Andrew Scott, a founding partner at 7percent Ventures, talks about distilling the essence of your vision and your business into the deck. Andrew shares wisdom that he’s gained from his experience working with entrepreneurs across different geographies. He also gives his perspective of how the startup ecosystem in Europe needs to change.
Andrew Scott, a founding partner at 7percent Ventures, talks about distilling the essence of your vision and your business into the deck. Andrew shares wisdom that he’s gained from his experience working with entrepreneurs across different geographies. He also gives his perspective of how the startup ecosystem in Europe needs to change.
In this episode, you’ll learn:
[2:11] How the venture ecosystem is growing in Europe
[7:34] Why taking money from the wrong investor is the worst thing a founder can do
[14:15] Tips on how to make your pitch deck say less but be more impactful
[19:50] Essential components of strong investor-founder relationships
The non-profit organizations Andrew is passionate about: The International Conclave of Entrepreneurs (ICE)
Andrew Scott is a founding partner at 7percent Ventures. Currently based in London & Lisbon, Andrew has been an investor since 2014, has 20 years’ experience in technology, and is a founder of 6 startups. His specialisms include D2C, social & market networks, B2B SaaS and quantum computing.
Andrew is also co-founder of ICE, a non-profit global network of tech founders and investors, established in 2009.
7percent Ventures is a London-based venture capital firm that invests in early stage tech startups which represent billion dollar opportunities. The firm focuses on next generation early stage tech investing, bridging Europe and the USA. 7percent portfolio companies include Challau, Earnr, Neurolabs, Gensyn, Hybryd, Volta, Versadex, among others.
Coming up in Episode 96, we welcome Taylor Clauson, the managing partner at Abstraction Capital to talk about the importance of telling your why story.
Subscribe to our podcast and stay tuned for our next episode that will drop next Tuesday.
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Andrew Scott: People back the entrepreneur. They're back human beings. And the one thing I've learned in nearly 10 years of investing now is that it's 95% about the founder, and that's the sort of cliche that everyone talks about but as an investor, I find it anyway, a continual battle to try and focus on the person and not get down to the weeds on the product features and everything else.
Gopi Rangan: You are listening to The Sure Shot Entrepreneur, a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision. Welcome to The Sure Shot Entrepreneur. I'm your host Gopi Rangan. I'm here with Andrew Scott. He's the founding partner at 7percent Ventures.
We're going to talk to Andrew about the topics that he likes to invest in. Some of the areas he likes to invest are AI, deep learning, quantum computing, computer vision, augmented reality, virtual reality, blockchain and crypto, drones, robotics, and space tech. So this is going to be an exciting conversation. We'll ask him about how he finds entrepreneurs, what questions he asks them, what gets him excited and perhaps some tips and suggestions on what not to do in those conversations.
Andrew, welcome to The Sure Shot Entrepreneur.
Andrew Scott: Great to be here.
Gopi Rangan: Tell us about yourself, starting with where you grew up. I know that you spend your time between London and Lisbon these days, but let's start with your childhood. Where did you grow up?
Andrew Scott: I grew up just outside Cambridge in England and pretty much the countryside about 20 minutes from the city. I just started my first company in Cambridge after going to college there and then lastly moved to London and then spent a couple of years in the Valley. Now I'm back in Europe again.
Gopi Rangan: It's great to see that the venture ecosystem is growing in Europe, especially London and Lisbon have become big hubs these days. What is exciting for you in venture? Why venture capital?
Andrew Scott: That's a great question. I had run a company in the Valley and came back to Europe originally actually just for Christmas. I didn't intend to stay. A friend invited me to go and consult for a VC in Sweden. I thought, well, I've never lived in Sweden. Why not? So, I lived there for about six months. At the end of doing that consulting gig, working with their accelerators and helping them on the strategy for their new fund, I had to decide what to do next. I could either start another company or I could solve some of the challenges I'd experienced as a founder in UK, taking money from European and UK VCs. Having raised in the Valley and raised in the UK, I recognize some of the cultural differences and I wanted to solve some of those problems. To cut a long story short, I partnered with my friend and now business partner, Andrew Gault. He's actually a Scotsman. He's also an ex founder. He also had problems raising money in Europe and moved to the US and raised and did very well.
