Investment Horizons in the Digital Era

(05:20)

Sakshi:

One of the businesses that I have admired during this crisis is Telemedicine. It's existed for a while. I've been following it for over a decade now. It makes sense to exist and to thrive, but it's never really taken off in a big way. I think it's because people were not comfortable using technology and seeing a doctor through Skype or talking to him over the phone and getting diagnosed. But we know that there is a clear demand supply issue. We don't have enough doctors to treat 7 billion people with small, medium and high-risk problems that they have. I think we also know that economically, it makes more sense for an industry like Telemedicine to exist. And lastly, there are certain disease areas which don't need this high touch and feel where you have to go see a doctor. I think Covid has taught us that working from home and using technology to do other things, it's made a lot of people more comfortable. So people have started seeing doctors over the phone or Skype or whatever. And I think what's what I would admire the most is healthcare being in general quite a novice industry when it comes to tech adoption. Tech isn't just digital adoption. It takes them a while to change systems because they are just so large and clunky. Anybody who had any kind of healthcare infrastructure adopted Telemedicine with open arms and have seen a huge uptick. So I feel like the industry has got a push that it needed during Covid 19. This trend is here to stay. So, this is not sort of picking a particular business in general. I mean, we do have a portfolio company in this space, but it's not just picking a company in general. It's just the space in general, I think has got what it deserved, and it’s adapted quite beautifully during this time.

(07:35)

Richard:

I'm going to be a little bit shameless and go with one of UCI's portfolio companies so apologies for that, but it's a business I'm quite close to. It's Physical Travel Chapter, which is a holiday costumers business based in the UK. They connect property owners with would be holiday makers. Naturally, as we've all been at an enforced lockdown, they've had a particularly tough time of it as customers have not been able to travel to their pre-booked holiday destinations. And what's been particularly challenging is that while in instances where a company may see revenues take a hit, they may have been able to take advantage of a government scheme to furlough their employees and continue to pay them, but they wouldn’t work. Travel Chapter had a responsibility to manage a huge number of customer holiday bookings and try to defer or give vouchers or refunds for those bookings. So they weren't able to take advantage of those schemes, they had to continue to employ their staff and put a lot of their staff from all across the business, into essentially the call center to respond to the huge amount of calls coming in from customers who wanted to understand what was going to happen to the holiday that they booked, but were no longer able to go on. And the culture of the business and the people response to rally round and try to meet that one aim of doing the right thing for the customer and put aside commercial benefit just to do the right thing was a really fantastic thing to see within that business. And, not that I'm a believer in karma, but hopefully that goodwill will come around and they did a great job. What we're seeing now is a huge rise in bookings because UK holiday makers who are desperate to get a bit of a break from their lockdown, but don't feel comfortable going abroad or looking to book domestically. So we're starting to see a big increase. I think that's probably the one I would mention really, just because of how the people within that business responded and did the right thing in what was really difficult time for them.

(10:20)

Sarah:

I'm going to talk about one that we haven't invested in yet, but we're hoping to. We're looking at it quite closely. They sell a productivity tool to the NHS. A female founded technology business. And I just found the leadership skills displayed by the CEO have been remarkable because you could think that this was a really good opportunity for them, but she's had the wisdom to realize that actually, now, she's had to approach each hospital very sensitively because now might not be the best time in the height of a crisis to deploy new technology. So they've been incredibly flexible in how they're working with their customers. Some contracts have been suspended, some have been accelerated, and just being completely customer centric in their approach to supporting them. And actually their technology is now being deployed in the Nightingale hospitals, which fortunately weren't used, but actually the reputation they've developed with customers and potential customers is that they're in a really good position now to just scale from here on.

(12:14)

Richard:

Yes, so in a word, very. I would say it probably has been for some time. While we invest, as you say, across multiple sexes, whether it's consumer business services, tech itself, or finance, there is a common thread, which is that we particularly like tech enabled businesses. They show consistently a level of resilience and dynamism that can often be lacking in other business types. And that can be in the form of long-term revenue, visibility, sticky contracts, or a diversified customer portfolio. And to take the example I mentioned, Travel Chapter, it's a holiday cottage business. So you could easily call that a consumer travel business, but in reality, it's a tech platform that makes cottage owners into holiday makers. So it is both. I don't think Covid-19 has drastically changed our approach in terms of our holistic attitude towards it cause it's always been there. But the portfolio seems to have held up well so maybe it's given us a bit more conviction around it, but truth be told I'm not sure we've had a huge amount of reflection time just yet. I'd say at a sector level, it has changed about how we look at certain sub sectors in terms of what we see as the potentially more or increasingly interesting areas of tomorrow that within some of our sub sectors, say consumer, we may want to focus on areas within that more so than we did because they've taken huge leaps forwards. So it's more probably changed our view of how we might look to invest in certain sub sectors as opposed to holistically.

(13:59)

Sarah:

Digital is our investment thesis. We're only investing in technology businesses. We're angel investors investing relatively modest amounts at early stage. So we have to look carefully at where we get most bang for our buck and basically technology businesses we'll get there faster and further with, with less, than other types of businesses. I think also looking at this from a top down perspective, the UK’s digital economy is outperforming every other sector. And also if you look at where UK exits are, I think 70% now come from tech. In terms of what we're doing specifically in response to Covid, following up on what Richard said, there are definitely some sub-sectors where the future is happening now. Things have accelerated really quickly around ed tech, health tech, tools that help employers manage a remote workforce or enable flexible working, things like that. As well as looking at aspects of our business, like how flexible their cost base is so they can respond to crises like this, and how agile they are as a business, and what other opportunities they've been able to take advantage of.

