TMRW The Rocky Road to Success: Russell Buckley from Kindred Capital on
Steve Jobs, Exiting to Google and Investing
In 2001, Russell’s startup ZagMe went bust, as much a victim of 9/11, as being 20 years too early with their business model! However, Russell continued to be fascinated by the opportunities provided by mobile, even before most of the world seemed to be. This resulted in a very frustrating 5 years of patchy employment while sharing his vision of the mobile future via his blog, MobHappy.
Eventually, his writing led to his becoming the first employee at AdMob – perhaps the only time a Valley-based startup made their first hire in Europe. AdMob was sold to Google for $750m in 2010 for their third biggest acquisition at the time.
Russell joined us for our first in the series, “The Rocky Road to Success.”
Francois: Tell us about your background.
RUSSELL: I worked in marketing for about 20 years and then in 2000 I moved into mobile marketing, which was very early in its development.
I was actually trying to do location-based marketing back in 2000 and we raised some money, signing the term sheet on 9/11 and the round of funding just evaporated in the aftermath.
So we went from a successful little startup albeit, much too early to bust within a couple of weeks. After that, I could see a vision of the mobile future as pretty much what we’re living today so I spent the next four or five years doing bits of consultancy and blogging about mobile marketing in general.
If you look back and think it was pretty obvious but actually it wasn’t obvious to the vast majority of the world so a lot of the audience I was blogging to (50,000) or so were West Coast investors and entrepreneurs.
Omar Hamoui was a computer scientist, doing his MBA at Wharton at the time, and he wrote the very first mobile marketing platform. His investors and he all knew who I was from my blog so they invited me to join them at AdMob.
It was probably the only time that a West Coast startup essentially ever employed a European in Europe as their first hire.
So I went and joined them and ran Europe for a while and then took more of a global spokesman role and then four years later we sold the company to Google for $750m.
Francois: Can you tell us how that happened?
Sure, we’d been seeing Google and Apple and Microsoft and the other players in the marketplace doing mobile advertising and we thought that they might put their A-team on it and we might start feeling the pinch. We thought we might investigate selling but we didn’t do anything about it.
One day Omar was sitting in the office and the phone goes and it’s Steve Jobs asking Omar to go round to his house!
So went around to his house and he said he’d like the company and for $600,000,000 and all the negotiations are going really well until it came to the final small print and he wanted the whole team to revest all our shares.
Omar and I were the only two people in the company who were fully vested at that point and the rest of the management team were coming along and we would have to basically give up all our shares if we’d been fired.
Steve Jobs has a bit of a reputation and we didn’t think that was necessarily a good idea to basically work for four years and walk away with nothing potentially; so the moment the NDA lapsed the Friday night, Google came in and did the deal over the weekend for $750 million.
Francois: That must have been the best weekend ever.
RUSSELL: What was interesting is all during the negotiations with them and exclusivity with Google, Steve Jobs’ phone kept coming on Omar’s phone wanting to reopen the negotiations. Before he died he did say that he forgave us for selling to Google!
Francois: And what have you been doing since then?
RUSSELL: I was interested in startups and helping people succeed in a startup environment and so the first thing I did was invest some of my money just to see if I was any good at it.
I put together a fund with a few friends and after six years it was at 14X up which is pretty good; if a fund does 3X it’s pretty amazing so 14X is very good.
From that, I had earned my place at the table to actually use other people’s money so I got together with three other people who I knew at the time who were all pretty diverse in terms of their backgrounds and their ages. We’ve got people in their 60s, 50s, 40s and 30s and so probably looking for somebody in their 20s next as well as geographically diverse and experientially diverse and we raised £80,000,000 to invest in very early stage startups.
Francois: What’s your typical investment size?
Our average cheque size is about £750k up to about a million sometimes and down as far as £250,000 which I think is the smallest we’ve ever done.
We invest in early stage which can be pre-product or in some instances if we’re going to invest in pre-product like a team and PowerPoint presentation stage, they would have to be quite an exceptional entrepreneur who had already done it and proved it.
Francois: What makes you different?
We have a thing, which is unique to us, which we call equitable investing and the way we earn our money primarily as partners in a VC fund is we get to share the profits in the fund after we’ve returned the money to our investors; it’s basically profit sharing.
We decided to put an economic incentive for our founders to help each other so we shared 20% profit over our profits with the founders we invest in.