Europe's transformed from 10 years ago when I was still a founder in terms of its VC ecosystem. And there's a lot more cross pollination between the west coast and the east coast of the U S and Europe, which is great to see the investors investing across. But I'm very lucky to work with amazing people every day. Hopefully I can apply some of the mistakes I made as a founder and help early-stage founders not make those mistakes and help them realize their dreams and get their visions in market.
Gopi Rangan: The ecosystem in Europe for venture capital and how it affects founders. I'm very curious to study. I've noticed that starting with the angel investments and how founders think about ambitious plans for the future potential acquirers who support the ecosystem as well. All of that is pretty stunted. It's not as well developed as the ecosystem in Silicon valley or even the rest of the US.
What challenges do you see in the ecosystem? What changes need to happen in Europe or are already happening?
Andrew Scott: I think that's fair, what you say. It is changing though. At the M&A end, there is a cultural challenge of the bigger corporates that might buy companies for trade sale, not wanting to pay the same amount that a US company would. That then has a butterfly effect down the chain means that the exits aren't as big, which means that perhaps as much money goes to VC as it could. Often, we see the most successful companies in our portfolio ultimately selling to US entities. I think that is starting to change.
There's lots of academic work out there on what causes it. There's definitely a different culture of risk in the U S than there is in Europe. The UK is actually a sort of interesting halfway house. It sort of half Anglo-Saxon and half has a more kind of social European mindset. But obviously we look at the public markets and you can see that the US stock market is 10 times the size, if not more, of the London stock market, and there are some structural issues there on the public side that need to change in the UK. I'm pretty sure in Europe as well. Certainly in the UK, there are challenges. A lot of the money comes from pension funds and they have a naturally very conservative approach to how they deploy their capital. You see that reflected in the success or not of tech stocks on the London Stock Exchange versus the US. Just recently, we had arm announced that they're thinking about going on to the NASDAQ instead FTSE 100. So, yeah, I think it's a work in progress, but I'm very positive. I think Europe has so much talent and there's actually more engineers in Europe than there are in the US. It's a huge 400 million person plus continent and so we have to leverage our own advantages and not just try and cookie cut what works in the US. We've got to find ways to be successful here. And we see that in some of the companies we invest in. We've got some space tech companies that have decided to come to the UK, not go to the US because of the security challenges around not being a US national, for example.. Or there are reasons why we've seen companies come to London because there's such a buoyant FinTech market. That's a great example of where London has been very successful competing because London and the city got ahead of the curve on regulation changes to enable crowdfunding, to enable next generation of banking apps.
So it's really up to us. As countries and as a region we've got embraced what we can do well.
Gopi Rangan: Yeah, there are some regulatory differences which are more favorable to founders in some of the European countries like FinTech areas or space tech topics. Can you give examples of one or two companies and help us understand what happens in that first meeting when you meet an entrepreneur? What do you look for?
Andrew Scott: The first thing to think about as a founder is that investors come in all shapes and sizes. If you are in San Francisco or Mountain View where you're sitting, the narrative is always pretty much the same. People are expecting you to have a huge vision. They're expecting you to have the ambition to go for a moonshot, to change the world. And there's a narrative playbook that everybody understands to get there. As you move out of that hub, it starts to get a little bit different even in the US. Certainly, if you come to Europe and UK, you're going to run into a wider variety of angels and VCs, all of them with different risk appetites and a slightly different set of beliefs about how you build a successful business.
The reality is there are lots of different ways to build a successful business. You can bootstrap early all the way and then take a lot of money later when you're successful or in the case of deep tech, where it's very hard to do that, you have to take money early.
