#3 – Two UK Venture Leaders

Pete Davies has long been one of the best and deepest long term thinkers in the hedge fund world. He was early to recognise the opportunities to provide venture capital to UK academia and his firm, Lansdowne Partners, was instrumental in setting up Oxford Science Innovation. 

Spencer Crawley is the co-founder of FirstMinute Capital, a UK seed investor which boasts 111 unicorn founders as investors. 

In this interview we discuss the UK venture scene, why early stage investing is truly a long term activity, and how this cycle compares to the late 1990s tech boom. 


In this fascinating interview, Pete Davies of Lansdowne Partners and Spencer Crawley of First Minute Capital discuss the UK venture scene, look at why academia is such a fertile source of innovation, discuss how venture networks operate and look at how today compares with the 1990s tech boom.


I have known Pete since he started in the stockmarket, and I was amazed back then at how he could solve problems from first principles through sheer brainpower when even with my longer experience, I struggled to keep up. Nothing has changed in the intervening 25-odd years – every time I meet Pete, I come away mulling over some of his insights for days afterward.

Spencer is the co-founder with Brent Hoberman of First Minute Capital, a seed venture firm, and his explanation of his role and the operation of his firm was fascinating. The pace of technological change is increasing, so this is  an aarea every investor, even those focused on quoted stocks, need to understand better. Spencer did a great job in making it accessible.


Pete started at Mercury Asset Management, attracted by the idea that performance was independently measured and by the constant need to be current. He didn’t consider many other roles. Spencer started at Goldman Sachs, then joined a spinout fund before setting up FirstMinute Capital with Brent.


Networks are extremely valuable in venture capital. At a time when capital is plentiful, great founders can often choose their backers. FirstMinute benefits from its 111 unicorn founders as investors and from its relationship with Founders Factory, another of Brent Hoberman’s investments. The Lansdowne team benefit from Pete Davies’ long record of involvement in early stage investing and Pete cites two criteria – curiosity and trust – as being critical. Curiosity is important as it has led him to many discussions and opportunities; and trust, because he is conscious that these long term relationships are valuable and founders can trust him to give sensible advice and not to abuse the relationship.


Spencer recognises this is the key skill of the early stage seed investor and places great emphasis on authenticity – can they attract similar talent to help them realise their ambitions. They often look at new opportunities with a “prepared mind” where they have already formed a view on a space and have decided the criteria necessary for success. Pete doesn’t like judging managers which is why he leaves the seed decision to others and invests in companies that are usually 3 or more years old.


Peter joined Lansdowne Partners in June 2001 and is Head of the Developed Markets Strategy. Prior to joining Lansdowne, Peter was a Director at Merrill Lynch Investment Managers, previously Mercury Asset Management, which he joined as a graduate in 1993. He is a non-executive director of Oxford Sciences Enterprise plc, a company that invests in, develops and advises spin-out companies established to exploit and commercialise intellectual property developed by Oxford University. Lansdowne funds also hold shares in the company. He has a first class honours degree in Philosophy, Politics and Economics from Oxford University.



Spencer Crawley is co-founder & General Partner of firstminute capital. The fund currently has $210m AUM, a team of 18, and invests at the seed-stage across technology sectors, focused on Europe and the US. He sits on the board of Generation Home, a UK digital mortgage lender launched in October 2020, and Frontier, a US-based platform connecting work-at-home jobseekers with employment opportunities. Crawley co-founded firstminute with Brent Hoberman CBE. 

He started his career at Goldman Sachs in Moscow in the Fixed Income, Currencies and Commodities division, before becoming the first hire at DMC Partners, a Special Opportunities fund spun out of Goldman Sachs. This was followed by an MBA at INSEAD, and a stint at AppDirect, the cloud commerce platform-provider. Spencer studied History at Exeter College, Oxford, where he received the Waugh scholarship, and speaks fluent Russian.


Spencer recommends

Bad Blood, the story of Elizabeth Holmes and Theranos, by John Carreyrou. Steve echoes this, which is one of his favourite business books – it reads like a novel and has so many lessons of warning signals to watch out for.

Pete recommends

looking back at a period in history you haven’t explored or experienced, for example more inflationary times and recommends Peter Lynch’s One Up on Wall Street.


Steve has known Pete Davies since he started at Mercury Asset Management and Pete, with Stuart Roden, was Steve’s nr 1 client on the sellside for many years. Steve is an investor in Lansdowne’s funds and Lansdowne is a long term client of Behind the Balance Sheet. Steve met Spencer through Jamie Macfarlane, CEO of the Creator Fund, where Steve is invested alongside them.



00:02 – The Attraction of Investment
19:35 – Evolution of Venture Capital
36:42 – The Value of Development
46:47 – Spotting Persuasive Entrepreneurs
53:51 – Handicapping Investment Probability
01:06:05 – Lessons from Past Market Trends
01:15:32 – Insights from UK Tech



AI-produced and lightly edited

STEPHEN CLAPHAM: Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment or indeed an unsuccessful one. Our goal is to inform, educate and entertain.

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STEPHEN CLAPHAM: I think the overlap between venture capital and quoted stocks is particularly interesting and we’re going to try to explore more of this in this podcast.

STEPHEN CLAPHAM: More and more IP OS are from tech, more and more quoted stocks are subject to disruption. And today I’m delighted to be joined by two of the top UK players in these two fields.

STEPHEN CLAPHAM: Spencer Crawley co-founded First Minute Capital in 2017 with Brent Hoberman, a former guest in this podcast. The First Minute Capital fund currently has 270 million under management from an investor base including an astonishing 111 founders of unicorn billion dollar technology businesses.

STEPHEN CLAPHAM: Pete Davies is a partner of lands partners and head of the global development market strategy A fund which he started in 2001 with Stuart Roden, also a former guest in this podcast as a UK equity Long Short Fund.

STEPHEN CLAPHAM: It outgrew that strategy and became the global developed markets. Long Short Fund. Also investing a small percentage of assets in early stage private companies.

STEPHEN CLAPHAM: In 2020 the fund was reorganized and unquoted assets spun into a separate vehicle and the quoted fund became a long only fund in this conversation which we completed just days before the flotation of Oxford Napo, a major success story for the Lansdowne strategy.

STEPHEN CLAPHAM: And we spent quite a bit of time discussing the UK venture scene. We concluded with a look back at the late 19 nineties tech boom and a discussion with Pete on why today is different. Pete’s one of the great thinkers of the investment world and this was a fascinating discussion. Do please listen to the end?

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STEPHEN CLAPHAM: My lovely publisher Herman has, is offering a discount off my book, The Smart Money Method. How to invest like a hedge fund pro go to their website and use the code pod 25 P O D 25 Spencer, Pete. Welcome to the podcast.

STEPHEN CLAPHAM: Now, look, you guys have got a number of things in common, including the fact that you both run early stage venture funds. Although for you, Pete, it’s only a part time job. Did you both envisage ending up in, in investment or was it serendipitous Spencer? Would you like to go first?

SPENCER CRAWLEY: Of course. And Steve, thank you for having me. The absolutely was not a certain path at all. My undergraduate degree with was history. And then I went to work in Russia for Goldman Sachs and joined a spin out firm focused on emerging markets.

SPENCER CRAWLEY: And it was really thanks to my co-founder Brent, who I met 5.5 years ago, who you’ve had on the podcast recently and he was starting a new early stage venture firm and wanted someone to come and help me. And I think actually about five plus years ago, our first joint sort of meetings last pitch in person was with Pete. So it’s, it’s funny coming full cycle.

SPENCER CRAWLEY: But it was really, I’ve been part of a the formation of a fund, the spin out fund, I alluded to post Goldman. And so I felt I knew something of the piping and infrastructure and legals of what it takes to get a fund started and I felt I could learn the early stage art, partly from Brent and partly from just doing it on the job. So it was very much accidental.

PETER DAVIES: Well, investment wise, I think probably, I mean, I definitely always wanted to get in as soon as I knew about investment, I wanted to do it sort of thing. So, the route to get there was slightly secure and, you know, inevitably where one start, I started at Mercury Asset Management and there’s always a bit of randomness about where you start.

PETER DAVIES: I, I’ve had tremendous good fortune that all the places I’ve working at Mercury was a fantastic place to learn as well. So, and me made some very, very good friends there as well, which is great.

PETER DAVIES: Yeah, I think, I think for me, the notion the twin things that attracted me about investment were one the need to constantly be current and be dealing with how change evolved in the world. And, you know, the one I think, rather than the question of why did I start? Why am I still doing it?

PETER DAVIES: I think that that probably is the answer to that is that it’s inherently reinventing both in terms of the world around you and learning from one’s own mistakes. And trying to improve from that. And then I also really liked compared to the other jobs I thought about when I was leaving university.

PETER DAVIES: Although there is a lot of luck involved with every individual outcome.

PETER DAVIES: You know, the reality is that the measuring stick was quite objective and, you know, you needed to be original to get something. Right. You know, that combination of originality and objectivity and results was something that certainly, I, I don’t know what else I would have done.

