A real Passion? I think so

Over the years I’ve met a number of the VC players in Europe and most of the meetings had one of two “vibes”: either wannabe private equity (suits, ties etc) or wannabe startup but generally without any startup experience. Last week I was lucky enough to meet Passion Capital and the “vibe” felt different – a shift in approach looking to better align the interests of founders and investors, with all the founders having operational experience. If you are a startup founder looking for early-stage funding then, in my opinion, these guys should be close to the top of your list.

Some facts

Passion Capital raised £37.5M in 2011, with £25M coming from the UK government (conceptually I like this – I might write a full post on this at some point). It has made 34 relatively early-stage investments to date, and aim to make roughly one investment a month for the next 18-24 months. That makes about 50 investments for the whole fund which, at an average of about £200k per investment, means a total of about £10M first round investments will be made (by my calculations) – which leaves a nice sized pot for follow-ons in the more successful ventures. For further details about the fund click here.

The range of investments so far is mind boggling: real-time analytics; an online car magazine; a wannabe PayPal killer; a Facebook-integrated app that lets women rate men; cameras that let you record your life; business due diligence tools; I could go on, but I won’t and the full list is available here, but I  hope you get the picture – what Passion Capital say they all have in common is a high quality team.

The three founders have entrepreneurial experience (for further details click here), which seems to have made sure that they have founder interests in mind and have put in place a model that minimises potential conflict of interest.

What makes Passion Capital different?

In a previous post I looked at some of the recent discussion around what makes a great VC investor – let’s see how Passion Capital stacks up:

What a good VC provides How Passion Capital stack up
Access to game-changing contacts and opportunities
  • The fact that the fund is so new as well as me being an outsider makes this hard to judge. A CEO of one of the Passion-backed companies told me that he “was able to scale in a way he never thought possible”, which is a positive sign.
Willingness to help (sleeves rolled up etc) when you need it, but standing back and letting you do your thing in the main
  • Bringing many of the companies under one roof in White Bear Yard (WBY) can only be a good thing as it allows startups to collaborate. The full-time associate and constant stream of interns also rove between companies as and when they are required by the teams, which teams have found useful.
  • In addition to this I like that Passion capital does not indulge in PR , letting the effort of partners and portfolio companies speak for itself. In a world where image is becoming centre-stage to the detriment of real content this is refreshing and, as a trend, let us hope it continues.
Fast decision making, but knowing you and your product
  • Decision making is seriously fast at Passion Capital, who have recognised this issue and aim to take less than six weeks from meeting founders to cash being  wired – the shortest time has been two weeks (I’ve known VC guys who take longer than that to decide on what to have for lunch!).
  • One small concern here is around the sheer number of investments made to date – which is many more than typical – might have some impact on the long term attention that can be paid to any one investment. This could be a concern, particularly for LPs.
  • That said, Passion Capital appear switched on – a portfolio company founder said that “Eileen had been tracking his company over a number of months” before he was approached by her – and she understood the product inside out.
Treating you and your team with respect
  • One thing I like about Passion Capital here is the high level of transparency in the way they work – which other VC fund publishes founder salaries? Which other VC publishes it’s term sheet?
  • In addition to this, all the partners have founded (successful) businesses before so really understand the pains of being an entrepreneur and how it all works.
  • Most importantly – everyone is so approachable. No airs or graces and open plan working makes for a great atmosphere at WBY.
  • One of the founders said that Passion Capital didn’t “oversell” during the onboarding process; like all great businesses they undersold and over-delivered.
Track record of performance (to some extent
  • That all the partners have strong records as tech investors and, first and foremost, as entrepreneurs meant Passion Capital quickly established itself as an influential player.
  • The office hours concept instigated by Passion Capital and the sheer volume of VC attendance points to a fund that is well-connected and has all the potential to deliver in the coming years – though the model is new and there is definitely some risk.