So, one of the things I look for with founders is to try and understand what is their ambition? Is it authentic ambition? Do they understand the type of company they want to build and how they want to build it? Or are they just rattling off the same standard stuff they've read on tech crunch, and, it says, I want to build a billion dollar company because that's what every founder puts in every.
I want to understand from them that they have a clear narrative around how they think this business can evolve and how much money they will need to raise. We all know that that will change. We all know that it's an educated guess at this stage, but the worst thing I've found I can do is take money from the wrong investor. At 7percent, we're very much on the end of power law believers. That means that most of our returns are going to come from just a couple of companies in our portfolio and the rest will be a long tail of much smaller multiples or fail completely. That's not always the case. Particularly with funds in Europe where there're perhaps the UK EIS funds, for example, which are funds structured for tax relief. The expectation of multiples and the appetite for risk is going to be very different. It's really important that founders, all the information's out there, go and understand. Read some blogs about how VC works. Do the research on the funds you're trying to take money from. Don't do this sort of scatter gun approach of just contacting 150 VC firms. Think about who you want to take money from and make sure that your ambition is really authentic around what sort of company you want to build...because not every company can be a multibillion-dollar company and not every company should take VC funding.
Gopi Rangan: Your advice to entrepreneurs is very relevant. Choose the investors carefully. These days, there are more choices to find the right investor than entrepreneurs had when you were raising funding a few years ago. What happens if they choose the wrong investor?
Andrew Scott: The most you can hope for from an investor is that he don't do damage. You're already winning, I would say, particularly if you end up with someone on the board. So, there are a few pointers:
1). Don't give people board seats really early on. Think about who you're surrounding yourself with in terms of advisors. Think about the angel investors you're taking money from. Do they think the same way you do? Will you have some of your shareholder base who are going to support you and be on your side of the table?
2). If it's going really badly with an investor, the first step is to try and address that and be transparent about it. But I would caveat that with saying, you need to be realistic that ultimately they are an investor and they're going to look after their money. If they're having a negative impact on the company, best case scenario is it's because they're incompetent. Worst cases is because they're doing it intentionally for some reason, and they're being disingenuous.. So, depending upon which of those two things it is, it's going to depend upon the individual situation what you do about it. But I would talk to other founders and try and find some founders who've had problematic angels, reach out to friendly shareholders.
And this is a good reason for getting multiple shareholders on your cap table. You probably don't want 50. But if you have a handful of angels alongside any micro VC fund early on, or later stage fund, or if you're doing a later stage round, try and get more than one major VC on the cap table because you can either play them off or one will sometimes make help the other one behave. Then you have options. I sometimes see founders, they go to take money from a big name VC very early on, especially now that multistage firms are fashionable again. You know these things tend to go in cycles and currently multistage firms are quite fashionable. You've got a lot of late stage firms that have lots of money trying to deploy earlier to get access.
I would recommend the founders don't take money from multi-stage firms because it's all optionality for the VC, not for you. So, there's the signaling risk if they don't follow on at a later stage. Also, I've seen why founders take this big check. They don't bother to get other angels on the cap table and other investors.
From experience, I think that's a mistake because while they might not be a lot of capital, those shareholders can really be great sources of advice and leverage and influence if someone else's misbehaving on the case.
Gopi Rangan: Well, there are many nuggets of wisdom here. What you're saying is be very careful who you give control to when you take on an investor, especially when you are giving board seats. Don't limit yourself to just one investor. Bring more than one investors, not 50, but a handful. That way they all can check on each other and you will get multiple points of views. And there's no one person dominating all the decisions. These decisions can make or break the long-term growth of the business. It's important to have investors who are aligned, for whom this is a win; it's a sweet spot for them.
