#176 Umerah and Martijn, LSEG and Floww

0:01This episode is brought to you in partnership with LSEG and Flo. Hi, and welcome back to the European VC, the go-to podcast for everything European VC. If you love the show, share with your friends and join our newsletter at eu.vc. Today, we're happy to welcome Umera and Martin. Umera is head of private markets at the London Stock Exchange, helping grow the group's offering for private companies. Martin is CEO and founder of Flow, a digital platform connecting startups, venture capitalists, investors, and business partners. LSEG works in collaboration with Flow to create a new standard for data in private markets and connecting the innovation ecosystem to traditional private capital on a single transaction platform.

0:48If you enjoy our content, do support us by hitting the follow button, giving us a review and following the European VC on LinkedIn. And now, some words from our beloved sponsor. How are you currently reporting to your LPs? Is fund administration taking hours? Are you getting lost in spreadsheet version control? Well, Flow solves all of these issues and more, allowing you to unlock the power of your fund's data by consolidating your work streams onto Flow. Book a demo to learn about Flow's portfolio and fund management features and transaction infrastructure at flow.io forward slash VC. F-L-O-W-W dot I-O forward slash VC.

1:38Umar, Martin, welcome to the UVC. We're so happy to have you with us. Great to be here. Excited. Before we start and really dive into, you know, everything you're doing between LSEC and Flo, I just want to hear a bit about the both of you, because as we've just said in our intro, you've partnered up to do something quite incredible when it comes to democratizing access and making it easier to be a VC. But first, let's hear both of you. Who are you? How did you get to where you are now? And Umaira, let's start with you. Great. Thanks very much. So I'm Umaira Akram. I'm head of private markets at London Stock Exchange.

2:16I've actually been at the group for a really long time, for 17 years, and always focusing on how we support growing businesses. I used to be an auditor in a past life and working with smaller companies, growing businesses, and was lucky enough that at LSEC I've had the opportunity to look at from different perspectives how we can support growth, how can we help those who need capital get access to that more efficiently. And really now excited to be looking at how do we do that beyond just our public markets and the private markets as well. Now, Martin, let us know your background because you're not a newcomer to VC.

2:52No, I am not. I actually founded a VC firm called Force Over Mass Capital. All the way back in 2013, so I've done something like 175 VC deals. So quite a bit of experience actually within the space. Before that, in my previous life, I was a trader in bonds and derivatives, built some infrastructure actually on the banking side and loved technology. I was born and raised with tech, building my first computer with my dad who worked for IBM when I was eight, I think. Yeah, that's me. Just before you started the recording, I was telling Martin that for Silver mass is one of my benchmarks in my first VC job.

3:30That's really cool that we're now doing this. And so maybe Martin back at you with, we're here to talk about a new initiative, a new partnership within Flow and SEG, London Stock Exchange Group. What's the story there? How did you guys meet? Do you know that? Tell us the story that's behind the curtains, right? How did it come to be the first conversations? Where did the idea come from? So I actually was introduced by another fintech founder to somebody of the executive team actually of LSEC. I was just as many companies out there just to raise the next leg actually of the build of the product.

4:02From day one, we really clicked actually of what our view was for the public private space and how it should evolve. So I think within a week I was speaking with a full exec team and we did that for about, I would say, nine to 12 months. We had every single week discussions on, you know, how do we do this and how do we go about it? So this wasn't an overnight type of decision. Yeah, we share the same kind of passion that something has to be built actually at scale. And so I was quite fortunate actually of meeting the right partner at the right time, I guess. For the audience, tell us flow, exactly what is flow?

4:42And then afterwards, give us the pitch of flow that you've given a million times. Yeah, I've given it a million times and I'll probably explain it a million times differently. So I need to work on that 30 seconds, 60 seconds and 30 minute kind of pitch. It's basically beautifully looking infrastructure, which is for all players in the market. So whether you're a fund, a bank or anybody running deals, just to deal with that whole process of running transactions, the whole compliance angle of it, whether it's a private placement or whether you do full administration as your fund, everything can be basically taken care of on one application.

5:18And what do we want to achieve with that? You know, there's a 10 trillion, I think it's even bigger than that, private asset space out there. And there's no turnover in that. So there is quite a lot of money going involved in there, but it's pretty much a cottage type of industry, which is kind of weird for such a large kind of industry to lack the infrastructure to do transactions easily, whether you're a founder raising your next round or whether you're a fund actually raising the next fund is pretty archaic. The way these processes are actually done outside of the world flow. So flow makes life a lot easier for whoever you want, whether you're a fund, a bank running private placements, a founder raising the next funding round, or an investor actually looking for cool opportunities to invest in.