PETER DAVIES: Probably not, probably not capable of doing much else, but I, I remember thinking about certain other careers and thinking they relied a lot on people’s impression of you rather than actually results and often didn’t reward it originality in the way that, you know, getting an investment, particularly in listed markets, actually getting a and getting an investment decision, right, requires you to think differently from other people.

PETER DAVIES: And that certainly for me appeals enormously, in terms of, I mean, you describe it as part time, which I’m gonna probably find a better try and find a better word for synergistic with my other listed investment stuff.

PETER DAVIES: The way we ended up doing venture was, twofold really actually one in a variety of ways that I’m sure will come on to, you know, I’ve been fairly active in, in both directly investing in early stage companies and indirectly, as Spencer says with him and others, you know, getting involved with structures designed to sort of amplify that.

PETER DAVIES: And, you know, coming out, you know, about 18 months ago, it was pretty clear that a lot of, because of that, there were a lot of companies that I’ve been involved with for quite a long time that had moved from the stage where I don’t think personally I’m very good or, you know, it’s a skill that I could do semi part time as you describe it, namely the seeding of companies towards a thing that I really wanted to do, which was the development of companies and, you know, having just a very wide universe of companies I knew.

PETER DAVIES: Well, at that point in time meant that I, I felt could differentiated, do it and be that it would be easy to come back, not easy, but the combination of skills of listed investing with the access we have to, those would be an interesting way to do it for both companies and for our investors.

STEPHEN CLAPHAM: But what made you start out? I mean, what, what was the initial, I mean, you’ve been doing it for a long time but you, what made you initially get involved in, in those early stage?

PETER DAVIES: I mean, it’s the opportunities that I met, I mean, you know, I, I, I think hopefully I’m always quite curious to, to meet people doing interesting things regardless of, you know, whether there’s an immediate correlation with what I’m doing professionally and, and through that, a we went down the direction of working hard with universities to see how they could make more of the asset they already had, namely the world class IP and created various or we were involved with various structures at an early stage.

PETER DAVIES: And that, and then separately, you know, just seeing lots, you know, personally, just seeing lots of people, young entrepreneurs come to me with business plans. You know, I’ve always been, I hope, ok, at sort of, if somebody’s got an interesting idea and wants some of my time, I’ll, I’ll see them because they’ll tell me something.

PETER DAVIES: I don’t know, which is usually a good start. So, unfortunately, through doing that. Well, fortunately, or unfortunately, I ended up investing in quite a lot of those as well, which, which is, you know, given another dimension to it.

PETER DAVIES: So a combination, just indirectly meeting people and when they do something interesting wanting to be involved with it and a more general approach to the UK of the universities in particular being a real thing where one could make a difference, I think, you know, it’s funny because there’s a lot, I mean, now there’s a lot of people doing that.

STEPHEN CLAPHAM: I mean, in this country, obviously, Billy Gifford are at the forefront and you’re seeing, you know, fidelity, even people like Dan Lob and third point in America now moving into that thing, area what we haven’t seen. And I, I’m wondering why is the venture going in the other direction.

STEPHEN CLAPHAM: And so people who are involved in venture capital, starting to invest in quoted markets. And I wonder Spencer, I mean, what skills will you need to acquire in your team when it comes time to start flipping these successful investments? Because I mean, that’s going to be a very different skill set, isn’t it?

SPENCER CRAWLEY: It is. As an aside, I think Pete’s been characteristically modest. I think he’d make for a very good seed investor, assessing, assessing ideas on their merit and, and founders authenticity, et cetera. I have a hunch. You’d be pretty good.

SPENCER CRAWLEY: But I think, I mean, the first question for AAA firm like ours, which is called First Minute Capital is whether we should be thinking about this so far, the, the measuring stick, which Pete alluded to is in early stage, a very long one. If that’s not straining the analogy in that your feedback cycle is very, very long.

SPENCER CRAWLEY: You know, our first fund is 2017 vintage. We won’t see, we don’t really know whether we’ve done a good job on that first fund until 25 26 maybe even 27. So this, the seed world is a, you have to be patient, you have to be an optimist.

SPENCER CRAWLEY: And I think, you know, now we’ve just launched our second fund and you know, you, you tell your investors, your LP S that it’s a, this is a highly liquid asset class. And as a venture investor. You have to be patient and patient with your own assessment of how you’re doing.

SPENCER CRAWLEY: Because you know, for us, the biggest K P I is is up around who’s, who’s marking up our portfolio is are so index writing the series A are they raising a good series B is, is the, is the, are the businesses showing product market fit, etcetera, etcetera. So I think one of the things that I enjoy about seed is actually, I don’t have to think about the public markets.

SPENCER CRAWLEY: I don’t have to think about macro, the M and a landscape, the, the, the environment for IP OS see a little bit AYC because because of this time horizon and there’s lots of examples of oh eight oh nine when Stripe And Square and Airbnb and Uber fact, we’re all founded.

SPENCER CRAWLEY: So I think, I think as a seed investor, you, I used to be in fixed income and would never felt I understood it and felt there were too many parameters going on and I didn’t feel I had a macro world view that Pete suddenly does.

SPENCER CRAWLEY: So I think seed you can be more focused on the entrepreneur, what he or she is building. And I think you have to be comfortable with there being a, a structural information gap. You’re never gonna have enough information, making a sea stage investment. And we were just talking about your angel investing before we started and I think so.

SPENCER CRAWLEY: I I don’t see for first minute when we have IP O in the portfolio, touch wood that will be a happy day, whether we hold on to them. We have discussions of course, and we had a company acquired by coin base recently.

SPENCER CRAWLEY: And there was a discussion of whether to hold on to those coin based shares. In the end, we decided not to because we wanted to recycle some of the some of the proceeds back into, into new companies or follow on investments. But I think the larger funds, of course, the coin now has a hedge fund just as Tiger is now doing seed.

SPENCER CRAWLEY: So there is a convergence. Absolutely. And I’m sure people have lots of thoughts on that. But I think as a seed fund, you don’t want to take your eye off the ball in terms of there’s such a rich opportunity set in early stage company building in Europe, us everywhere.

SPENCER CRAWLEY: We just made our first investment into Pakistani fintech business last week. You know, you there’s, there’s so much to be done that I think you want to try to until you’ve had first signs of success on the on on the first fund or two at least try to stay focused.

STEPHEN CLAPHAM: But if we’re sitting here in five years time or 10 years time, I mean, won’t there be lots of seed capital guys investing in?

PETER DAVIES: I mean, I I think, I think both jobs are harder than you’re giving them credit for. I mean, I think a seeding or seeding done well requires a network within which you’re the expert, you know.

PETER DAVIES: And you know, that’s both domain specific and also often geographically specific. Frankly, I I think retaining that differentiation is pretty hard. So, and then conversely, you know, being, you know, I mean, yes, there, I mean, this is to be proven.

PETER DAVIES: I think the question of, have you known a company for a long is knowing the company for the longest enough of an advantage in quoted markets to make you better than other quoted investors, is, is a hypothesis to be proven re given, you know, Spencer says the alternative aspects you don’t have and, and I think the right question to ask and certainly when I would ask, you know, in reverse as it were, is, you know, am I the, the question we always ask is, are we the best possible investors for this particular investment?

PETER DAVIES: And you know, the nice thing I think for both of us is we’ve got the luxury of quite a lot of different things we could choose to do. And therefore, you know, one can also ask the second question, which is, is this the thing I’m most expert in versus, you know, X or Y and, and stuff?

PETER DAVIES: So I think this question of, I, I think it’ll be interesting to see. I mean, I feel very comfortable that doing series B or A, whatever you want to call it, having seen them from seed, but at an arm’s length is quite a good position to take a decision there.

PETER DAVIES: I think things like bias, home bias, you know, lack of understanding how a layperson might look at them. You know, the quoted investment market requires one to have a set of skills that are different from that. And whether the information edge that one had is enough, it will be different for different people, but it’s not a given.

SPENCER CRAWLEY: No, it’s a maybe two things to add to that. The in, in early state, maybe two differences between private and public investment. And I wonder if people would agree, but is there’s an element of persuasion and because the best entrepreneurs have choice. So public markets, you choose whether to buy the stock or not or short it or do whatever you want with it.

SPENCER CRAWLEY: Whereas there’s a human dynamic where great entrepreneurs they have particularly now an abundance and choice of capital. So as a venture investor, you providing a bespoke service, it’s a you providing a and that is changing, that’s evolving. You know how Tiger is shaking things up are really interesting, but nonetheless, you’re providing a service to an entrepreneurs.

SPENCER CRAWLEY: So that’s something that is totally different mindset to, to public investing. And then in terms of Pete alluded to this, like as a seed fund, you access is key if you’re not seeing the opportunity, it doesn’t matter if you can underwrite it and persuade them or not.

SPENCER CRAWLEY: If you’re not seeing it, you’re not seeing it. And so that’s why a lot of the funds, you know, Andre through Andrew and Horowitz in the US do it through huge media and marketing drives according to it because they’ve got the best portfolio. But, you know, there’s a brand advantage in, in ventures. So I think that’s something we think about lots.

