The Changing Face of UK VC: Laura Connell - Principal at Balderton Capital

Laura Connell's career in VC started in fairly typical fashion, as an investment manager and M&A banker at Goldman Sachs. From there it took a pretty significant turn, with Connell moving to Imperial College, where she was an assistant researcher in the brain sciences team. She then went to Harvard to get her MBA before coming back to London to work for Balderton Capital, specifically to lead on its new, first of its kind in the UK, Liquidity I fund alongside Daniel Waterhouse.

We sat down with Laura at Balderton's offices back in February to talk about her career to date, how she takes responsibility for driving better diversity and inclusion around her and what lies ahead for the liquidity fund.

The below conversation has been lightly edited for clarity and brevity.

Scott Carey, editor at Techworld: Where did your career in VC start?

Laura Connell, Principal at Balderton Capital: "I had come across Balderton several times during my career and they reached out half way through my second year [at Harvard] and at the time they were thinking about this new strategy I am now leading with Daniel. It was the first time anyone had done a strategy like this in Europe and I thought it was a hugely exciting thing to be a part of.

You've kind of worked your way up through the growth stages as your career has progressed, did that happen naturally or was it on purpose to get experience at all of those levels?

I think that's happened quite naturally but I wonder how much of that is me gravitating towards certain areas because that's what I am better at, but also because I enjoy it a lot and I like getting into the analysis and I like the quantitative side of things so I get to marry those two sides the further I move up the growth curve.

Tell me a bit more about the Liquidity I fund and why there hasn't been one launched in the UK to date.

What we were seeing not only in our portfolio companies but across the European ecosystem was an absence of a structured route to liquidity for any early shareholder, be they early employees or investors. What that meant was at a time where the average time to IPO has almost doubled you have a lot of people locked into a business who were in their early twenties when they started the business and now have real financial pain points like a first house or school fees.

On the other side you have early stage funds who have been locked into businesses for 5-7 years and are sitting on significant unrealised gains and still waiting to monetise those. So we felt there were several things we could address here.

The problem with the secondary market as it stood is that there was a huge market inefficiency. Where there was secondary it was either for the truly breakout names like the Spotify's of this world, or happening through brokers or mostly unknown third parties with little price transparency and huge discounts with people getting into the cap table that had limited value.

So we felt there was this opportunity for someone to come in and address that issue. The reason no one had done that yet was really market timing more than anything else.

If you look at the US market this type of fund has been around for a long time and the big lever here is the maturity. We were the first to set up a dedicated fund but I am sure in the next twelve months [there will be more].  I have already heard of several funds looking at similar things.

Market maturity means we have over 1,000 businesses reaching an interesting growth stage for us, so it is not a winner take all market, there is enough space for several different people to do this, but it is great to have a first mover advantage.

As the first mover there is no limit to the companies you can look at, so how do you start to whittle it down?

One of the KPIs we use is if a business has managed to raise more than $20 million cumulatively that tends to be a good indicator of them having been able to raise several rounds and existing investors having some confidence in the business. That is not a perfect KPI and there are a lot of businesses we have seen that have been much more capital efficient than that.

Then a lot of it is using our network and leverage our existing portfolio and knowledge of the ecosystem to put our feelers out. That combination of publicly available data and leveraging our existing platform has been a really good combination.

So was the Balderton portfolio the low hanging fruit for Liquidity I?

We obviously think lots of our businesses are great and if we can get in then brilliant. Truth be told that wasn't the genesis of the fund and we can only invest up to 30% of the fund in our own portfolio companies. So that is definitely something we would hope to do but there are also brilliant businesses out there that we didn't invest in and the key thing now is that a lot of these businesses are ones that we have seen at an earlier stage that we didn't invest in because we couldn't get what the business model was or product/market fit or frankly we missed them.

What sort of companies do you like to invest in?

I do take an industry agnostic approach but given my background it just so happens that I am very interested in healthtech and fintech, my five years at Goldman were spent in the financial institutions group there. I gravitate towards those and the mix of businesses is high at growth stage but I am particularly interested in those sectors.

What do you look for in a good entrepreneur?

The biggest things for us are, particularly at the growth stage, really understanding and knowing your market. The second thing is, not everyone that starts out is a fully rounded manager and people have different strengths, but I look for people with self awareness 5-7 years into running their business and a balanced vision and a candid account of where they are.

So people who really understand their market and have a really clear vision of where they are going in the next two to three years and who are self aware and good managers, that's kind of a critical thing for us.

Is your approach more gut feel or data-driven?