6:02And for the slow-minded like myself, could you just use some of the big brand slash known solutions that we know in the market to try and help me understand. Are we looking at something here that says AngelList for Europe? Or are we talking about AngelList plus Nasdaq for Europe? Or what are we looking at? So every time when I have a meeting with somebody, I always run through a presentation. And the reason is, is because we always want to box things, right? So, and say, okay, is this a stack for that? or does it look like a NASDAQ or Carta or what about Carta X and Fortune and you name it. What we set out from day one is let's look at the problem and then work backwards.

6:47And the problem is, if you look at the bond markets and derivative markets and other markets, they undergo an evolution to get to more transactions, to be able to attract more capital, whether it's existing players as well as new incumbents. And so taking a similar approach by saying, okay, we need to work backwards to that desired state. And what do we need to actually build to get there? And one of the key things that we had to build, which is completely different than the other players is both the centralized as well as decentralized type approach, where we really respect the nature of the instrument and the nature of the instrument is privacy, data privacy.

7:27So the core foundation element of what it is that we do is we process data, we have trustworthy benchmark data, and people have full role over who can see what from me. And so that's fully patent technology, which is really cool stuff, which has taken a very, very long time actually to put that in place. So in the end of the day, people want to invest with the simplicity of investing in public stocks, but they want to do that with the safety and control over if I share information with you. I want to potentially pull that back at any point in time. Umara, then I want to bring you in because I remember back in the days when I first met the London Stock Exchange Group, your colleague said, well, people tend to think that we're just, you know, the exchange, but we're much more than that.

8:14So tell us, what is LSEG? Yeah. So first of all, LSEG is a huge Fitzy 100 business and has grown, actually has been a growth story in itself since it listed back in 2001. And actually, a lot of our business today is about infrastructure, is yes, a proportion of it is about transactions, but also around giving, I guess, the market and market participants the security and governance that they need to run their businesses. And of course, data and analytics is a huge part of our business. From a traditional kind of stock exchange perspective, which is really where I sit and where we're looking to build our private markets business, that's referred to as the London Stock Exchange.

8:56And the London Stock Exchange has been around for a few hundred years. That's obviously only been possible through evolution, innovation, and really continual change. Some change has been more significant and revolutionary than some other changes. But we recognize that actually right now, where the market is, it's one of those moments in time, I truly believe. Over the years, I personally have been involved in a number of different initiatives which look at how do we support companies across their funding journeys. We've done a lot of thought leadership and how we make sure that the earlier stages of financing are working to make sure that our public markets, our capital markets in the UK and beyond can remain vibrant.

9:39And so really, actually, when we met Martijn and Flo, we were at a juncture where we're thinking of, okay, what is that role that we as a stock exchange operator could really play in the private space? Martin referred to private equity assets under management being over$10 trillion. If we look at just the equity element of that, which is probably over 70 % of that, it's huge, right? And we know that the IPO is coming at a later stage in a company's journey. That's true across all developed markets, not a UK or European phenomenon. So what is it that we as a market infrastructure, as a player that wants to bring together those who need money, with those who actually have money, what is the role we can play?

10:21And I'd say in the conversations with Flow, it was very clear that our visions were totally aligned. And actually, Flow were looking at being an infrastructure player, at enabling transactions, just similar to what the LSE does with its kind of platform, bringing public market transactions together. And also there's a data play. Data is hugely important for the LSEC business. And I think it is for Flow as well. So it was really an ideal match. Of course, the due diligence took a long time because, you know, being a large corporate, there's a lot of due diligence and scrutiny because we don't have a VC arm, for example, that, you know, a team that does this day in, day out.

11:00But we wanted to make sure that there was going to be good strategic alignment for the longer term as well. If I'm a VC, how am I going to experience both Flow, but also the partnership between flow and lsec on flow it depends you can use as much from flow as you want right so you can literally go as far as run your complete fund on flow whether it's a mass account fund or a gbp structure it's full end-to-end which basically means it deals with all your administration which is all frictionless a full stb straight to processing which is a term i use more in my previous life as a trader. But full STP, full administration to your LP base, full control of your P &Ls in real time, as well as KYC and AML for your customers and dealing with the client monies side as well.

11:50So we deal with custody as well as taking the money from the account and payment agent, et cetera. It is literally, you run your VC firm completely end-to-end without the need anymore for other policies or heavily administrative processes. It is as well in the user experience, which people are more used to in other areas of their lives. So the iOS app that is viewing a live, some people will feel it's quite similar or touching as investing in crypto or in stocks and et cetera. And that is what we think was very much needed, both from being an investor as a VC firm or an investor in VC firm or an investor directing companies, right?