STEPHEN CLAPHAM: And I mean, you’ve got, is it 100 and 11 unicorn founders as clients? Which is a number that I, I mean, it’s certainly hard to believe, right.

STEPHEN CLAPHAM: I mean, is that give you A T and is that widening because you said it’s trebled from the first fund and presumably that makes it very difficult for your competitors when a great opportunity turns up because you’ve got a better network. And I suppose for Pete your early investment in, in o si give you a similar advantage.

STEPHEN CLAPHAM: I mean, both of you, how do you think about these advantages and if you didn’t have them? Right. So if you were starting with a clean sheet of paper today, you didn’t have 100 and 11 founders or you didn’t have your long history with, how would you develop the more that you’ve got?

PETER DAVIES: Now, how would you, I think a, I would say that for me anyway, O si was a symptom of a, that was something I was able to be part of creating because of a network that one had already built and, and also, you know, had we not had the capital to create, you know, had we not had the capital to sort of invest in it, you know, that those, those things were pretty symbiotic.

PETER DAVIES: So, I think, I think, I think it’s, it’s, it’s wrong. It certainly would be wrong. I think it’s as much a symptom of a network we already had.

PETER DAVIES: Albeit it’s now massively strengthened it and, and yeah, I think, I mean, a, I’d say the challenges of those networks are to get them, you know, there’s a, there’s risk in networks as well, you know, that, you know, to manage for a network to create good investment.

PETER DAVIES: It has to be both something that gives you access to interesting companies, but also allows you to be objective with them, you know, often and, and, and I think the challenge and probably the advice I would give to people in any walk of life, but certainly in terms of this area would be that those networks effectively are built on trust, you know, trust and interest.

PETER DAVIES: You know, people will see you because they like you or because they find you interesting or think that you’re gonna have a dimension, you know, for instance, at the moment, I suspect most of the companies that see us in the venture stage, like the fact we’re listed do listed investing because they think, you know, it brings us a different perspective from, you know, a complementary perspective to a lot of other venture investors, you know.

PETER DAVIES: And so I think that trust, I think the challenge with these networks is, I mean, effectively you build them through trust and curiosity. Those are the two dynamics.

PETER DAVIES: And you know, the hardest thing to do I think is simultaneously have to, to be trusted, to be able to say no to things. But in a, is probably the hardest thing with those networks because, you know, if you can never say no to anything that comes out of them, then it’s, you’re not the best investor for it because, you know, the network will invest itself, you’re not adding any value to that network.

PETER DAVIES: And conversely, if you’re not, so and conversely if you’re not trusted, you know, in the end, it’s just, it’s just gonna break down in some form. So having a very honest relationship with one’s network and being clear about your curiosity and desire.

PETER DAVIES: I mean, I think the other thing is just being trying to help. I mean, I think most of the people, you know, I mean, as Spence said, when we first, you know, I think a lot of people would chat to either of us hopefully and say, do you mind having a look at this because I’d be interested in what you think?

PETER DAVIES: And I think being willing to spend a bit of time with, you know, time is to many people the most precious commodity. And I think, I think being willing to spend a bit of time with other people without any obvious hope of.

PETER DAVIES: Does this give me a network to access investor? X? You know, people, you’re never going to do the most interesting things. If you immediately know if you’re only doing them because of some selfish benefit, you attract down the road.

SPENCER CRAWLEY: Yeah, and help. Help is a word. We think about a lot and both internally and externally talk about a goal of being the most helpful seed fund. And we’ve got, we’ve got brilliant competitors who have deep understanding of different sectors to us have geographic reach that specific geographic reach that we, that we don’t have.

SPENCER CRAWLEY: And, and ventures a world where you have, you know, there’s a lot of dynamics where you coves with the fund and then you compete with the fund on the same deal a month later. But I think seed is it, it’s so broad and there are so many people starting ambitious businesses and coming from different places that there’s never a the further you go up the chain and venture.

SPENCER CRAWLEY: I imagine the funds just bumped into a friend at Softbank around the corner. I imagine when, when, when they look at an opportunity, it should really, they should have almost total overlap with their competitors of what their opportunity set is, the further you go down and seed, we surprisingly you don’t bump into the same seed funds the whole time.

SPENCER CRAWLEY: So it is just a much broader landscape. And then I think on the brand and how we try to build, I wouldn’t necessarily say it’s a mode because I don’t think you can really have a mode in, in venture. I think you have to be paranoid and think there’s gonna be new. Great.

SPENCER CRAWLEY: And now particularly you’ve got really brilliant tech founders forming syndicates with other tech founders, seed rounds. You’ve got the big hedge fund guys doing seed, not just who’s A B but going all the way down. You’ve got the US funds moving over from the US to Europe. So I think you just have to stay healthily paranoid and keep trying to think.

SPENCER CRAWLEY: Are we, are we, are we offering something different? But I do think that the trust point that Pete mentioned is when you ask, I think most founders, why they choose one early stage fund over another branding matters, ability to make introductions, matter, ability for subsequent funding rounds matters and alignment of vision matters.

SPENCER CRAWLEY: But actually the number one thing is the relationship with that partner at that fund because they, they work with them, they’re on their board, they have a, you know, whatever I have dinner with them or have a call with them every week or whatever it may be. So I think that that trust element is still paramount.

PETER DAVIES: I think it’s self selecting the other way around as well. I mean, to some degree, probably the investment most of the investments we make are people who kind of want to look at the world a pretty similar way to the way I would or the way our team would and, and that’s fine, we will inevitably therefore not work with a set of people, but, you know, that’s fine as well.

PETER DAVIES: You know, there’s so, so I think in the end, I mean, it’s gonna be interesting when we come to talk perhaps about what some other more industrial approaches to venture are doing at the moment where they’re almost doing the opposite of what we’re talking about, of taking the person out of it and applying scale or breadth to it.

PETER DAVIES: You know, it’s a personal choice on my part. I like to make investments with people who’d like me to be an investor. And if there’s someone who wants someone else to be an investor, that’s absolutely fine.

STEPHEN CLAPHAM: And, you know, I think I, I mentioned U SI, I should have explained that O SI S Oxford Sciences Innovation just changed its name to Oxford Sciences Enterprise.

PETER DAVIES: So that just about to change its name. I know we have this bit out but it’s about to change.

STEPHEN CLAPHAM: Exactly. So this is, you know, what happens when you get a useless podcast also doesn’t do his, his research probably. But you’ve both got an interest in university spinouts. I mean, Spencer, your sister company, founders Factory, got an investment in the Creator Fund and Pete, you’ve got an investment in Oxford Sciences Enterprise.

STEPHEN CLAPHAM: And you were instrumental in the setup and funding of that. I mean, just can you both talk about, is this an area where the UK has a significant opportunity given we’ve got an unrepresentative, large position in global academia.

STEPHEN CLAPHAM: And is this a, a big hope for the future? There’s quite a lot of American listeners to this podcast and I’ve been deliberately having British guests on so they won’t be, they won’t be listening to the British Venture Capital one.

PETER DAVIES: I can guarantee that they yeah, I look, I think it’s a huge opportunity for the country, for investors, for the universities themselves. You know, in many ways, I think if you say what’s the biggest risk to UK universities, it’s increasingly will, you know, younger academ or not necessarily younger academics, but will academics feel that they’re gonna have as much chance to be part of a commercial ecosystem?

PETER DAVIES: You know, if you said, what’s, what’s the, is the best university in the world? It’s most many people who, those of us who are not, not in the UK, probably would say Stanford rather than perhaps the Harvard or Yale at the moment. And the reason for that is the commercial ecosystem is exciting.

PETER DAVIES: It’s somewhere that young people want to go. So I would also say that, you know, doing this, becoming, making it clear how the translation between academia and commercial work happens will I think also be key to being a, a modern university that’s world class as well as a huge economic opportunity as well.

PETER DAVIES: Yeah, I mean, it is, it’s a, it’s the, they’re remarkable institutions, you know, the talent that’s there is, is unique and they’ve been hideously underserved by capital providers despite the fact that, you know, the perversity of all this is Britain’s had a fantastic financial services sector, fantastic universities.

PETER DAVIES: And, you know, many of the people within the financial services sector are people who kind of went to those various universities, know lots of people there and yet it just hasn’t been joined up properly in the past, which is ridiculous.

PETER DAVIES: So at one level, I mean, in many ways, the right question is why hasn’t it happened rather than, you know, is there an opportunity that should, I don’t think it’s the only opportunity either though.

PETER DAVIES: I mean, you know, if you, he said, where does Britain have world class assets that are under invested in? You could find many, many other examples, you know, sport, creative content, you know, there’s tons of areas where Britain has a heritage but doesn’t necessarily have the giant companies that it perhaps should have in those areas as, as of today.

PETER DAVIES: So I, I don’t think it’s limited in any way to, I mean, the one that I’m most obsessed by, in the short term is conservation where I’m convinced there’s going to be huge, you know, where a Britain should lead the world in conservation, given its heritage.

PETER DAVIES: And b I’m convinced it’s the sort of industry that rightly is going to be at the fore or it’s a, it’s a skill set that’s going to be at the forefront of a huge amount of innovation over the next decade or so.