If you take a multi-stage VC firm, it's an option bet for them to invest in later stages, which is ideally the sweet spot for them. And that may not be perfectly aligned with the values of the company at the stage where they are right now. These are all very important things. You can't really intuitively guess many of these things, you have to be a founder and experienced a lot of these things. I can see that in your approach as an investor.
Andrew Scott: That's a very articulate summary. I think that was a far more concise summary than I gave to start with.
Gopi Rangan: I just listened to you and I played it back in different words.
I'm curious to understand what does 7percent mean? This is a very unique number here. It's not 6. It's not 8. It's 7percent. It's not 1percent. It's not 10percent.
Andrew Scott: I think names always are really interesting and fun part of any business like brands. I've always loved brands. When Andrew Gault, my business partner, and myself were starting this venture firm, we had to come up with a name and we came up with all sorts of different names.
One of our go-to narratives is that once you've got a product in market, it's all about that early stage growth. This is wisdom that's well-known and has been championed and popularized by Paul Graham and Y Combinator that if you're growing 5% week on week or more, up to 7- 10% week and week, you've probably found an initial product market fit. Anything below that, there's a problem somewhere. You haven't found either the message to market, you haven't got a product that people want, or you've not got your go-to-market strategy right. So, we wanted something that reflects that thinking.
In reality, it works really well for what we call transformative startups we invest into. And that's things where you're taking a known technical solution and applying it usually to a like add market. That could be a SaaS platform. It could be an app, it could be something else, but you build something, you get it in market, and then you start growing with your rich heads, that initial market of users.
It doesn't work so well for deep tech, which is the other bucket of stuff we invest into because quite often you've got to spend two years building something. Three is building something. Trying to measure something, 7% week on week when you're building deep tech as much trickier. But it's memorable, which I think is the number one challenge with a brand like any brand that you want people to engage with. It's gotta be memorable. It's the number one thing, and it's a talking point.
We used to get the question a lot: "do you take 7% of the company?" We get that question less and less now, but it's a talking point and people remember. So we were thinking about changing it, but for now we'll stick with 7percent
The second thing is seven is also a very lucky number in a lot of cultures, and so it's one of my favorite numbers as well.
Gopi Rangan: It's a unique name, indeed. I think what you mean by 7percent is that when the company starts growing, you need to grow fast. And those are the kinds of companies you like to invest in. In deep tech topics, it may take some time to begin the growth process, but you will be patient and you would invest in those companies as well. You're not only investing in consumer focused companies that typically have rapid growth immediately. What advice would you like to give to founders in deep-tech, FinTech, health-tech, death-tech, manufacturing, logistics, and drones. These are all topics that you invest in. What advice do you give to entrepreneurs who focus on these topics? What's the best way for them to prepare for a meeting with you?
Andrew Scott: I think the advice probably isn't just for us. It's for any VC and any investor. That's to go and do your research about how to pitch and really try and distill.
Google is your friend, right? There's so much content out there and a lot of it's very good. We've even got a link on our website to a standard template, which is loosely based on Sequoia's standard template for decks that they published many years ago. When I started my first startup, I was kicked out of college and then I was running my first startup back in '98. None of this information was available. There were no blogs. I couldn't find any books. Nobody I knew had raised angel investment money. So, I had to make it up as I went along. I did my very first company. I did a long form business plan, and then I had to print it out and bound it and I gave it to people. This is back in the day when people still sent faxes. So, I then got people to sign an EOI and fax it back to me or the more technically minded emailed it back. And yeah, I made it up as I went along. But now, as you said, there are so many platforms. There are so many resources on how to raise.
You need to really distill the essence of your vision and your business into the deck. And when you design that deck, remember that this is not trying to explain every single detailed aspect of the company. It's a deck to get a meeting, and the meeting is where you sell yourself and the business, because especially early stage, they back human beings. The one thing I've learned in nearly 10 years of investing now is that it's 95% about the founder. That's a sort of cliche that everyone talks about but as an investor, I find it anyway, a continual battle trying to focus on the person and not get down in the weeds on the product features and everything else, because they're quite easy to discuss because they're quantifiable, they're tangible. It's much harder to get under the skin of individual and understand what makes them tick.
