Yessi Bello Perez speaks to Bruce Macfarlane, managing partner at MMC Ventures, about his tech investment strategy.
NewVoiceMedia, a Basingstoke-based cloud tech provider, is similar to many startups in that it started out in a spare bedroom. Unlike many tech startups, though, it has now raised more than $140m in venture capital funding, having closed a $30m Series F round earlier this year.
The firm, still HQ’ed in the Hampshire town, has attracted a wide range of investors including Bessemer Venture Partners, Eden Ventures, Notion Capital and MMC Ventures, with the latter participating in the firm’s $20m Series B round, which closed in early 2013.
“NewVoiceMedia is an amazing story. It started in Basingstoke and it’s now operating all over the world,” said Bruce Macfarlane, managing partner at MMC Ventures.
“Most of our portfolio companies are looking to expand to either the USA or the Continent but they’ve all had their main operation in the UK during the early days,” he added.
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“We are very keen on SaaS businesses and we have one of the largest portfolios in that area. Consumer internet is also important for us.
“We’ve also done quite a bit of work in the human resource capital sector and we do some financial services too,” he explained.
Changes through the decades
Although Macfarlane has long been an active angel investor, he actually started off as a US securities lawyer in New York.
In fact, MMC emerged from his idea to combine interested, value-added capital with thorough, supporting due diligence to create a new model of angel investment.
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Now, and with 16 years of experience investing in technology at the helm of MMC, Macfarlane, it’s safe to say, has probably seen it all.
“The tech scene is a totally different picture, there’s a lot more money around now. There wasn’t very much 15 or 20 years ago,” he noted, adding: “It’s much more professional, there are many more firms but it’s still not a big community and there aren’t that many companies or fund managers doing what we do in Series A.”
‘Like a marriage’
With an abundance of entrepreneurs and novel ideas emerging in the tech space – MMC received 3,000 business pitches last year alone – VCs need to be through in their selection process.
“Unlike in the private equity market, in venture capital, investing is much more of a partnership with the entrepreneur. He or she will have a big stake in the business, they are the people that we are backing with the vision to deliver.
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“We are a partner. If there is a falling out between the VC and the entrepreneur, that can massively complicate the VC’s ability to get out of the deal. It’s much more like marriage,” he added.
Making a connection early and building a relationship with the investment community is also key. “We very much like meeting entrepreneurs when they are just starting out,” said Macfarlane, noting the potential for future investment.
“If we can, we will make introductions for the entrepreneur around the angel and seed community because we have good relationships in those networks and then we stay in touch until they’re ready to receive Series A,” explained Macfarlane.
This, he added, also helps on a personal level as it gives the VC time to get to know the entrepreneur and their business.
As a young tech startup it’s very easy to get distracted with the million things that are necessary to get a business off the ground. Whether it’s recruiting the right team, developing your product or finding the right office, it’s safe to say short-term plans usually take precedent.
But if there was one piece of advice Macfarlane could give, it would probably be to think ahead, especially when it comes to funding.
“An entrepreneur should be thinking about not just the money that they have to raise this month but where the cheque for £2m or £3m and then £4m or £5m is going to come from. They should be building up their network,” he said.
Being able to build a network and having the ability to think long-term are both desirable traits that VCs look for in prospective entrepreneurs. But what else is needed in order seal the deal?
According to Macfarlane, it’s simple and very much about the whole thought process behind transforming an idea into a business.
“The thoughtfulness with which they’ve identified the business opportunity they want to attack … and how they’ve gone about thinking about it [is important].
With startup formation in the UK on the rise, it goes without saying that procuring insight market knowledge and being aware of the competition are crucial to a company’s success.
“They should also display knowledge of the market and why their proposal is going to work and how it is going to succeed against existing players in that market,” said Macfarlane.
There are existing players in every market, he added, so founders must think through what they are setting out to do, what challenges they will encounter and have a clear idea of how to overcome these.
A team effort
Founding a business can often feel lonely. Hiring the right team is not only something that will help you attract investment from the likes of Macfarlane, but it will also help to ensure that daily operations run smoothly.
“We very much believe in teams. Obviously we are always looking for great entrepreneurs but entrepreneurs don’t succeed without a team around them,” explained Macfarlane.
MMC is looking for a team that is “cohesive but also complimentary”, and also willing to help bring the right people on board.
Having only a semi-complete team is not a deal-breaker, but Macfarlane said it’s obviously important for a tech-focused business to have a great CTO.
“We don’t mind that there’s no chairman or that the board is incomplete because we can really bring value there. We can recruit great people to come and get involved,” he explained.
Although venture capital investors usually have strict selection criteria and operate under an arduous selection process, they too make mistakes.
In fact, Macfarlane candidly recalled an instance where the firm had “misjudged” an entrepreneur and their team prior to signing on the dotted line.
Despite not divulging any specifics, Macfarlane acknowledged the oversight, referencing the challenges that arise when co-founders do not establish clear role separation: “There was a company with two co-founders, they were both co-chief executives. We should have stopped that.”
In terms of what entrepreneurs should avoid when it comes to pitching to venture capital investors, Macfarlane said he’s on the lookout for short, concise presentations.
“They should be able to describe the business in a minute or two. Somebody who can describe the business and all the essential points in 30 or 40 minutes, that’s what I personally look for.
“It demonstrates clear thinking, they’ve thought through and understand what they’re doing and they can explain it and articulate it. Being articulate is very, very important,” he concluded.