PETER DAVIES: Given the, the very valid a shift in priorities that the world is having and the rarity that it’s not something that America and China naturally lead in. So, you know, I don’t, I think limiting it to universities is probably the biggest mistake at the moment. But the university thing, I mean, it should have been done years ago.

SPENCER CRAWLEY: I mean, do you have a sense out of interest where they, where universities were going wrong in terms of going to market or commercialization or?

PETER DAVIES: Well, I don’t think, I think I, I, I definitely have a sense that the real value that the likes of O SI O C and others, other investors in the space that are getting access to it can have is in the development of companies, not the seeding.

PETER DAVIES: I mean, I think, you know, and, and to your point about how long the gestation period is to know whether one’s doing a good job, you know, the real proof points of a sort of aggregated approach to this is going to be, does it give you the firepower, the perspective, the network to take these companies from companies, you could sell for a few $100 million to giant footsie companies.

PETER DAVIES: Because, because actually the university has done an ok job at creating the sort of, you know, there’s a lot of these companies founded in all these places and actually seed capital is not that unavailable, it’s that much development mindset that’s really missing.

PETER DAVIES: So I think, I think, I think I genuinely think that the aggregator model has an opportunity to do that. That was very hard for individual investors to do.

PETER DAVIES: I think even quite hard for pure venture capitalists to do, you know, if you look back at some of the big successes in venture, they still got sold rather than allowed to be listed and turned into it. So I think it does need a lot of capital. You know, I think, I think you need to have it needs to bring bigger capital pools to it.

PETER DAVIES: And one of the key things we did with the O C was make sure that we had an investor base that was very broad. You know, I think one of the things that both made it possible and will ultimately make it successful is you need a lot of investors in those sort of things rather than just trying to monopolize it.

PETER DAVIES: You know, if we tried to do it as a sort of, we couldn’t have done it anyway. But if just Lansdale had tried to do it frankly, a we wouldn’t have had the scale to do this properly and b it just would have ended up ruining the net. It would have ruined the whole thing and I think we recognized quite early on that, doing it with other people, made it a lot, it gave it a lot more chance of success.

PETER DAVIES: And I think that’s why the interesting thing is, is can investors working together liberate some of these opportunities that on their own, if they tried to monopolize them, they’d end up either making them unavailable or stuff.

PETER DAVIES: And I’d include the government in this. I think, you know, my personal view is the government is very unlikely to catalyze on its own. A ton of new businesses just because culturally and it’s hard, I think the government working with a lot of other investors in specific areas can do all kinds of interesting things.

STEPHEN CLAPHAM: I mean, do you see more Jamie mcfarlane’s popping up, the woodwork and doing more things like the Creative Fund?

SPENCER CRAWLEY: I mean, we, we’ve coveted with Jamie and the Creative Fund for us and I love what he’s doing. He’s a, he’s a great friend from, from university. I, for us, we don’t necessarily differentiate or care too much of the origins of a founding team, whether it’s two phd S or someone who’s, you know, the, the anecdotal dropped out of high school, et cetera.

SPENCER CRAWLEY: For us. It doesn’t matter too much. However, the strength of the UK University and ecosystem is just part of, is a core part of what I think makes the UK tech environment so vibrant and exciting.

SPENCER CRAWLEY: And I think the what, at least in my short period of venture, what’s felt like the biggest, a big change is the combination of that talent that was always there combined with more success stories of the large growing tech companies, which has meant two things, one has shown a path to success and, and, and therefore given, you know, whether it’s the demise of deep mind or, or the big fintech or whoever, it’s given a sense of what can be achieved.

SPENCER CRAWLEY: And so therefore, I think the commercial and business building aspiration of one of the most brilliant technical minds coming out of Oxford or anywhere else is, is I think there’s been a, there’s been AAA step function change there and then linked to that, the combination of more operators teaming up with more what one might call technical talent or quote unquote academia.

SPENCER CRAWLEY: So I think, I think, you know, when you have the, you know, the likes of you know, of, of and a and Spotify and downwards and arm of course too. And we’ve backed one brilliant team out of arm. And I think you combine people who have seen these help scale these really big tech companies teaming up in co founding teams or management teams of early stage companies.

STEPHEN CLAPHAM: I think that’s just a really exciting development and, and I mean, you’re, you feel that there’s not enough development capital, I mean, do you think that’s a shortcoming of this sort of tech ecosystem here?

PETER DAVIES: I mean, is that, I mean, I think, I mean, I don’t think it’s enough, not deep enough listed market as well. I would also, say, I, I think, you know, the biggest change since I was started in the industry was the, I mean, when we started the, you know, the big, the big long dated asset holders be their pension funds or insurance companies had huge domestic equity ratings and are willing.

PETER DAVIES: I mean, they didn’t do that much private stuff but they had the opportunity to do it. And, you know, throughout the last 25 years, exaggerated by every crisis and arguably I would say also hindered by regulation that advantage one once had has disappeared, basically. So there isn’t that pool of deep capital.

PETER DAVIES: And Spencer says, you know, once you get some successes, success does breed success, you know, the arm arm arm has a legacy way beyond, you know, and all credit to them, you know, has a legacy way beyond its, its its own value. Creation. In terms of spawning a lot of the best innovation and, and, and as you say, the, it’s part capital and parts example, I think.

PETER DAVIES: But yeah, I mean, I, I do think the UK, do you think the regulations stopping UK pension funds and insurance companies having as much equity risk as they used to have has been a massive blow to sort of taking, you know, you’ve ended up with a fixed income economy where housing is dominant.

PETER DAVIES: You know, it’s not a surprise, you know, if, if housing is the massive wealth preservation, then, you know, not have unfixed income. You know, you’ve got, it’s not quite as bad as Europe, which is, you know, purely fixed income as far as I can see and has no equity exposure, but it’s nowhere close to America in terms of the, you know, the willingness of people to invest in equity above other asset classes, I’m sure.

STEPHEN CLAPHAM: And Spence you, you intrigued me slightly because you sort of said, well, we don’t really care where you come from if you were sort of two dropouts from high school or, or you’ve come from your two phd s from university.

STEPHEN CLAPHAM: I mean, one of the, the most important difficult things that you do is judging a founder or a manager. Are there any secrets in judging whether a founder is going to be able to successfully and, and probably relentlessly pursue his ambition. What, what, what would be your tips.

SPENCER CRAWLEY: I think if I’d found the secret and then shared it with you, I do myself out of a job. So I, I don’t think there is a secret as a very quick addendum. I think just feeding on what Pete was saying that it’s linked to your question, Steve, which is, I think there’s also more alignment in terms of excitement of what types, what sectors are the future in the next 10, 15 years.

SPENCER CRAWLEY: And top U U UK is, I think the context in which we’re speaking university talent. So finding crypto N F T s is huge at the moment, creator economy, et cetera, there are several others but biotech and and whether it’s A I for drug discovery, whether it’s many other subsets of that is just a huge area of focus and lots of generalist funds are starting to work out how they can underwrite those types of investment.

SPENCER CRAWLEY: So I do, I feel optimistic in terms of that kind of venture, coming closer to really brilliant university science and, and minds. But I think in terms of assessing founders, OK. It’s highly subjective. I think you are trying to assess their authenticity. You’re trying to assess their resilience. As founders are they again going to be able to attract star talent to come and work with them on that mission.

SPENCER CRAWLEY: I think the the the the truism of of venture of seed venture always being about backing the founders, you know, I think the more you do it, the more you probably ascribe to that there are, I, I think there are different types of ways of, of doing seed investing. And I have a, a, you know, a brilliant partner, called a Willows who was a index before.

SPENCER CRAWLEY: And for him, his way of approaching it, he, he, he uses a phrase called prepared mind where he wants to, he want, he has a view or a thesis on a space or the evolution of a sector or technology or a product. And, and, and we’ll meet a founder and there’ll be sort of a kind of meeting of minds and where they share a, a sense of how the future is unfolding.

SPENCER CRAWLEY: And, and I, I admire him hugely for that. I don’t think I have the necessary depth of understanding of any one sector to be able to do that for me. I think it’s, do I have an innate sense that this person will be relentless?

SPENCER CRAWLEY: And, and I often have this image of, I don’t know if you remember those, those toy cars that children sometimes have, where they hit the wall and then they got the wall and turned in a different direction when they, you know, it’s this, this overcoming obstacles and, and you know, the founders that I work work most closely with them. They’ve all had near death experiences or nearly all of them.

SPENCER CRAWLEY: And I think it’s such a, it’s such a gravity defying thing to build a startup because you have incumbents or if you don’t have incumbents, it’s because it’s a new technology that you’re introducing to the world and there’s education, you know. So I think it’s, I just, I totally sincerely have complete admira admiration for all of our, all the founders that we have partnered with.

SPENCER CRAWLEY: So I think for me it’s a sense of, of, is there some reason that I can understand that they are doing this business? What’s the could be the chip on the shoulder? It could be some, often it’s, they’ve experienced the problems themselves. And that helps me understand why or helps me believe that they’re just not going to give up.