I'd recommend that founders bear that in their mind when they put together their pitch deck. I think that it's actually an amazing process to go through because it helps to steer your own thinking. Don't worry about layout and graphics and fancy designs. Start with big 30, 40 point text on each slide or take pieces of paper if you want to. Take the biggest marker pen you can find and write out each slide that way, because it will force you to say less and it will be more impactful. I think that's what investors want. They want to understand what your vision is, what problem in the world you're trying to solve, why it's important now, who else is doing this, and why you'll win. What's your unfair advantage as a team? How big could this be? What have you done today and how much do you want to raise? That's really it. At the end of the deck, I want to be thinking, "wow, this sounds amazing. I want to learn more." Sometimes more is less. And as Steve jobs would always say, "the more you put in, the more it's going to distract me from the core message."
So you don't want to be vague. You want to be concise. That's one of the hardest things for entrepreneurs to do, or people who are running their startup, because there's so much going on in their minds that a lot of that leaks onto the page. You want to really make it A B C clear .
Gopi Rangan: Entrepreneurs who do the homework before they come to a meeting, whether it's a slide deck or telling the story, they have synthesized a lot of information, distilled to the essence, and then they share the concise summary of that and be ready to discuss in more detail when we go into a discussion. Those are the entrepreneurs that are easy to work with, especially in the first one or two meetings. It's a much more effective meeting for both sides.
You mentioned many things that are typical for many VCs to look at: market size, the team, problem that you solve, product that you are building, plans for the future, how big can you be... all of those things. Are there any questions that you like to ask in your style in the first one or two meetings that bring out some of these stories more easily?
What do you usually ask them?
Andrew Scott: That's a good question. It obviously varies from founder to founder. If it's a deep-tech play, you do end up inevitably digging into the technical challenges that this idea is going to face and vice versa. If it's something that there's an MVP available, this digital and it's online, then you're digging into how they built it and how it's going to grow in the go-to market.
But we try and ask enough questions about person. There's an investor called, Charlie Songhurst, who's very prolific and has done over 1500 angel investments. When I met him a whole bunch of years ago, now I remember sitting in with a meeting he did with a founder and he hardly spoke about the product or the company at all.
He spent the majority of the meeting talking about the founder's backstory, their life. What challenges they had faced, where they went to school, how they changed and evolved, which was extremely insightful because he was doing exactly what I've said is hard for investors to do, which is getting under the skin of the person.
I do try and remember that when I talk to founders. But inevitably, we're also tech founders, ourselves ex-tech founders. So, we get excited about the tech. We do also want to understand how this idea is going to change the world and how the world's going to work differently in future.
Otherwise, we often think about, if you roll forward 10 years time, is this something that people will turn around and say, "God, I can't imagine the world without X. That's slightly more prosaic for things which are deep-tech, but I would argue, you'll still see the consequences of that. Or if you look at the industry, you could still apply that logic. For consumer stuff is much easier. Can you imagine the world without Uber, for example, or Google? It's also true for things which are more, less consumer. In five years time, when Elon Musk launches every day and the space sector has become commoditized, or at least getting to space has become somewhat commoditized. We'll look back and forget that once upon a time, this was something that happened every two years.
Gopi Rangan: Looking ahead beyond the current problems and how to get the puzzles solved today, thinking 10 years ahead gives the idea of where this can go. That's a very interesting way to engage with an entrepreneur.
What are some common mistakes entrepreneurs make that kind of frustrates you or you wish those mistakes didn't happen?