The Passion Capital model is, I believe, paving a way for a new approach to VC which many rejuvenate what many think is a tired, broken industry. Many others (for example, Connect Ventures) are treading a similar path and this can only be a good thing for the state of early stage funding in London and Europe.

Great, really great… but always room for improvement: what I would change if I ran Passion Capital

Let me make this clear up front: this is my opinion only, based on my limited knowledge and my own twisted set of values – and indeed it is highly likely that Passion Capital has made considered decisions across each of these areas that I have no idea about – they have what they have in place because it makes sense for them.

That said, the things that I would change about the business as it stands today are to:

  • Make values you clear as they are awesome. Passion Capital is a clear step away from the old model of VC funds. Many people on the inside know this, and more and more are discovering it (like me). However, for those fresh to the industry the distinct proposition is only hinted at on the website. I know you are aiming to let your results speak for themselves but I don’t think a radical shift in approach or bragging is required – simply state what you do because what you do is great
  • Think about hiring another associate – your success will bring more and more work! From what I can tell Passion Capital’s workload is large and, though the quality of the team is great, the high-touch approach to supporting the portfolio means that people’s time can be relatively stretched. This may mean that the firm misses out on potential opportunities and also could add to the great support it gives entrepreneurs
  • Keep building centres of excellence. The founders I have spoken to say one of the real value-adds in London is White Bear Yard; this VC fund “accelerator-style” type proposition is very exciting and much appreciated by those lucky enough to be based there, fostering collaboration and helping all the companies involved to grow. This model could be replicated in other markets, particularly where Passion Capital might have clusters of investments – something to think about over the longer term.
  • Build a backbone of startup shared services for your portfolio (which then could be leveraged as a business in its own right?!). All startups need lawyers, accountants and other such services to get going. The community at White Bear Yard (WBY) and is provided with ad hoc help with a lot of this stuff (which of course needs to be done but doesn’t add real value to the product) by the Passion Capital team. It feels like there might be an opportunity to put in place a suite of services that portfolios companies can access at relatively low cost to put the right foundations in place and allow the teams to do what they do best – building products and businesses. This will be hard to do but, you never know, this “startup toolkit” model may become a business in its own right (this may exist already; admittedly I haven’t looked hard enough for it)!
  • Consider the social values of portfolio companies. I know Passion Capital back people and not ideas but, in my humble opinion, some weight could be given to the “social” value of the idea of the business – Passion Capital does not need to save the world but it should not invest in companies with a potentially negative social impact. Let’s be clear: this is not an issue with the vast majority of the portfolio; there is, however, one idea that I believe sits in a moral grey area. This is as much a business point around long term reputational risk as it is an ethical one, which I believe especially important for a VC fund not engaging PR firms and that has a large share of its backing from the UK government.

These are all very small and very manageable changes to a very strong approach – and as I mentioned previously Passion Capital no doubt have good reasons for doing what they already do or they may even be implementing some of these changes.

All in all, Passion Capital is without doubt the one of most exciting VC investors I have met in Europe, and I hope that they succeed in bringing a new way of working across the industry.

This post was written after speaking to key members of the Passion Capital team (not the partners) and several founders of Passion Capital companies. As I get more au fait with startup world I’m beginning to see more and more nuance and that’s what I hope to share with you.

Thanks for reading and please let me know your thoughts. Are there any other VC funds in Europe with a novel approach? Are there any you believe are better than Passion Capital? 

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2 thoughts on “A real Passion? I think so

  1. Siim Teller

    Great post (but then I work in a portfolio company – http://www.ansr.io – and can call one of the partners a good friend)! And an excellent list of things to improve, pretty sure E, R and S have toyed with these ideas for a while.

    Minor thing – portfolio link is faulty.

    Reply
    1. amitshah81 Post author

      Thanks Siim! It was a fun post to write as it really was quite refreshing to see so much positive energy from portfolio company founders – sounds like you’d be in that camp!

      Link now fixed I hope, cheers for the tip.

      Amit

      Reply

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