SPENCER CRAWLEY: Of course, you need to understand the market, the product, et cetera. But, but I, I think that can be a risk over analyzing it seed. But, you know, I think it’s, it’s a, it’s a highly, a subjective thing, but I, I think pattern recognition for your style of investing starts to evolve.

STEPHEN CLAPHAM: I mean, the, the, the same question, but in a different way, I mean, to get to the top of a Fortune 500 company, you’ve got to be a bit of a salesman and you’ve got to be political, you gotta be good at persuading people that you’re right. I mean, what tricks do you use to understand whether you should trust a manager of a large company, a quarter company? With your capital.

PETER DAVIES: It’s interesting. I’ve, I’ve gone a bit back and forth in terms of I, I, it’s something I definitely don’t think I’m very good at personally. I mean, and so going back to the venture side, one of the core reasons that I’m directly taking investment decisions.

PETER DAVIES: I, I, I, I, I, I don’t particularly want to take seed investment decisions because I think so much of it is that, and I’ve got the tremendous luxury that there’s lots of people I know who are really good at that, who are taking those decisions.

PETER DAVIES: And so when we structured our involvement in that, it was fairly explicitly to say, look, these are going to be companies that have been around for three or four years before we have to take a decision on it. I find it, find it very, very hard.

PETER DAVIES: And, you know, and, and I think perhaps I would partly because in, in, in our, the equivalent in the hedge fund industry was always, you know, this slightly perverse thing that I came across, which was I remember when we moved to Lansdowne rather than Mercury, the several client potential clients we saw who turned us down did so because they said, why didn’t you just take the really entrepreneurial route and set up your own business?

PETER DAVIES: You’re not a real entrepreneur in some form or you’re not a real risk taker. And I was slightly sitting there going, you want me to be a, a sense of, you know, you’re saying to me, you’ve got a balanced judgment on risk. I can articulate very easily why it was the right thing to do logically.

PETER DAVIES: But the simple argument that there’s, there’s a slight analogy in that in the hedge fund world, there used to be the thing of I want somebody who’s gonna take as much possible risk in every form of life, which wasn’t really what they probably wanted.

PETER DAVIES: I slightly also suspect in the found in the founder world, this sort of iconic notion of somebody who the best, the best person I’ve worked with is the calmest, least, you know, the most easy, straightforward investment I’ve had with a guy as someone who’s very calm, I, I doubt his gets cross or particularly emotional about anything and just, you know, rationally chats about things and, you know, if there’s a problem, he stops it becoming a big problem and therefore it actually probably hasn’t had a near death experience to the thing.

PETER DAVIES: So I’m, I’m a, I don’t think I’m very good at spotting those people. And b that sort of volatile ride notion of founders is probably right some of the time, but I suspect it’s probably over hyped a tiny bit in, in these things.

PETER DAVIES: See, and then conversely 11 always sort of a tiny bit between with man.

PETER DAVIES: Oddly enough as I’ve got done it for longer, originally, I was pretty close to the sort of Warren Buffett view of, actually, the management team isn’t that important in terms of, you know, if you do your analysis on the industry properly and the company’s position within the industry, I think, as I, as I’ve got on a bit, the, I, I think probably the way I try to do it is say, OK, what does this company need to be successful?

PETER DAVIES: And is that management team, one who’s gonna be able to do it and to give you a real example, I won’t give you the name of the company, but there’s one listed company that we’ve just started investing in where, you know, they’re doing everything right?

PETER DAVIES: And they’ve got this wonderful IP and a future that’s, you know, potentially very rosy, but actually their inability to present it is, is, is, is probably the biggest risk for the investor for an investor. I mean, there’s the sort of easy risk which is, it might get taken over before it’s had a chance to mature.

PETER DAVIES: But the real risk is like, unless the person, there is a bit more promotional and a bit better at sort of inspiring people, can you really believe that these sort of upside? Can I really square that with an investment case, which is this technology will be super valuable, you know, in there?

PETER DAVIES: So, so I think what I try to do now is, is sort of say, OK, what am I asking the CEO to do and they are they capable of doing it?

PETER DAVIES: Recognizing that enlisted companies usually very different often, you know, sometimes it’s, can you create a political message to, you know, if I was looking at sort of a big tech, someone like Facebook or something like that today, you know, you’d say the major job of them is to retain their permission to operate, which, you know, without giving any comment on them at all.

PETER DAVIES: The same skill that developed the company may not be the same skill to give it to maximize investment value from here. But it’s really fascinating dynamic. But yeah, I I that skill of being a founder is something that I, I, I definitely wouldn’t claim that we would be better than other people at picking.

STEPHEN CLAPHAM: I think it’s funny that you said that about coming to Lansdowne and people criticizing you because you, you’ve got a very particular profile as a hedge fund which would be diametrically opposed to going out and setting up on your own.

PETER DAVIES: I mean, doing it, you did it exactly consistent with your, with your position in, in, in amongst other other funds and particularly if you move from a large firm to a small firm, the bit that, you know, we we were able to take for granted because of the strength of the business we joined, that other people have to create them for themselves, namely, you know, that infrastructure rigor and all the other things, you know, that it’s amazing to me how, how many investors wanted us to suddenly have a skill in something we had, had literally zero experience in and would only take time from the thing we really wanted to do and they wanted to get us to do.

PETER DAVIES: But it was, lots of people said it, it was it was, and I sort of, I could probably, I’m probably doing them a tiny bit of a disservice to the logic for it, but a lot of it was this, you know, we want you to take, you’re a risk, taker, take lots of risk, which is not the way I see world.

STEPHEN CLAPHAM: No, absolutely. I mean, I think it can be very successful. You get a hedge fund manager who pairs up with a business person and that, well, we’ve seen some of your former colleagues. I mean, Ross would be a good example of that.

PETER DAVIES: I mean, I think the venture, I’m trying to think what the venture equivalent is in terms of, you know, that sort of founder that there is something I’m sure that’s equivalent, but it’s not quite straightforward.

PETER DAVIES: I, I, I, I think in terms of the risk appetite of an entrepreneur or in terms of, yeah, I mean, so when I look, when I talk to entrepreneurs, I quite like what I find and I’m not sure if I’m right about this is I find the ones who can give me a pretty clear idea of what they’re trying to do and why, very, very persuasive.

PETER DAVIES: I’d overweight their ability to do that. Versus the sort of, are they hungry that are they hungry? Aspect of it is one that is, is not what I normally think. But, but that may be, I’m not sure about, again, a bit, like was saying about Time Series, we’ll see what the benefit of hindsight, whether that turns out to be right.

PETER DAVIES: I mean, of course, most of the things we see in Oxford, for instance, are not start up, you know, there’s a separate set of stuff to appraise you already have a set of IP or big question. Weirdly, the big question there is less.

PETER DAVIES: Is this world class IP it’s can I see a business case, you know, which is the opposite of, you know what you’re describing in which is there, this guy tells a great story. Is there any substance to it here? It’s kind of the other way around. Can you put a story around a substance or not?

SPENCER CRAWLEY: It’s amazing at Siege stage, how often it things don’t make sense in the way that a founder is explaining something. And that’s either because they do know but aren’t articulating it and you have to work to get there or, or because it, it, it, it doesn’t make sense.

SPENCER CRAWLEY: And I think, you know, the I mentioned the, the pattern recognition you know, you, I think, I think picking up signals is, is, is, is critical for, for those entrepreneurs early on and, and that signal could be anything, it could be a history of excellence, whatever that may mean to you, a previous business references that you do having had excelled in, in, in academia or whatever it may be, or it might be that first customer that is only a pilot but is completely a sort of product of angel and loves the product.

SPENCER CRAWLEY: Or it’s, it could be an amazing advisor, it could be a world class angel, could be a first hire who is superb. So you’re trying to pick up signals that ping where you’re like, there’s no data or often there is sometimes data but c is, you know, you know, you, you’re often seeing valuations of $30 million when someone hasn’t built anything yet.

SPENCER CRAWLEY: So there’s often no data. So you’re then trying to pick up the signals and then trying to match that with, does this feel like a space that is evolving in the right direction? And you know, we, we have to think a lot about will the big series a funds or multistage funds?

SPENCER CRAWLEY: You know, what, what will, what will you as an entrepreneur need to prove in the 18 months? So when we invest at seed, we try to give them at least 18 months a runway. And so what can you prove in those 18 months to get more funding and validate your business further.

SPENCER CRAWLEY: So it’s often thinking like, is it one of those, you know, really highly competitive kind of hairy spaces where you think this is gonna be really, really tough to move anything or is it one where you’re not sure if the company is gonna win? So we, for instance, right on the cusp of what we’re comfortable with, we’ve backed to a company in San Francisco doing lab engineered leather.

SPENCER CRAWLEY: Now, I’m fairly certain that if they can produce this at scale and overcome the engineering challenges or the, the big large fashion houses, what we know that they’re ready for it and, and there, there are lots of competitors, et cetera.

SPENCER CRAWLEY: I think that is an example of a company that the product is the future, whether it’s their product or not, who knows they might win, they might not. So I, I think that combination of signals and space is another going back to your question of how do you, how do you pick?