Andrew Scott: I think there are things which are forgivable that perhaps we've made in the past. And then there are ones that kill the meeting or undermine the meeting. The ones that kill the meeting are things that suggest there's a lack of transparency and therefore there's the issue of trust. If there isn't transparency around the evolution of the company to date or the numbers, or somebody's painting a picture which is disingenuous, any of those things then undermine trust. And once the trust isn't there, we're not going to give you money. That goes both ways, by the way. VC has reputation game and we always try and be very transparent and we try and be honest.
And sometimes we drop the ball. Like perhaps we said we are going to return a call or there's an issue. You just have to own up to it. "Hey, I'm really sorry." Apologize and be honest. We're all human beings. We all make mistakes. I think then most of the time people understand. So, transparency's key.
Some of the things which are frustrating, but fixable, if the founder responds correctly, is not having your numbers straight. This goes back to preparation. If you come to me with an app that's launched two months ago, and you don't have a cohort analysis of how many people are using it, I'm going to think 'why not'?... because it's something that's so fundamental to making a success of that application to understand what's working and what's not, for example. But if then the next day they come back and they've checked the numbers and or they fix it very quickly, then that can actually be quite compelling. I remember when I had a B2B business, one of my first startups, and I looked back at the customers we had. Some of the customers after a few years of running that business where the most loyal customers. They were the ones we had actually screwed up with at the beginning. Something had gone wrong, they were unhappy, but we'd been very, very responsive to them and solve their problem really well.
They've subsequently become loyal. Actually, good service is so rare to the point where I wonder whether we should intentionally make a small mistake every time, but fix it really quickly to make every customer that loyal. But I think the same can be true with founders. One of our portfolio founders, a number of years ago now, we had a very interactive conversation about the product and the service. They went away after the meeting and literally five days later came back and said, "we implemented this. We've tried this. Here are the numbers. Thanks for the advice and suggestions. That tick s so many boxes because it showed that there was a good balance of coachability and confidence about what they wanted to build and deliver. It showed that they had a good product development process, et cetera.
Gopi Rangan: Transparency is important to build trust if that goes both ways. If that's there, then there's something to be built from the relationship. And if we can't establish that soon, then it becomes really hard to work together.
I see how you look at the feedback loop, the iterations that the founders go through, the changes they make. It gives a glimpse of how they improve, how they learn and how they can make their company and the products better. I see that you look for hints of this in your conversation early on, and that can be a make or break for your investment decisions.
This is incredibly valuable. You've given a lot of practical examples from your experiences.
I want to switch to the next part of our conversation and ask you about your community involvement. Is there a nonprofit organization you are passionate about? Which one?
Yeah. And
Andrew Scott: I'm pretty biased about this actually, because I was one of the co-founders of it. In 2008, we started something called ICE - the International Conclave of Entrepreneurs. It started pretty organically. A bunch of entrepreneurs, mostly from London, but a couple from the US as well went on a ski trip to the Alps with the idea really of just spending time together as co-founders and consequently building trust and to share ideas and have a good time, you know, to spend some time with others who understood the challenges.
Cause it can be super lonely being a CEO or even being a co-founder. So that has since grown over the last 14 years to hundreds of founders. We do trips, we do retreats each year. It's still not for profit. We have a committee of 15 that cycles each year or volunteer. I'm still on the board, but that's really changed people's lives actually. It's still all about helping people be their best professionally through the lens of being a startup founder. Some really great founders we're honored to have had or have as members to have include wise.com, Renaud, who is one of the co-founders of Eventbrite has been a member for years. Yeah, it's just been such a source of friendship for me and privileged to have helped create something which has brought so much to so many people.
Andrew, thank you so much for sharing many examples from your experiences working with entrepreneurs and including your journey as an entrepreneur. The changes that you are bringing to the ecosystem, especially in Europe, will have a huge impact for future entrepreneurs and future founders. Thanks a lot for sharing your nuggets of wisdom. I look forward to sharing them with the world.
True pleasure. Thank you so much.
Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur. I hope you enjoyed listening to real-life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review. Your comments will help other entrepreneurs find this podcast.
I look forward to catching you at the next episode.