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General Partner at Balderton Capital: The art of winning

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Jason Parrish

Bernard Liautaud, General Partner at Balderton Capital, has made a habit of picking winners. He shares some of his tips with Hot Topics.

Bernard Liautaud is a Partner at Balderton Capital, which is one of the leading technology-focused venture capital firms in Europe. Liautaud founded Business Objects in 1990, led the company through its IPO in 1994, and spearheaded the growth of the company as it became one of the 15 largest software companies in the world.

In January 2008, Business Objects was acquired by SAP for $6.8 billion; the third largest software acquisition at the time.

Liautaud has received a number of distinctions including “Chevalier de la Legion d’Honneur” in 2007 in France, Time Magazine Europe’s Digital Top 25 and BusinessWeek Stars of Europe 2002, top 10 CEOs in North America by Chief Executive Magazine in 2001.

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He talks to Hot Topics about today’s technology scene and what he looks for in an entrepreneur.

HT: Let’s talk about the technology landscape. What are the things about this industry that keep you turned on every day?

BL: The tech landscape is really booming right now, and the big difference is that it’s booming globally. Fifteen years ago, it was mostly a US phenomenon, as most of the innovations and tech companies originated and were financed in the US. Good initiatives and companies did start in Europe, but they were few and far between.

Obviously the US continues to be a powerhouse, but now big tech companies come from Asia and Europe too. There is a lot of participation at start up level, but you also see global companies getting scale.

You also see governments everywhere recognizing that the digital economy, digital transformation, and digital innovation must be at the forefront of their agenda.

HT: Do you think governments now fully understand how important the tech start-up scene is with all its digital expertise, engineering capacity and customer knowledge or is it seen as just another strand of the economy for them?

BL: I think they understand at a conceptual level, in the sense that they have seen companies, especially outside of Europe, grow fast to become a very important part of the economy. So governments recognise that if they want their economies to grow, they can’t just rely on the older industries.

Do they understand what elements of the tech industry will genuinely influence the future? I don’t think they are there.

The same with data – there is a general understanding that data is important and that many new developments relate to big data, but I’m not convinced that there is a full understanding of the power of information, and how it translates into a more powerful economy.

HT: Though they are closely intertwined, big data and digital are distinct fields – how do you rank them when looking for your next investment?

BL: I don’t necessarily think about it in these terms. We look for companies that transform specific parts of industries, bring sustainable innovation to market, and can scale rapidly to a very large size.

Data plays a role in most companies, but in different ways. It is either key to the core offering itself, or for others, it is used essentially to aid decision-making.

What is clear is that the ability to master data is critical for the success of any company today.

HT: What sorts of challenges do you face in looking for the next investment and in creating scalable paths to success for the companies you work with?

BL: The first obstacle is finding the great future entrepreneurs.

We meet a large number of people every year and the challenge is to find these rare individuals with very strong ambition and absolute belief in their ability to succeed, I always look for that conviction.

What’s also critical is that they can speak with clarity about the challenges that lie ahead, and about the plan to achieve their ambition.

You often see some who have only half of that. They are very ambitious, and have grand plans to transform the world and to make it a better place, but they don’t really know how to do it, or they underestimate the challenges.

HT: How do you know when you’ve found it, is it a gut instinct thing?

BL: With the entrepreneur themselves, there is a bit of gut instinct because there’s no magic formula.

If you look at the entrepreneurs that have succeeded, they come in different stripes.

Mark Zuckerberg is not the same as Larry Page.

In our portfolio, Graham Cooke of Qubit is very different from Federico Marchetti who runs Yoox. But they can all be successful.

Another key question that we try to figure out each time is: ‘can this entrepreneur take it all the way?’ Indeed, there is a strong correlation between the success of a company and the longevity of the founder as the person at the helm.

The other thing that is really hard is predicting whether a business that we see in its early phases is going to last for a very long time.

The value of that business is not about how successful it is in the first two years, but on its potential success seven or eight years after we invest. Understanding what that company’s customers are going to be looking for ten years ahead of time is not an easy task!

HT: There is a race between international cities to become the leader in fintech – is there a sector that is more appealing to you as an opportunity?

BL: Financial services are an interesting area because it is messy, in the sense that it’s run by very large organizations with old, complicated IT infrastructures.

Therefore the ability to change is limited. A lot of the banks are struggling with their systems and can’t move fast. This kind of situation creates fabulous opportunities for start-ups to disrupt the status quo with better services that are adapted to the world today.

They can build technology from scratch without having to deal with the past or constantly having to maintain systems that were built 25 years ago.

In general, any sector where large companies find it difficult to move, you usually see opportunity created for companies that can provide brand new solutions.

Much harder, but also very valuable, are companies that have a completely new offering.

Twitter didn’t replace anything. It provided a completely new type of communication vehicle and, as a result, displaced a lot of old media.

But it was not created to fix a particular issue; it was created out of innovation.

HT: With the emergence of fast, flexible startups that can evolve at the speed of the consumer through cloud software services and so on, what will happen to large legacy corporate businesses that can’t or won’t evolve with the changing customer in the same way?

BL: Business works in cycles. Companies are started on the basis of a new innovation, or because an entrepreneur develops a new service that they want to provide to customers. As a company develops, they ascertain more customers and grow. Quite often, the company loses its agility. It becomes a master at its own way of doing things.

As a result, it becomes the bigger company that startups want to beat. The cycle continues, and a new generation of companies come up with ways of doing things, and displace the prior generation.

In most industries, these cycles continue to make things better for the customer.

What’s fantastic is that the pace of disruption is continuing to accelerate; therefore the speed at which the small companies become big is greater than it was before. It is therefore critical to invest more into these startups because they’re rapidly going to emerge as the big companies of tomorrow. These are exciting times.

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