STEPHEN CLAPHAM: It’s quite interesting because what you’re saying is that there’s a a short term and long term aspect to your business in the same way as with quarter of investing, there’s a, you can have a very good long term vision, but you’ve also got to be right.

PETER DAVIES: And certainly the discipline we try to apply is is making sure that while, while that staging post will be a function of a long term view. One never tries to expect that whatever equity you’re putting in for this stage is going to capture the value that somebody else has to pay for for in the future.

PETER DAVIES: So I would always, we always say, OK, what is it that will have happened once the money we’ve given them to spend runs out? And is it obvious that that’s, you know, gonna kill us? I, I was thinking about this thing. I think, I think actually effectively what one tries to do in almost every investment is ask two questions.

PETER DAVIES: One should somebody do this and two, what’s the probability of you being that person to do it or them being the person to do it? And I think the founders, I mean, I think a, the reason I don’t do seed very often and b I think this function of founder personality types is kind of a subset of the second question of why should the per this particular thing be the person to solve that problem?

PETER DAVIES: And, and yeah, and, and, and I think for, for me, that’s the hardest bit of these early stage ones is knowing what else other people are doing. You know, that’s where either domain expertise or some shortcut comes in because actually with many of the something like lab based leather, for instance, as you rightly say, it’s pretty, it’s a given. I would think that somebody will do that over the next 10 years.

PETER DAVIES: And so handicapping, the quality of the investment is all going to be around the pro while the story will all be around how exciting lab based leather is that actually whether it’s a good investment is handicapping the probability of this particular attempt being the right one. But in turn requiring one to have some knowledge of what else other people are up to, which is why it’s so time consumptive as well.

STEPHEN CLAPHAM: Because how do you know who else is doing the lab based leather?

SPENCER CRAWLEY: You, you do your competitive landscaping before you make the investment, you ask around, the founders should know.

SPENCER CRAWLEY: And if they don’t, that’s also a yellow flag because if you know, we always look very closely at the competitive slides that every seed stage company has in their pitch deck and, and if they’re missing a key one, you know, that’s not a good sign, either they don’t know which is really bad or they do and they’re not saying which isn’t great. So you, you definitely ask around.

SPENCER CRAWLEY: And I think, I think there’s also just as Pete was saying, there’s a found a startup fit. That’s critical. I also think there’s a founder investor fit where there are certain types of founders who I might be more spaces that I might be more likely to, to pick well and partner with.

SPENCER CRAWLEY: Well compared to, to my colleagues who would, you know, I’m, I’m very unlikely to pick the next success in DEV ops, you know, it’s just a space that I find really hard to understand. Whereas, you know, some of my colleagues are brilliant at that.

SPENCER CRAWLEY: So I think, I think there’s a, I think it’s being comfortable as well with, you know, if you have your head Torch and you’re looking down on the ground, you’re not gonna be able to have full visibility on, on, on everything as an early stage investor or a series B investor.

STEPHEN CLAPHAM: So are there, I mean, are the sectors that you really like? It? It’s quite tricky. I’m gonna ask you the same question, but it’s easier for a quote investor because you’ve made money in some sense.

PETER DAVIES: You know, I would contrast therapeutics in biotech with with sort of either data or platform or, you know, you know, less binary things. I, I really, I’m, I’m thrilled that I O C is doing lots of therapeutics, but I definitely don’t want to think that I can add any value in therapeutics on top of the broad thing because I just, you know, I think it’s very, very hard.

PETER DAVIES: And and so I, I, I say never, but I, I’m my, my hurdle for doing something in therapeutics is way higher in drugs is way higher than it would be in other forms of biotech in the quarter markets.

STEPHEN CLAPHAM: I mean, are there sectors that you really like because you’ve, you’ve done well in the past or are the sectors that you won’t touch?

PETER DAVIES: Because we, I mean, I would say sometimes we’re guilty frequently, probably.

PETER DAVIES: There are some sectors where I think our edge is greater than others. You know, frustratingly for me, banks is probably the sector where our, our, our sort of our analytic edge is probably, you know, honed a bit better than some other ones, but equally has been a sector where knowing nothing about banks has probably made better investment decisions and knowing lots about banks.

PETER DAVIES: But so there’s definitely a correlate, you know, the challenge going back to the point about the difference between seed and quoted is I think one’s natural desired, one’s natural focal points based around expertise and enjoyment often in, especially in quoted, I think can lead to quite big errors.

PETER DAVIES: Whereas I suspect and see it’s the more, you know, the more likely you are to be right most of the time I would think, whereas, you know, dealing in listed markets, sometimes it can cause you to miss the bigger picture which somebody you can’t be bothered to look at something.

PETER DAVIES: Drives when somebody who can’t be bothered to look at something properly is driving the price rather than, you know, then that’s very dangerous in quoted markets.

STEPHEN CLAPHAM: So sometimes, yeah, Stuart your former partner called it the sector a curse that you’re too expert.

PETER DAVIES: And yeah, I think, and I think yeah, I, I, I think I, I think, and one something I’m trying to get better at is I would hope being an expert in et cetera is always an advantage.

PETER DAVIES: But you really a bit like I was describing with the networks earlier, you have to be able to use that skill to not make an investment or not take a decision as well as you know, you know, or to calibrate the decision at least, I mean, I think probably the best outcome for us in some of those investments would have been to do a lot less of them rather than to actually not do them at all because, you know, their expertise.

PETER DAVIES: But, you know, I think it’s one, judging, one’s conviction level and judging, you know, being alert to what somebody else might think about, it should still be easier to do when you’ve got expertise and when you haven’t, I think no, of course, of course.

STEPHEN CLAPHAM: I mean, Spencer, you, you referring to, you know, there’s a, you see a lot of ideas, I mean, how, how many do you pick and how do you sift and you’ve got, presumably, you’ve got people stopping you in the street.

STEPHEN CLAPHAM: I think we probably had a business plan.

SPENCER CRAWLEY: Yes, we sift imperfectly probably. But we try to, I mean, it is a lot and you get a lot of cold inbound, which tends to be statistically the lowest caliber, but equally, there will for sure be ones that called inbounds where there’s some gem hidden in the rough. So you have to pay attention to it and, and make a quick assessment.

SPENCER CRAWLEY: We have a, for a relatively small farm. We have a relatively large team of, of 1920 people. So I think we try to play the volume game and, and, and pass through as many opportunities as we can. I think you, you, I, I think, you know, we haven’t, we touched on it right at the beginning, but we haven’t spoken so much about luck in early stage.

SPENCER CRAWLEY: And I think all the elements that might have influenced some of maybe your public tech, tech investing in the two thousands and, and, and where you got lucky or unlucky as well as the deep analysis and sector expertise. You had, you have all of those forces in early stage venture of markets evolving, et cetera.

SPENCER CRAWLEY: But then you also have this, this huge swings factor of, of, of, of the, the human element and the evolution of the team and founders breaking up and the unexpected factors that are so important to the, to the the fragile organism of an early stage company.

SPENCER CRAWLEY: So I think for sure there are, I think you want to agree totally with Pete like sector expertise has got to be a great thing and some of the most successful venture funds, whether it’s at A US V in New York or Q E D in fintech, you have got the, the, you know, the deep, deep sector expertise and I think that should always be lauded.

SPENCER CRAWLEY: But I think there, I think seed still feels to me like talent spotting and, and we’ve discussed kind of how we both see that. But I think you can, I, I don’t see myself as a sexual expert and I used to be very uncomfortable with that because I thought I felt like a total fraud for not having a, you know, being able to talk to you intelligently about, you know, the future of.

SPENCER CRAWLEY: But I think I’m increasingly confident about two things of one as, as, you know, running first minute obviously, with, with, with, with Brent, I feel that my job is to think about it as a firm and, and building a business.

SPENCER CRAWLEY: And therefore, is this a coherent strategy that if I picture pitching first minute three to Pete in 12 months and, and, and, you know, have, we can I, can I explain, you know, we have, we, we, we’ve invested in A I for drug recovery, we focused on therapeutics. Now, I would not want to be the underwriter of that investment. It was a small ticket for us, but I wouldn’t, would never have got to that stage.

SPENCER CRAWLEY: But we have a, a partner I mentioned and be a venture partner who’s head of A I for G S K. Now, he’s probably one of the five people in the UK who’s best to evaluate that and he was at mine before. So we have the capabilities within the team to make a call on that. So I think thinking about it as a, as a firm and can we justify each investment?

SPENCER CRAWLEY: I think for me looking top down is critical. And then, and then second of all being, you know, I’m on the board of a mortgage lender, I think the founder is a complete superstar and I, I think it’s gonna be a giant. I think it’s gonna change the mortgage industry in the UK.

SPENCER CRAWLEY: And is very early days they’re doing, they’re doing sort of, you know, 50 60 mortgages a month, but it’s pretty extraordinary for a company only three years old.

SPENCER CRAWLEY: And I, I didn’t, I fully confessed my knowledge of mortgages was limited, but I just had just overwhelming belief that this was a founder of exceptional intellectual horsepower drive, vision, ability to hire, et cetera, et cetera. So it’s a long winded way of saying I’m, I am comfortable being journalist.

