“You wanted me to record this?” asks Saul Klein, LocalGlobe founding partner.
“Just in case you say anything interesting,” I quip back.
“I won't be doing most of the talking, so maybe someone will say something interesting," Klein replies poker-faced, before grinning.
Once again, I've agreed to an ensemble-style interview with multiple members of the LocalGlobe investment team: Klein, George Henry, Suzanne Ashman, Julia Hawkins, Mish Mashkautsan and Remus Brett. Unlike in 2015, however, when I visited the early-stage VC's then offices in Tileyard Studios, the interview is taking place over Zoom, rather than the firm's new Phoenix Court premises in the King's Cross area of London.
Also in contrast to last time, when I wanted to scoop LocalGlobe's latest fundraise and Klein rather I didn't, this time it's the other way round: I've been invited to write a piece partly anchored on news of two new funds that were quietly raised last year.
LocalGlobe, the entity that invests at seed stage, has an additional $150 million of capital to deploy in the U.K. and Europe (and further afield). Running alongside is Latitude, a growth-stage fund now with $220 million more to invest, which allows the LocalGlobe team to take a fresh look at breakout portfolio companies that have proven their growth potential or to back other scale-ups, which, for myriad reasons, didn't take or weren't offered LocalGlobe's cash earlier.
“Latitude was born out of the idea of building continuity,” says LocalGlobe general partner George Henry. "When it comes to existing LocalGlobe companies, Latitude is very much building on top of what we've done. It's giving us the capital to continue to invest more into those companies”.
However, the firm doesn’t think of Latitude as follow-on funding, in the classic sense. Not only is it able to back companies that LocalGlobe hasn't previously invested in, but even for those it has, the LocalGlobe team, including Julian Rowe, who heads up Latitude, uses the opportunity to take a fresh look before writing a Latitude cheque.
“I think 80% of Latitude companies have at least one LocalGlobe partner fully engaged,” says Klein.
Internally, whichever fund the firm is investing from and at what stage, LocalGlobe frames its strategy as "insights and access". Though no one explicitly explains what this means, I interpret it as having the expertise in the team (and wider LocalGlobe network) to understand a problem space and its addressable market, and having the access to see and then get in on a deal, should it want to.
"Of course, it's easier to have insight and access when you've already been inside the company from pre-seed or seed,” explains Henry. “But we've [also] seen opportunities where we feel we had the insight and access because we know the founders already, we know the theme, we know the market [and] we know the investors really well. And then it puts us in a position where we feel confident to participate at Series B or beyond".
LocalGlobe isn't the only European early-stage VC firm to launch a separate later-stage fund, either to avoid too much dilution for the most promising portfolio companies or to opportunistically back companies later when there's arguably less risk. Yet I can't help wonder what the conversation is like when Latitude wants to invest in a company that LocalGlobe previously turned down.
One example is Monzo, the popular U.K.-based bank with its instantly recognisable hot coral pink-coloured debit card. "We were very aware of Monzo from the earliest days," says Klein. "We weren't big believers at the time in consumer neobanks. We thought the neobank was something that would work for SMEs or for business banking, where the incumbents were really not focused... but also it's kind of typically a better business than consumer retail banking. And we took the view that consumer neobanks weren't going to be a thing”.
Instead, LocalGlobe invested in Cleo, a financial assistant chatbot and app that runs on top of consumer bank accounts, and Tide, a business bank account for SMEs.
“And it turns out, you know, we were wrong,” admits Klein, before revealing that LocalGlobe general partner Suzanne Ashman was the outlier in the team. After becoming an early customer of Monzo, she backed the challenger bank’s equity crowd fund in a personal capacity.
“When we had an opportunity later on through Latitude to get involved with Monzo, we felt it's an exceptional company,” continues Klein. “We love the investors, we work very closely with General Catalyst, and they were getting involved with the business at the time, and with Accel. And we thought it was a great opportunity to enter”.
Another example of missing out first time around is Cazoo, the used car retailer founded by Alex Chesterman. Klein and Chesterman go way back to their time at Lovefilm, and LocalGlobe was an early investor in Zoopla, the proptech company Chesterman took all the way to IPO. Access, therefore, wasn't a problem. Instead, a perceived conflict of interest was.
LocalGlobe had invested in Motorway (curiously, as had Chesterman), which at the time looked like a potential Cazoo competitor. No longer deemed as such, Latitude would go on to write a later-stage (and more expensive) check. Then, last month, Cazoo announced plans to SPAC its way to going public with a valuation of $7 billion, proving that conflicts of interest can be costly.
These near misses are the exception, says Klein, underlining that Latitude's core thesis is to be able to support LocalGlobe portfolio breakouts. "LocalGlobe is about that startup phase of pre-seed and seed. Latitude is the breakout phase where things are really starting to hit an inflection point," he says.
That is, of course, true, but it can also be argued that having a later stage fund does provide additional optionality and I posit that this could make LocalGlobe less risk-taking. With Latitude potentially able to mop up deals that didn't happen at seed, LocalGlobe can take a wait and see approach for investments where early insights are less forthcoming.
Henry shakes his head ferociously, prompting Klein to suggest he takes this question.
"You want to get in as early as possible, because that's the way you build the relationship... There's nothing that gives you more credit than to be the first believer in a team,” says Henry.
"Also, in the market we're in, you don't want to make a bet on something that looks exciting, but you're not sure and say, ‘it's okay, we'll get into Series B’. Because the reality is, the more you wait, the harder it gets to get into a great company”.
In LocalGlobe's own (interesting) words...
On capital going into private markets
"The amount of capital that is now in the private markets looking to invest in tech, it's not just extraordinary, but, arguably, it's necessary and important, because this is where growth comes from and this is where innovation comes from. I've been doing this for 20-25 years, and it took 20 years to get to the starting line. Now it gets interesting." -- Saul Klein.
On investing in regulated industries
"Opportunities in the highly regulated industries are just massive. And they were largely untouched by wave one of VC, and even five years ago, we tended not to see that many founders building in heavily regulated spaces. So it feels to me that, yes, while the base of capital has gotten much larger, the opportunity in all of these segments is now much larger." -- Suzanne Ashman
On healthcare opportunities
"We think overall, obviously, healthcare is one of the largest markets, and we are very, very bullish on that, on the opportunity at large. We've doubled down on specific themes within healthcare. So, for example, developing communication rails for healthcare, improving how patients get connected with hospital systems... Mental health is another enormous market and opportunity, not just in terms of market, but in terms of impact." -- Julia Hawkins
On successful exits
"You're just the supporting cast, and obviously, you are delighted for them. But you're never the main show. What's lovely about being a seed investor, and then supporting with Latitude, is it is not a quick journey, and you get to know people over time, you get to know their friends, their partners. And honestly, it's just a privilege to sit on the sidelines." -- Suzanne Ashman
On fintech's longevity
"Over the next five years, on all dimensions, from payments to core banking to insurance, you know, we're going to see many more interesting companies. Just when you think the market map is pretty clear, and the winners are emerging, you'll still see these companies that emerge and completely destroy the market." -- Remus Brett
On frontier tech need for more capital
"Proper frontier tech, and foundational tech, requires even more patience and focus on what's beyond the horizon... The available capital for proper frontier tech startups is much more limited than startups in general. And that's something we all know and feel daily." -- Mish Mashkautsan