That works out somewhere around £4m which would otherwise come to us so we think it’s a good investment to share that out among founders we invested in.
Founders tell us that they feel kind of closer to other founders in the portfolio and they really go out and help each other whether it be through advice or sharing beers in emotional journeys through to giving some practical help like if you want to move to San Francisco next week you could talk to Pete in the portfolio and he did it a year ago and he could probably save you a lot of time.
I suppose the other thing about Kindred which makes us very different is that all four of us have got operational experience in Europe; most VCs come from finance or banking, which is just fine but in the very early days you probably need somebody who can certainly empathise with the journey and can give you some practical help.
I heard a quote the other day which says something like if your seed investor asked to see spreadsheets you shouldn’t use them and or work with them and if your series A investor doesn’t ask you for spreadsheets well you shouldn’t use them either!
It just changes journey; in the beginning, you want somebody who can help you. In the later stages, you want somebody who can introduce you to Google when Steve Jobs stitches you up basically.
Francois: So let’s focus on the pre-AdMob. Did you try another company or two, did you have ideas that never went there; what did you do?
RUSSELL: I was involved in a whole bunch of startups before AdMob, probably I started my own company roughly when I was thirty and the only one which really ever failed was the one which actually I was talking about which was location-based marketing and that really failed for reasons partly outside of our control but partly in our control.
Outside our control was 9/11 and that was just unfortunate but actually, in reality, we were 20 years ahead of our time and one of the lessons I’ve subsequently learned is that when you’re a bit ahead of your time it can be fatal.
But the problem is it works for you if you’re like 12 to 18 months ahead of your time and not 20 years and so you think that if I just hang on there for another 12 months, the world will catch up.
It sounds great to be a visionary but actually, you can be too much of a visionary
When I left AdMob I actually had a sort of interim position as a sort of marketing director CMO with a company called Eagle Eye who do mobile coupons and this was in 2011. After six months I realized that they were seven or eight years ahead of their time and I wasn’t going to spend another seven years waiting for the market catch up, it’s much better to go out and do something else which is what I did. So yeah, timing is really, really tough if you’re on the wrong side of it.
Francois: What about hiring people?
RUSSELL: Well I think startups need people who can get shit done. I know that sounds awful but some particularly big corporate people aren’t really paid to get stuff done, they’re paid to think and that can be really fatal.
You want somebody who can roll up their sleeves and hustle and do anything. What startups need is generalists, so you can pretty much do anything ranging from making the coffee through to presenting to the CEO of a FTSE 100 company and it’s important you do everything pretty well.
Audience Q: A friend of mine is a semi-professional coder and he said that when you’re building a new product, it’s just vanity to think you need to build it from scratch when there is so much stuff out there to build upon. Do you agree with him?
RUSSELL: I guess it’s one of those questions which is quite difficult to generalise but what I would say is that if a new CTO comes in and says we need to rewrite this whole thing, my first reaction is they’re probably not a good CTO because they should be able to work with what we’ve got and rather than stop the company for 18 months.
What happened with AdMob was although Omar was a computer scientist it turns out he wasn’t a very good computer scientist and we had to rewrite the whole thing but it didn’t mean that we had to stop the whole business to do so. Our CTO is now CTO of Microsoft so yeah he knew what he was doing.
Francois: Any regrets earlier in your career, pre AdMob?
I think early in my career I didn’t know what venture capital was so when I had promising little businesses which could have got us some of our capital I didn’t know about it so who knows whether or not I would’ve got funding. I had a lot of businesses which did quite well. One I put in £1000 and the first year it turned over more than £1m. The second and third year it did the same and I ended up handing it over to my business partner. Who knows if it would have turned into something more interesting if I’d know about capital backing in the 90s.
Audience Q: You said about being too early for the market. If you’re working on your own, how do you know?
RUSSELL: That’s a really difficult question; all I can tell you is if you’ve been in that situation you are much more likely to recognise it again and maybe ask somebody to just test your thinking about whether you’re right or not, somebody outside your little group-think bubble.
When we invest in companies we expect 20 or 30% of them never to make it and timing is one of the big reasons why they don’t make it and probably the other one is it’s all down to founders really; either you have founders arguing and fighting and being destructive in that way or the founders just aren’t good enough to be frank.
To create a venture-capital sized company just to be clear we are looking for billion-dollar exits, that’s what our model is based on so we’re not looking for good companies, we’re looking for great ones; something that can go on to scale to be really big.