SPENCER CRAWLEY: I’m rather envious of, of the pizza and the, and the colleagues of this world who generally have genuinely have a really deep expertise. But I think for seed, if you’re going to take a generalist mandate, which we do, you know, you have to be comfortable with that as well.

PETER DAVIES: I should stress we are utterly generalist as well.

PETER DAVIES: I, I occasionally we know a tiny bit about a few things but yeah, I, I think, I think, I mean, for me, of course, the luxury is that this is one of the reasons why I prefer to get to know other seeders because it’s so, I mean, for me, the lovely thing about the way I tend to think about things is normally by the time I’ve invested, there’s a sort of 18 month runway minimum for me, you know, where the first meeting will be probably a casual one and one’s gradually forming an investment view through that process.

PETER DAVIES: So allow that to sort of the way I deliberately want to be a partner of a lot of, you know, including, you know, that that’s my way of getting around. What I think is a really difficult problem.

STEPHEN CLAPHAM: I mean, you know, now we bumped into Mark Rubinstein, you’re a former colleague in the street and I was having a conversation with banks rather than sort of.

STEPHEN CLAPHAM: And I, I was asking about a, the payments Dutch payments firm which is valued at, to my astonishment, almost $100 billion on 80 times sales. I mean, I’ve got to do a case study on it for a client next week. And you know, I, I mean, I know very little about it. I do know that 80 times sales is a big number. And but, you know, it’s more likely to go to eight times sales than 800. I know that much.

PETER DAVIES: But Yeah, I think the key question is whether the sales grow that’s done by the sales or the price going down, isn’t it?

STEPHEN CLAPHAM: Well, I mean, obviously it’s got a very big runway, a very big opportunity ahead. But how concerned are you about bubbles or excessive euphoria in some areas of quoted markets? I wasn’t thinking so much of a, but, you know, electric vehicles specs.

STEPHEN CLAPHAM: Do you think, are we in a bubble? Obviously, we’ve got interest rates on the floor, but what happens if they go up, can they go up? And I’m going to ask Spencer in a minute, does this matter if you’re a V C because you just, you’re just happy to collect, click the checks?

PETER DAVIES: Yeah, I mean, I, I, I still say we’ve got a deficit of funding in the UK for early stage companies, you know, so I think the, the, you know, I, I kind of look at it in some sort of is the right amount of money going into these companies still not yet would be my general view.

PETER DAVIES: So, and, and actually, hopefully, I think, and I think you’re beginning to see this is that the, the sort of gap between, you know, capital available and a number of opportunities is meaning that where there are anomalies like the UK, those gaps are being filled more quickly than they probably would have been 56 years ago.

PETER DAVIES: So that’s probably a good thing. So, I mean, we’re choosing, I, I, I mean, I guess what I would say is that the two things we’re not doing at the moment are pre ip a funding where a lot of hedge funds are going backwards into that.

PETER DAVIES: And are listed investments. I mean, to me, we, we don’t own many of the fact. I mean, it’s interesting when I go back to valuation. So, and this was a mistake we made.

PETER DAVIES: So for something like Netflix, for instance, I remember comparing when we first bought it at about 10 billion, we bought it because we felt it had reached a critical mass where if anyone was going to win, it was going to be them, which was kind of like sky and ESPN, you know, and we kind of said, I can’t remember the exact number, but let’s say Disney had a market cap of 200 at the stage or 100 and 50 or something at the stage.

PETER DAVIES: And the, the, the, the, the, the until the two things until Netflix had a decent combination of the market cap of Disney, that was a logical valuation parameter to say that the new winner would be valued at the same as the old winner. And so I felt comfortable rationalizing that outside of which is potentially the argument, I guess.

PETER DAVIES: I think where I found it hard is that quite frequently including Netflix companies have gone beyond the previous winner in market cap terms perfectly rationally because what they’ve actually done is expand the market or make it more profitable. And I think probably I’ve been guilty of in some of these. I don’t know. I did well enough to comment but probably wouldn’t if I did.

PETER DAVIES: But, I think that, you know, I think it’s very rational to take the previous winner, say you’ve got a new winner and give some probabilistic view of, of that.

PETER DAVIES: I, I think where I would be more. And so the two things, the thing we’re not doing aside from the pre ip A stuff is, I kind of think the big consumer internet networks have were the dominant growth theme of the last decade which we invested in 79, 10 years ago and sold probably a year or two too early.

PETER DAVIES: I can’t see that they’re the dominant growth theme of the next decade. So, you know, to me, even though they’re not particularly expensive, I just don’t think they’re particularly interesting investments from here. You know, they’re just, you know, to me what I’d like to invest in enlisted growth is stuff that’s at an early stage of maturity.

PETER DAVIES: You know, to me, I kind of think some of the E S G stuff like weirdly, we would count some of our paper companies as being, you know, 10 year growth stories from here because, you know, to my mind, we’re at the point same point with switching plastics to paper as we were with Amazon and Google 10 years ago.

PETER DAVIES: And so I, I, I find I’m in, I don’t know whether they’re gonna turn out to be. Right, because they’re definitely not as expensive as they were 20 years ago and they’re very good companies and, and we’ll find new ways of innovating.

PETER DAVIES: But to me, the two things I would avoid is mature internet networks because it’s just not very interesting compared to the last 10 years.

PETER DAVIES: And I think the pre IP a stuff, you know, if there’s, if there’s capital going from somewhere where people are super competent to somewhere where they’re less competent, you know, going to, you know, as yet, the seeders are not going into the quod markets, you know, launching massive hedge funds and, you know, we’re not going all the way back to seeing.

PETER DAVIES: But I think that, I think that area would be the one that there’s a lot of capital chasing things.

SPENCER CRAWLEY: So I’m feeling a first minute lands down co branded vehicle could come from this.

SPENCER CRAWLEY: I, I won’t comment on a valuation of them, say that. The co-founder John is one of our LP S so very pleased for him. And, and I won’t comment on whether we’re in a bubble or not because we’ll hear much more thoughtful analysis from other people. But I think my perspective is, does it matter or not?

SPENCER CRAWLEY: I mean, we had a we had a, a flash feeling of it last year when, when COVID struck and we had to put our fundraise for first minute two on hold just because the world was on hold and, and our portfolio founders, what any funding conversations they were having was obviously put on hold and apart from it being a, a, you know, pretty grim time society and, and everyone then expecting, a full on recession.

SPENCER CRAWLEY: I think, I think it probably for early stage does not matter and is arguably, there are arguably even from a purely kind of capitalist thinking about a venture fund point of view, benefits to it, namely the valuations, you know, might well be crazy for a and, but, but they, they’re also crazy at each stage where people who are, you know, raising 10 $15 million seed rounds at 30 40 50 $60 million valuations for, for, for where there isn’t anything built, there’s no power point for sure.

SPENCER CRAWLEY: And that is because of their pedigree and their background and the space and the other things we’ve been talking about. So in a, in a, in a downturn, those, those things change and suddenly for, for, for the same amount of dollar you have larger ownerships of companies and, and arguably some of the noise subsides.

SPENCER CRAWLEY: And I think the, the money sitting above us in multistage firms and, and, and hedge funds moving into privates is, is still enormous. Even if rates change, even if everyone piles back into fixed income or what have you.

SPENCER CRAWLEY: I, I think for, from our perspective, we care about our, our founders finding product market fit and then if they need it, ideally, they don’t, if they need it, then raising subsequent rounds and scaling the business. So I think, I think there’s a, you know, a bubble bursting and there being a recession would be, would be from a, you know, the the global economy point pretty, pretty grim.

PETER DAVIES: From a, from an early stage fun point of view less so, but I think one big difference if you go back to 2000, 2001 and something we haven’t seen yet is obviously what happened then is a ton of capital was invested by the companies in the ground as it were building multiple telecom networks and there was just way too much capacity. That was fun.

PETER DAVIES: What was interesting then was that the predictability of that was not really, we, we misremember it a bit when we say it was valuation. It was actually, I mean, certainly from my perspective, you know, a had I thought about it from a valuation perspective, I would have preempted the, I would have said there was a bubble probably two years before that at the end of it. Yeah, you can argue about it.

PETER DAVIES: I mean, Amazon was 1/1000 of its value now. So, you know, hard to know but the time where it was really obvious was when you suddenly had way too many telecom networks being built and companies who are supplying that capacity expansion on very high multiples of an unsustainable level of, of, of demand. Obviously, one of the weird things so far in this cycle is actually it’s been very un capital intensive.

PETER DAVIES: You know, actually, if anything it’s been taking away for, you know, it’s been making the high street less valuable rather than building 20 high streets, my suspicion is that when the E S G theme emerges, that will be much more like the telecom theme of yes year of being because it’s effectively saying we need to build a load of new assets to replace the ones we had before.

PETER DAVIES: I would say that unless you can see overcapacity, you shouldn’t worry too much about it. There’s only very, very small aspects of what we, what we’re looking at where I can see overcapacity being the problem.