(15:31)

Sakshi:

Yeah, I think same for us. I think the world after Corona will look different. I think certain industries will change forever. It might be early to tell, but I think we've already started seeing early signs for some of this stuff, and people have developed a certain hunch. I mean, SoftBank, as you all know, is a technology fund. So we don't do anything on deck either. And a lot of things that we've done, I mean, we have a diversified portfolio, we've done stuff in consumer, but a lot of the things we've done are in deep technology, whether that's within life sciences or within semiconductors, whatever that is. The way we are changing around this is I think we are looking to write smaller cheques. So because we think that the world after Corona will change. So our minimum cheque size used to be a hundred million dollars. Being situated in the UK, the filter after applying this with the number of companies you see are quite tiny anyway within Europe and the UK. And I think post Corona things might change even more, so I think we're willing to go down to $30, $50 billion dollars, which is a big change for us, given that we’re a big fund.

(17:44)

Sakshi:

One of our portfolio companies in Brazil does last mile logistics, but it's an express delivery service. And it usually used to do courier deliveries, e-commerce deliveries and some kind of restaurant deliveries, so on behalf of the restaurant. And the whole idea was e-commerce penetration is very low in Brazil. Return logistics are awfully poor. Average time a parcel takes to reach a customer, if they order on Amazon is like a month. So it's awful. So this company would help drive that. During Covid obviously as countries went into lockdown, people went into isolation, they needed to get groceries delivered; they never did groceries before. Right, so that was a very quick pivot for them where I guess they had enough data, they had enough expertise with the drivers and sort of now adding on a new product further increasing utilization, having different peaks throughout the day now. I think taking all that data into account, they managed to launch that side of the business and, you know, it did well. I mean, most of all, it benefited customers. Having somebody being able to deliver groceries, especially for those who are in more compromising situations. So we'll see where it goes, but they're definitely on a good path.

(20:46)

Sakshi:

This my favorite question. It's so easy to be an investor for so many years and let your gut instincts take over. I personally believe that there is no replacement for discipline and hard work. Every investment, no matter how experienced you are as an investor, most of the metrics should all be relying on quantitative data analysis, depending on the stage of the investment. And I mean, the one thing that does require some gut. I would say two things, but one thing that does require gut is the management team, because you are betting on them executing this vision that you believe in but, of course you spend a lot of time with them. You get to know them, how they are honest, hardworking, etc. And I think that the only other thing that that should require gut is that post your entire analysis, there is this sort of gut instinct which tells you that this particular business has positioned itself in the right market at the right time with the right trend and the right team and, you know, eyes closed they should make you an X times money multiple because everything else checks out. All I'm trying to say is that there is a bit of gut involved, but we should just all try and not let it take over the disciplined investment process.

(22:36)

Sarah:

I would welcome more systematic approaches to evaluating founder teams 'cause I completely agree with Sakshi about that. That is the bit where we have to spend time on them, and it's also the area where bias gets introduced as well. So there's a real opportunity to do something to improve it. Something we spend quite a lot of time trying to understand is founder integrity as well, cause that is really important to us as an organization. And those founders are the ones that will behave with integrity, not just towards us, but the rest of the world. So that's fundamental. And, how do you test for those with data? But maybe you have some answers for us.

(24:16)

Richard:

There are a lot of tests that you can put management through and psychometric tests to try and quantify something that is very inherent in a gut instinct. So I think a lot of investing, it does almost all come down to a gut decision, but we've just created such a process around it to allow us to aggregate every data point to make a decision or not. You know, we're still making a decision. I think this type of investing will be one of the last things to go to an automated process because I think the kind of machine that can process all that, it has to be a human brain in a way. And it has to be based on gut. And it's the quality of the process that gets you there. In terms of the thing I would love to see us be a bit better at, in terms of making a more digital, management spot on, I couldn't agree more. The other one is around the digital marketing element for me, there's a number of consumer businesses we've looked at - they look brilliant and everything that top line is quite good. But when you look a little bit closer at what's being done with digital marketing and the various metrics and KPIs that you can look at it, it's very easy to make that look a lot better than this and people can be paying a lot of money for not much back. And it's hard to unpick the sustainability of digital marketing, I think, than it was before. And it's tricky to do. And I think we could probably, I'd like to see a better process and a better way of doing that, could just be that we haven't figured it out yet. And there is one, but that would probably be one I’d pick out.

(27:18)

Sarah:

So this is a call to action, but it's for all our portfolio companies and all start-ups out there: I'd like to see much greater commitment from enterprises to work with start-ups, but also to have easy contracting processes for them, and to pay them quickly.

(27:43)

Richard:

If I could wave a magic wand, I think one of the things, particularly on the digital side that is difficult in our portfolio is people. So our portfolio companies are spread all around the country and in some of the more remote parts. And yet some of them are doing quite technical stuff, and over the course of the investment we would like them to do more and more technical things. To put it simply finding the right people at the top and actually right down through the team, tech-side can be quite a challenge. So that would be something that we'd probably look to try and get more of.

(28:17)

Sakshi:

I think in general, this is not just linked with our portfolio, as we are living through this Covid era, and God knows whether we're heading, well, we are in a recession, but God knows if we're heading into a depression or what the world after looks like. I think the one thing that'll help all companies would be profitability. Like actually, you know, creating a business where revenue minus cost equals to a profit. And this goes back to Richard's point around consumer businesses and spending endlessly on digital marketing to acquire customers. But what is the quality of that customer base? So like building a business for a business, not for MAOs or DAUs. I think that will really help with evaluations and exit plans.