Audience Q: Can you give us an example?
RUSSELL: I was talking about Five AI as an example which is creating the autonomous vehicle software stack and I think most people who work in technology would probably agree that between five and 10 years’ time most people will be driving autonomous vehicles and that’s not a very long time frame but most European car manufacturers don’t have an autonomous vehicle policy.
If you’ve got a consumer product which you want to launch, if you can’t demonstrate how it works on mobile and the fact that you’ve thought about what comes next after mobile, how it works on AR and VR and beyond that; you’ve got to start thinking about that speed.
Audience Q: At which point would you think an investor might pull the rug from underneath a company’s bid if they believe the market isn’t ready for their product even though they may need another year and some months or whatever, where is the cutoff point for investors to stop?
RUSSELL: Normally when they run out of money; our terms sheets are pretty fair and open and ultimately we don’t have the power to take the money back or anything. We can and have swapped out CEOS with the founder’s permission.
We invest basically very early stage so very often there’s no data to invest in them so it’s all about the people.
When my first company failed I wrote a white paper on why it failed and that was nearly 20 years ago but it has stood the test of time.
Francois: What’s the process if someone wants to approach Kindred seeking investment?
RUSSELL: Send us a pitch deck and if we like the pitch deck we’ll arrange to see you and if we both like each other, we can move forward.
One of the things I think startups often forget is that you’ve got to feel really comfortable with who your investors are because you’re going to go on a ten year journey with them and the due diligence goes both ways so you should always talk to some of the founders which they’ve invested in including some which haven’t gone so well. The final stage is a working meeting with the core team whom we get around the table for a ninety minutes or so and we work through a problem the company is having.
Audience Q: What’s the time frame from start to investment?
RUSSELL: It varies but within a month, we move really quickly for VCs but slowly as far as founders are concerned.
Francois: It’s one of the quickest in the industry, even if you got a negative answer it’s very quick and I can attest to that which is as important.
When you look for your perfect partner always think of smaller outfits which can make decisions together and there’s less distribution of that decision.
RUSSELL: One of the problems with being a startup and what VCs do to interact is that it’s very easy for a VC to always say this is really interesting, this is great; just come back to me and talk to me in three months’ time and you’ve got a little bit more traction and that’s what everybody says and it’s actually not very helpful advice.
I have written a blog post ‘Seven Reasons not to Work with Kindred’ and it goes through the main reasons why we wouldn’t ever work with somebody. The main one is it’s just not going to be big enough an outcome and most ideas aren’t big enough and we’re very clear from the very front because we don’t want to waste people’s time.
All you’ve got as a founder is time on your you side and the speed at which you can execute and you don’t want to go off to have a bunch of meetings which aren’t ever going to go anywhere so we’re very direct and try and be helpful.
Audience Q: Do you have a relationship with Google at the moment or is it more at an arm’s length?
RUSSELL: Yeah we know people at Google, some of my old AdMob colleagues are still there.
The thing is about Google don’t forget is that for Google to work, whereas VCs want to see dollar valuations if Google have an internal project which nobody can see or clearly leads to a $10 billion revenue opportunity they won’t do it, which just happened to Google + last week.
Audience Q: Do you see that the Microsoft, the Facebook and Google methodology is sort of continuing?
RUSSELL: It’s a difficult one really, we’ve been told a lot by mainly the old media that data abuse is a big problem and clearly GDPR and that kind of stuff indicates that but actually, consumers aren’t voting with their feet.
I think the average person doesn’t care or doesn’t understand but I think it’s mainly they don’t care; I’ve always taken the view myself even though my background is mobile advertising, if any person wants to use my data to show me better ads that has to be a good thing if I’m more likely to find that useful or engaging or interacting in some way I’m always happy with that.
Larry Ellison said probably 15/20 years ago now privacy is dead, get over it and I don’t think anything’s changed and we keep talking about as an industry people getting more protective about data, personal, and people getting pissed off about it but there’s no sign that they are in reality.
Audience Q: Is there a business maybe for a subset of the overall data?
RUSSELL: Yeah, who knows? It’s one of those things where until you’ve seen the pitch and heard the proposition but I think if you don’t want people to see it whether that be a Facebook post or something on your phone or whatever, if you’ve got photographs you don’t want people to see just don’t take the photographs, don’t take the video; that’s what I would advise certainly, but maybe. People have tried this with virtual albums and various other things and again it tends to be something which sounds like a great idea but actually consistently people bailout as a business model.