It has to be a combination but I am very data driven and that is partly due to the stage we invest at. Seed and early stage is a lot about team and you have a dearth of data about everything else and the actual performance of the business. So not a personal preference as much as a compulsion of the stage that we invest in.

How has the industry changed over the past few years for you, especially from a diversity and inclusion perspective?

I think what's brilliant is that there has been this huge push to put data around the issues we know to be prescient and have been key issues for some time now. This drive to consolidate and solidify the data around the discussion has been really critical. I see a huge shift towards that, which is great because it helps to support arguments not only in favour of doing something about it but also highlighting the depth of the issue.

The BBB report that was out recently, the figures were pretty astonishing: 4% of all VC deals in 2017 went to all-female teams. That's the negative side but you could also say on the positive side that things are improving, albeit at a glacial pace.

Over the past ten years the amount of VC deals going to teams with at least one female founder has improved from 7% to 12%, that is a 'good thing' but over twelve years should we be satisfied with that? Of course not. Similarly you look at leading indicators like seed deals going to mixed gender teams and it is 22% now, so that's a good thing but we need to move faster.

We need to move faster and there is a real and ongoing discussion here at Balderton and we talk about it regularly, but everywhere else this is really at the forefront of everyone's minds and discussions and I think that is great, and I have really seen that change for the better over the past couple of years.

Could you expand on how Balderton talks about and thinks about these issues?

I think it's an ongoing discussion and Suranga [Chandratillake, partner at Balderton] has worked very closely with Diversity VC and I think we are focused on getting the best founders in and the criteria has to be the same but so much of getting the best founders in is about network and this good stuff that Diversity VC talks about, so there is a lot for us to reflect on.

Where we have invested in female-led business like CarWow or Love Crafts we recognise the key thing is to be thoughtful about how we use the network, are we getting the right people into the pipeline, so a balanced and diverse mix of people, asking: are we relying too much on existing networks? These are all discussions we have. So is there a fixed rule at this point? No, but this is part of an ongoing discussion around what direction we should go in because it's at the forefront of our thinking.

The point you made about reliance on existing networks is an interesting one because part of the BBB report I found interesting was the cold vs warm introductions piece and how women have traditionally been disadvantaged from that perspective. Is there a way to shift that more towards a better balance?

I think there is so much that can be done there and there are lots of great initiatives like the 50inTech, looking at ways of bringing female founders together in the tech space.

Those networks are critical and I think it is crucial for VC to engage with those networks and to proactively get out of the comfort zone many have relied on of existing networks. I feel like that is percolating into the market as we speak but I am pretty heartened by what is going on.

When I started at Balderton one of the things I spoke to Suranga about often was how do we do this, so I started a series of talks and we are doing an event in the next couple of weeks about being a founder and a parent and that's not just for women but there are all these conversations people want to have but used to be too hot to touch. So doing more of those events and making sure those conversations are public and candid is a key part of all of this.

Do you ever feel a responsibility to take the mantle on this topic or did that happen more naturally?

Frankly, anyone in VC should take seriously the fact that returns are likely to be lower because of lack of diversity. As an investor forget the point about me being female or whatever, it is just factually true that if you have a more diverse pipeline you are getting access to a greater range of ideas and are less likely to converge on all the same deals as every other fund is, so that has to be a 'good thing.' But candidly, yeah, you can't be blind to the fact that if you are a woman in this industry the last thing you want to do is back away from such an obvious thing.

At the micro level there is just so much cognitive bias that we have and we are actually looking at cognitive training for pitches. There are lots of things you can do at the micro level to ensure that conversion from networking to actual investing results is happening and that is the preferred outcome.

Networking alone is great and you can pay lots of lip service, and plenty do, but making sure it translates to changes in investment is critical but its hard and these things take time. Not as much time as the last decade has taken and hopefully people recognise we need to move faster than that now, but it's hard to do.

Are there any specific people in the industry you think are doing good work in this area?

Frankly a lot of founders are doing great work, this event we are looking at was a case of founders coming to us about negative stories around being a founder and a parent so what about the positive stories?

VC's are part of the story but a lot of the great work comes from the founders we are working with. It has been amazing to see some of the founders in our portfolio, be it Matt Wiggins at Mojiworks or others, who are doing a really great job of promoting diversity in their businesses.

Wrapping things up, what are you excited about for the year ahead?

To get [Liquidity I] fully invested if we can and into the right deals is the main focus right now. Thanks to the strength of the Balderton brand we get a lot of inbound and it has confirmed our thesis that there was this huge pent up liquidity need, so moving as quickly as possible to get this one invested is our focus.

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