PETER DAVIES: I can think of, you know, a few areas where there’s probably 10 people trying to do exactly the same thing, all of whom have got a ton of capital. But that’s the exception still, rather than the rule and both from a sort of predictability of the bubble unwinding and also the impact of the bubble unwinding.

PETER DAVIES: I think one needs to remember it was and also the really interesting aspect which is, of course, because so many telecom networks were built, you effectively had broadband being free, which in turn was what created Netflix and YouTube, you know, Netflix and YouTube had, they had to pay a marginal cost for capacity on a telecom network would never, would never have come into being.

PETER DAVIES: And one of the things we’re thinking about a lot is if ultimately, my suspicion is seems a weird thing to say today is that ultimately, energy will end up being free because people will build so many renewables that there’ll just be massive excess capacity.

PETER DAVIES: If that turns out to be the case, the number of new business models created based on free energy is going to be fascinating. So, you know, I think there’s a lot, I think that capacity thing is a big difference to where we are today. Yeah.

STEPHEN CLAPHAM: No, I agree. I mean, I think the valuation there, there is a lot of very, very high valuations of very, very suspect businesses at one extreme. And then at the other end, my old hunting ground was completely out of favor. So, you know, high quality business like A B ports.

STEPHEN CLAPHAM: I remember 100 and 25 Pence got taken out for seven or eight times that five years later. So today we don’t have the 125 or well, if anybody’s confined 100 and 25 Pence A B ports, I I they’re not lying around obviously as they were in 2000.

STEPHEN CLAPHAM: Although, and then at the other extreme, the really high quality, you’ve got some really high quality businesses and they aren’t on outrageous valuations. But there’s this weird, there’s weird pockets like the specs and the electric vehicles which are ludicrously valued. And then you’ve got the very, very challenging valuations for an A where you’ve got to really think through how much, I don’t know, I’m making this up.

PETER DAVIES: So, but my guess is if you took all the people who could have been Amazon and took their market caps in 99 you know, it’d be an interesting question of whether one, if you, even if you’d evenly waited it, let alone picking Amazon, whether actually you wouldn’t have done ok, between then and now as long as you had Amazon within it, which goes to the point about, you know, and I think the same is true of electric vehicles as today.

PETER DAVIES: It may be maybe not quite so true today, but, you know, the ultimate market cap of the electric vehicle market will be enormous, I’m sure.

STEPHEN CLAPHAM: Absolutely, whether it’s in the right places or not, you know, but the problem with that is that there’s a lot of incumbents and automotive manufacturers are better equipped to respond by producing electric vehicles than Marks And Spencers were.

STEPHEN CLAPHAM: I mean, they had plenty of time, but they didn’t, they didn’t, the only company that come very few of the retailers.

PETER DAVIES: I don’t remember I B MS mobile phone being that it’s been fantastic.

STEPHEN CLAPHAM: Thank you both very much. Just a closing question. I ask you both. Do you have a favorite book or, and what book practice or training would you recommend to anyone looking to come into your business apart from mine?

SPENCER CRAWLEY: I mean, book just because you should enjoy venture if you do it or want to get into it. I would say bad blood about the is just a, well, I love that gripping book and also it’s a nice, you know, warning tale. So bad blood would probably be my book. And then in terms of resources and I, I learn better from talking and listening than, than, than reading.

SPENCER CRAWLEY: For me, it’s, I think there are a ton of good podcasts out there. You know, quite, quite right behind the balance sheet be number one. But you know, read Hoffman’s Master Scale is a great one that lots of people love. There, there are so many, but I think yeah, I would say I would say hearing people think about them talk about how they think about venture is probably bye bye.

PETER DAVIES: I was struggling with the I mean, I, I tend to like reading about periods rather than necessarily theories on them. I’m not, I’m not sure, I’m trying to think if I can, I was trying to think of a sort of theoretical one.

PETER DAVIES: I mean, I, I, I, I, I, I always think once you try and read about the periods you haven’t explored and, and actually try and try and, and so actually, if I was doing it now I’d probably want to sort of read about some more inflationary periods, you know. So, I mean, interestingly, Peter Lynch’s book, I can’t remember what it’s called, the Peter Lynch book. But one up on Wall Street, one up on Wall Street. Yeah.

PETER DAVIES: I mean, if I was a young person today, if only I would say actually, you probably know a fair bit about technology and stuff, read back to a period where, you know, a cycles were different from how they are now. And also, of course, what he was brilliant at was and it was a different thing.

PETER DAVIES: It was a physical expansion then, but it’s not that different with saying, look if you want to pay, if you know something works and it’s only currently operating in 1% of its available market paying 50 times earning for, it is hugely logical.

PETER DAVIES: And so I, I, I kind of think historical but I, I, I, I personally find history is easier to read than theories and, and that period I think is one that’s what’s so fascinating at the moment is there’s a very small sample set of people who can remember anything below before nine, before 1990. And yet we may well be in an environment that’s more similar to that than the last 30 years.

PETER DAVIES: I it’s fascinating.

STEPHEN CLAPHAM: I had the opportunity.

STEPHEN CLAPHAM: Rear vision asked me if I would interview Mario Gali and it was the night that England was playing Denmark on in the World Cup. And of course, obviously had agreed to do this interview and then realized that the football match was on and he’d rather do that.

STEPHEN CLAPHAM: So being Scottish was less interested in, in the football result. Although I did have, I did the interview in the living room with the TV, on in the background, I could watch the watch, watch the, watch the football. But he is the only person that I’ve spoken to that actually was investing in the seventies in a period of inflation.

STEPHEN CLAPHAM: I don’t know anybody who is that has had that long longevity. And I mean, there are people like I was talking to sir John Rip and obviously he was, you know, doing property at that time. Of course, property was incredibly difficult at that period.

STEPHEN CLAPHAM: But I said to Mario Gabe, I said, so what was it like investing in, in, in a period of inflation? And he said it was just much like today. He said the problem with inflation is it’s a bit like toothpaste. Once it gets out, the, once it gets out of the tube, it’s very difficult to get it back in.

PETER DAVIES: And I don’t know whether we we will end up in a period of inflation, but certainly, I think, I, I think to that point, I think when one reads his, I mean, a bit like we were describing with competence earlier and networks, you know, if one the other advice I would give to people reading those books historically is say, be alert to those of being the outliers of time, not the norm.

PETER DAVIES: I mean, I think there’s, I mean, one thing I observed, I remember, I mean, inflation especially is a very, very dangerous word in my experience.

PETER DAVIES: So, you know, 12 years ago, I remember post nine people saying Q equals inflation and they were 100% right? But they just forgot that actually the inflation was going to be an asset price is not in and therefore, you know, that’s all the theory they used was right. But the application was something they forgot to consider.

PETER DAVIES: Well, I just didn’t consider and you know, inflation is always is is almost invariably a relative dynamic graph and an absolute one. And certainly what we’re seeing at the moment is actually what’s so interesting is that you’ve got this very skewed cost of capital between some areas.

PETER DAVIES: You know, there are kind of two to my mind anyway, two major divergences, both of which are to do with cost of capital, namely government has very cheap borrowing, having had very expensive borrowing and therefore it’s about to spend a load of money having saved it for and and then within the real economy, you know, traditional businesses have quite a high cost of capital and therefore haven’t brought on capacity.

PETER DAVIES: Whereas there’s lots of capacity expansion in some of the lower cost of capital areas.

PETER DAVIES: I I still think I I’m trying hard not to use the term inflation because to me, it’s it’s about the incentives that get created by different costs of capital. Fully recognizing that whereas the last decade was about inflation happening but not being called inflation because it was asset inflation and the same inflation this decade may well look a lot more like inflation than prior decades and be thought of as such.

PETER DAVIES: So, but definitely this point about when you read these exceptional, I mean, we’re talking about one thing Stuart always and I always used to chat a lot about was how often muddle through actually happened.

PETER DAVIES: You know, if you took 10 years, there are probably one exceptional year either way. But in eight years out of 10, that sort of book you read about crisis X is, is, is as dangerous as you know, anything else?

STEPHEN CLAPHAM: Yeah, I think that that’s so true. My old friend Andrew Smith who is retired economist, he always says, well, you know, most things usually work out, ok, because we muddle through and that’s a, it’s a great way to end it. Thank you both so much for doing this. I really enjoyed it. It’s been fantastic. Thank you. Thank you. Thank you very much.

STEPHEN CLAPHAM: We saved the best till last.

STEPHEN CLAPHAM: I’m never surprised that Pete has a different perspective, but I’m often amazed by his insight, his analysis of the late 19 nineties tech boom and the parallels and possible fallout from E S G today have really made me think.

STEPHEN CLAPHAM: And Spencer’s views on what’s happening in UK TECH must be as well informed as anyone given his investor base. And the fact that we recorded the podcast the day after first minute annual Investor Day, I really hope you enjoyed the episode and that you learned something as well. I certainly did.

STEPHEN CLAPHAM: Don’t forget, subscribe to the podcast on your favorite hosting service and please leave us a rating on itunes. You can follow me on Twitter at Steve Clapham and we’re on all social media channels. Check out the YouTube channel behind the balance sheet for some great videos with investing tips, accounting, red flags and much more.

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