We actually have an investment which is taking slightly the opposite case where parents are alerted if there is a transgression happening on their child’s phone – whether it be cyberbullying or watching porn or whatever the transgression is including like a 12-year-old being on OKCupid. Managing that process is a UI challenge in its own right because you’ve got to get back to the parents and say by the way your daughter is on Cupid. There are all kinds of stuff that they are doing and these are kind of tech-savvy kids who clearly are getting into.
Francois: There are two companies in this space; one is Birth (the content you want to share with your family and nobody else). Canon just bought one but it was small and nowhere near a billion (it was a 350 acquisition London-based company). There is now network attached storage where you can decide what data goes on and off your firewall in your house and that’s typically at the moment a hardware-based businesses that have an interest because they want to sell a hard disk. A hard disk is a hard disk but now they come with something that looks like Google and recognizes my family faces but nobody else so I think there’s a business but nowhere near the size of what you guys need to do.
Audience Q: So I think you mentioned average investment size around 750k and average equity early stage what would you say?
RUSSELL: Well we like to get a minimum of 10% and depend on the valuation and therefore it’s a negotiation process so we take usually between 10% and 20% depending on the stage of the negotiation process.
Audience Q: Do you have specific areas in which you invest?
RUSSELL: Well we’re not really a thesis run company because we think that we’re looking for founders who can tell us what their thesis is and we can tell them what we agree or not; crypto we haven’t done very much with because we’ve been right at the moment; blockchain is something we’re looking at our first investment potentially at the moment.
One of the interesting things for me personally is I’m very interested in the future of food, I’ve been a vegetarian for 19 years or so and therefore I was a little on the bandwagon slightly before most people were. We have invested in a company called Farm Stand which provides plant-powered food basically to canteens at places such as JP Morgan.
You can try his restaurant out in Covent Gardens. A new one is going to open in Canary Wharf and that’s not a typical VC type investment but if I do have a single thesis which draws it together. I personally have realized that particular with the millennial generation coming through I think that 80% of them won’t work or don’t want to work for somebody who doesn’t share their value.
Profit with purpose is something we’re going to see more and more of and if you don’t have a purpose like a big saving the world type purpose, you won’t be able to build the best product and therefore can’t create the best companies.
Besides Farmstand we have invested recently in a company called Globe Chain – a marketplace which allows corporates to recycle and reuse stuff they don’t need like furniture which they are throwing away or products which they then give to the charity sector and that’s just growing like crazy.
Audience Q: How important is it for a founder to have that social impact side in their business?
RUSSELL: We’re a financially driven company and our promise to our investors is that we’re going to make great returns and we’re on track for doing that. But if you can make shit loads of money and make the world a better place, that’s probably a better place to want to spend your time and effort!
I’m thinking about another business at the moment which we might decide on and it’s got no social impact at all, it’s just a great business and I’ll still continue to do those but ultimately I think that the push will be towards more and more people doing profit with purpose. I think it’s something you’re going to be seeing more and more particularly if you want to employ great people.
Audience Q: How important is it to have a sizeable marketing budget when growing your business?
RUSSELL: I think the most important thing about VC is building in some kind of viral loop because if you don’t have that viral loop from the beginning, you can spend £10 pounds on Facebook at the moment and next week it’s £100 on Facebook and then the week after it’s going to be £1000 on Facebook; no matter how wealthy your investors are you are going to run out of money if there isn’t a natural viral loop.
I was an early investor and I sat on the board as an example of Depop which is a marketplace for millennials to reuse their clothes and to resell their clothes and they do more than half a million pounds a day through that platform now but hardly any money was ever spent on marketing; a little bit of seed money on Facebook and we did some early influencer marketing but since then we haven’t really done anything.
So if you don’t build on that viral loop, sooner or later you’re going to run out of money and or run out of patient investors who want to stop so you might as well think about that in the present rather than in the future.
Another example is a company we invested in called Farewell which has just raised £7,000,000. They are a will writing company. The way they wean themselves off Facebook is to develop channel partnerships; so they go to charities and say why don’t you get your supporters to do a will farewell platform/online will writing platform and then they’ll give a donation to your charity which works really well. They also went to insurance companies and got them to advertise their will writing services because it made sense for their business case as well so channel partnerships can work although they rely on having salespeople on the other side who want to sell your product and making it easy for them to do so.
