In this opinion piece, Managing Partner of Quake, Rob Wilde, talks about the venture building model and why it was such an appealing next step as a technology entrepreneur.
Quake is a Venture Builder - an opinionated organisation on a mission to build wave after wave of new businesses. By our model, each business sits firmly in the B2B SAAS category. We look for early customer wins within 6 months of creation and profitability within 18 months. These businesses are a success in their own right and have newly formed management teams who become the new custodians of the strategy and operations. Once Quake’s role in the creation is complete we aim to find a new backer for these businesses as they graduate our programme and move well beyond £5m ARR.
The ideal, not the norm unfortunately. This well coveted road to riches is much harder than appears from an early Excel model projecting the perfect sales figures into the almost certain future.
Let me introduce myself as Managing Partner of Quake - as a serial entrepreneur trying my hand at various tech businesses in the websites and social media space from 1998 onwards, I eventually found myself as CEO of Volcanic, selling enterprise websites to the recruitment sector. The successful exit completed the cycle and allowed me to start deploying capital and skills back into new startups. Quake was created as the venture vehicle to create and grow these new ideas into profitable businesses capable of their own exits.
This is part of a series of articles to provide some insight into the various roles that exist within our humble Venture Builder. We run the company as per our values and our individual skills shape the roles we undertake. You can find a brief insight into each of our roles that combine to form our operating model.
Robert Wilde - Managing Partner
Alec Middleton - COO
Matthew Whiteley - CTO
Dan Leyden - CTO
Dave Duggan - CFO
My role as managing partner is to moderate risk and find opportunities. As with any investment the risk/reward dynamic is what defines it most. Our stock is at the extreme end of the spectrum, offering huge returns on initial investment, but the capital is entirely at risk and a business failure leads to the inevitable loss of all cash invested. This is our line of work, and something we’ve all become more comfortable with.
No one is unhappy with the potential returns, especially my lead investor in Volcanic who enjoyed a fully liquid 12x return in under 2 years. The issue, of course, lies within the risk department. How we, as a team reduce the risk profile of these companies, ultimately makes them an investable asset class worthy of capital from a balanced portfolio. We wouldn’t recommend someone investing more than 15% of their worth into high risk investments, but there is some logic in making these investments if the capital is patient enough to be tied up for a while, as the returns can make a noticeable difference to the portfolio over the long run.
Our formula is simple, we look for businesses that can deliver a high margin product in SAAS form. Always playing in an established category with existing competition, which gives us a framework to work with and we build a product from our existing library of components within 6 months. During this build phase we’re onboarding a few friendly customers, who will get a lifetime discount in exchange for their early loyalty. The risk profile drops heavily once we’ve got a handful of paying customers, so clearly our task is to get to this position as quickly as we can.
Doing this in practice is where our individual roles come into play. Our wonderful CTO’s go about working with engineers to deliver a product quickly, whilst Alec and I work with the businesses CEO to create a go-to-market plan around the brand and the ideal customer profile (ICP). Hiring a sales team follows, which marks another risk reduction milestone, and usually indicates when we can expect profitability.
Profitability within tech companies is a contentious subject amongst founders who have first battled with survival and then moved the focus towards growth. For us however we enjoy a house where the odds are stacked slightly more in our favour. We can build a product in house, and bring it to market, skipping the customary first seed round. We also share various functions such as leadership, HR, finance and tech so the cost base of our businesses is a fraction of an independently founded company. This allows us to focus on winning customers and delivering a cash generative business within 18 months.
Risk reduction is delivered through a profitable company with good governance. Those activities are what a Managing Partner must oversee.
Casting back to the start though is where ideation happens. We are thought leaders who spend our time looking for an idea which leverages our current IP and market access. There is a current theme running through the portfolio already, around HR tech and recruitment, and this becomes the playground for our future ventures.
I am responsible for the fundraising process also, and presenting our financial product so it sits alongside other options as a viable and sensible investment class. We group our investments into cohorts, which allows us to attract investment which will be split across 3-4 new businesses. Each has the potential to deliver a 20x return, but the grouping offers some redundancy to failure and also provides more liquid returns as we aim to sell the businesses onto a new venture player once they are ready. In practice we aim to deliver returns in chunks over a 5 year period as the more successful of the cohort are sold. The remainder can offer liquidity through MBO’s or sold on the secondary market.
This role is tremendously rewarding as creation is continual, and the rewards are top tier. Guiding newly formed startups through the first few years isn’t something most VC’s or PE houses would be comfortable with, but this is our role in the tech ecosystem and we’re getting rather good at it.