our fault, the funnel works, we're perceived percentages of both. But one of our core values in frontline is right over easy and so, we really said okay, that is the easy answer. But is it the right answer? And so, we said, why don’t we just spend a few years tracking gender, and trying to do things to specifically improve not just the funnel in our firm, but also to improve the pipeline and so, we did a bunch of different things over that five-year period and the reason why it got some news recently is because we released all that data over those five years of data.
William: And there were a bunch of interesting insights in that. But at a high level, the key message to take away was that lots of VC says that the reason they don't invest in more female founders or any ethnic diversity is minorities of any kind and we also track we also track ethnicity now for the last three years, and hopefully I'll do a similar data research after we were doing that for five years, but a lot of VC say it's not our fault. It's the markets’ fault. Not enough founders, from minorities, whether it's socio economic, ethnicity, gender ability, are starting companies. So, it's our entire fault that we don't invest in more. But what we're able to prove is that with different initiatives, we were able to massively increase the number of VC in our pipeline and so, now on any particular month, we're seeing between 20 and 25%, female founded companies and if you look at the last few years, that is now locked on directly into our portfolio, where we now have 20 25% of our portfolio founders that we're investing in, who are female founded companies and so, it's not just good enough saying, it's the markets fault, you can help doing things to improve the market. So, that was the main point. But for any of your listeners, it was posted on medium, there's a ton of other learning and interesting insights in that I would encourage them to check it out.
Pritish: Absolutely! Let's get into rapid fire, three questions, one word or one sentence.
William: Okay, that's going to be hard for me. I talk a lot.
Pritish: The hardest thing about your job.
William: Saying no to lots of people!
Pritish: One book or one blog that has influenced you personally and professionally!
William: One blog, Thomas Tongass is very data focused; I've learned a lot about how to think about database stuff from him. So, it's a longer than one sense. And, and one book, there's so many, that's so hard. There's no one book, maybe the genre that I think is most important for VCs is reading books about how hard it is to start companies. So, whether it's a shoe dog, or the hard thing about hard things, I would encourage any junior or young venture capitalists who are still learning industry to make sure that they are constantly reminding themselves how difficult it is to start a company to make sure that they don't lose that empathy with the entrepreneur who, as I've consistently said in this podcast we see as our customers. So, if you don't have empathy and understanding of your customer, you're not going to be giving them the right offering and winning the best deals.
Pritish: And your most favorite superhero.
William: It is going to be so boring but it’s Batman. But the reason why it's Batman is because he doesn't have superpowers and so, I love that he doesn't have any superpowers. Wouldn't it be great to be Superman or wouldn't it be great to be Spider Man. I probably related to Spider Man the most because he was a young character and that's when I got into more comics and a lot of other stuff. Batman gives the possibility that anyone could become a superhero and now it will be at he's like a super wealthy billionaire and maybe it's probably more likely that you're going to be Superman and have all these skills and be a super wealthy billionaire, but I like the idea at least that somebody who doesn't have superpowers can really try and make a difference.
Pritish: Thank you, William, for being on the show.
William: Thank you for having me and sorry, my rapid-fire questions were not rapid-fire answers.