Francois: In B2C always look, you are the startup, you’re the mouse, you need a big elephant and the big elephants normally what they want you to do is to give away your product so they can sell more of theirs; so always try to be something that can be sold by the unit and can be presold. If they can buy from you a thousand units they will by default try and give it away because the sales guys don’t have a commission on it, they don’t care about your product but if they can bundle it to sell more of their product that’s worth buying.
Think of it like mobile phone cases where nobody wants to buy a case because it comes for free with most phones if you buy something else or the insurance that comes with a car.
Audience Q: Could you just tell what your go-to strategy with AdMob, how did you start selling your idea to publishers or to advertisers?
RUSSELL: Well you have to do both essentially and that’s the problem with the marketplace model because if you go and persuade a whole bunch of publishers to join the platform and there are no advertisers that means they’re going to all leave because they’re not making their advertising revenue but equally if you got a bunch of advertisers and no publishers that’s a bigger problems because there’s noone for them to spend their money with.
We actually started with a publishing side but in a very small way and then got the advertisers and you can also use both sides of the marketplace against each other because you can say to advertisers “Hey we’ve got this whole bunch of inventory which is signed up, you’ve got to get your advertising campaign on the way today” and you can also go to your publishers and say ‘Look, you’ve got to sign up because we’ve got this big campaign with Nike or whoever starting tomorrow” so it’s a question of keeping it in balance.
Audience Q: Let’s go back to sort of the topic of failure. If a founder approached you who had a couple of past failures would that be lurking in the back of your mind or would you say the past doesn’t represent the future; what is your position on that?
RUSSELL: We all fail at one point in our lives, if we can walk around we’ll probably fall over a lot while we were learning. I don’t see anything wrong with failure – I think it’s how you adapt to it and how you learn from it which is the most important thing and be honest about what went wrong.
The fact is that most startups fail and so if you’re a startup founder you’re going to fail a couple of times or you might be lucky but you have to have one failure at some point. So our process is we talk to people, find out what they’ve done, tell me about you because I want to know about you and if you’re the sort of person I can believe in and will create a big business. The narrative of how you start the business, how you thought about it, where you want to go is just as important as what the spreadsheet say or what the data say at this point.
Audience Q: Can I ask a couple of questions about the billion dollar valuation because I always find that challenging? First over what time horizon do you expect companies to get to the billion dollar valuation?
RUSSELL: Well we’re a 10-year fund so over 10 years.
Audience Q: Before a company gets to you as a VC they might have raised some early days funding through crowdfunding do you have a view what represents for you a toxic investment because the founders have done the wrong thing at the early stage?
RUSSELL: Yes very much so we would expect the company or the management to still own 70% of the company at least and if it’s really early 100 % perhaps because if they don’t it actually leads to funding problems at a later stage.
It’s always very good discipline to find somebody else to value the company and to lead the next round so we’re pretty religious about that in terms of that’s what we do and if the company’s giving away too much it says two things about the company, one of which they’re probably being a bit naïve because there’s lots of information out there.
So you need to get it right from the first and the problem is with funding and investment generally if you make one screw up on that journey it can affect the whole trajectory about who your future investors are and there is a direct correlation between having great investors and great outcomes
Audience Q: What multiples of revenue are you looking at, once you get to the billion dollars?
RUSSELL: I suppose shorthand for it is how do you get to a hundred million dollars sales but there are also different ways in valuing a company to even be, you can value a company over a billion dollars without any revenue (no one springs to mind) but I’m sure it’s possible if it’s strategically important so it’s not all about revenue but one of the questions which you should know is if you want to talk to VCs, how are you going to get a hundred million dollars’ worth of revenue?
In some instances like WhatsApp actually was worth 28 billion or something when they sold and they had no revenue really but that was a good example of being strategically important enough for Facebook to realize that if they didn’t buy then they were going to eat their lunch so it is possible.
Reid Hoffman the founder of LinkedIn and various other things basically has two questions to start off with is, how are you going to get to a million users if it’s as a consumer or business – if it’s a conventional business in other words; how are you going to get to a million users?
If you can answer that convincingly then he’ll say how can you get to 10 million users and if you get to 10 million users in either B2B or B2C in certain sectors obviously he’ll be very interested in investing but if you can’t answer those it’s not worth doing.