12:34So yeah, there is a hell of a lot what we can offer, but we're just taking friction out of the equation. So what we do as well is we can set up a VC firm and the biggest problem with the VC is productivity. So VC may see a thousand deals on average a year and processing through that is an extremely inefficient process where they usually use associates and et cetera to read decks and et cetera. What we can do is set up a simple email address and everybody sends everything to the email address and we process and check everything that comes in there. If we come to check all the financials and et cetera, plus all your companies can be poured straight into the platform.

13:14So technically you can run a very large VC with very few people with the utmost efficiency and insight. So you mean company X comes to me for the series A round, I run a series A VC. Data that you then pull is not from the deck. The deck is one input data, but you also pull all the data that you have access to across the internet and then give me that report. Am I right in saying that? Yeah. What we don't do is we don't scrape and there's a reason to it, right? So if you think about data vendors in this market, so you have pitch books and crunch bases, etc., they rely on scraping solutions actually for getting access and intelligence.

13:56But the problem is my financial model, for instance, will never live on the internet. It will never. And I will only grant access for people that I want on the cat table, for instance. So we are a data processor, which is different from the others. So, and that processing element, we said it should be as frictionless as possible. So it can be dumping everything in an email where the whole team sends everything to an email, or it's all drag and drop into the platform and we process it. And the benefit of that is, so we have two processing units abroad, one in South Africa and one in Manila, where we have real accountants.

14:33And they actually, not only do we check actually where mistakes have been made from fat fingering in the spreadsheet, for instance, we also check for accounting errors, which are every VC firm when we onboard them, we find out there's a lot of accounting errors and the founders are actually really happy with that because we help them actually have a clean model and it works and filter out those mistakes, which are you never be able to do that with humans without scalable solution. We reduce a lot of the heavy lifting and take that away actually from the VC firm. So you have an inbox and all your deals come in and they all look like Netflix and they have all the data.

15:12Original files are still in there, so you can still dive into a spreadsheet. But you have the benefit that you take one company, for instance, you want to plot it against another company, plot it against a benchmark. You can do that kind of stuff. To be able to do that as any VC firm, even the largest ones, to have that real-time access to that data intelligence is just not available for people. Now, because we process so much data to the community of everybody who's using the platform, we anonymize every data point. So we anonymize, we have thousands of benchmarks of both actuals as well as forecasts.

15:47And so if you're in tech, obviously your forecast and your curve is actually extremely important actually to make an assessment. So to have access to all that benchmark data, whether it is, you know, a fintech series B company, what is the MRR, you know, it's quite interesting if you ask that question to 10 different VCs, the dispersion of what the answer is, is quite wide. And we, you can just now plot it against your company. I think that's really, really cool piece of kit actually to be able to do that. I would maybe add to that. You asked the question, Andreas, about what other players could Flow be compared to.

16:24And for us as LSEC, what was attractive was that Flow was capturing more of the value chain, just like, you know, as the LSEC, we capture LSEC, we capture more of the value chain. And so from a venture firm's perspective, they could use flow to better manage inbounds, better manage and execute their deals, as well as manage their portfolios and be able to report on their portfolio and performance to their LPs as well. So that was, you know, having all those elements sitting under one platform was very attractive to us. I just want to double click on a part of the question that Andrea has asked from the VC standpoint, from the user standpoint right here.

17:04Where do the synergies between Flow and LSEC become evident from an experience standpoint? I'd love to understand that in detail. Being completely honest, at the moment, we have a vision that we want to support companies across their funding journey. Be that when they're private, early stage, as they're growing and private, be that pre-IPO or IPO stage. That's the vision we're working towards. There are some things we want to achieve in the shorter term and then the medium and longer term. In the shorter term, it's really about helping flow gain scale in their network of users, whether it's companies, venture firms.

17:41other types of clusters of companies, or the investment community. And we are leveraging the LSEG, the broader LSEG network, and, you know, talking to our customers and stakeholders about what Flow has to offer. And we're having those discussions very much jointly. And actually, you know, sharing that vision with market participants as well and getting them excited and enthusiastic about it and, you know, convincing firms to become first movers with us. But over the medium to longer term, we're also looking at then actually how is this funding continuum, you know, actually providing support to companies as they're commercializing their innovations, as they're thinking about how do they best present themselves to investors and looking at how do we build a reporting continuum as well.

18:29So flow is ingesting data from companies. How is that improving as a company stays on flow for longer as it's growing? How is it using the tool to improve its ability to manage its forecasts? And then how does that actually get a company comfortable sharing that information initially, maybe with a smaller set of potential investors, but over time with a broader set so that when it comes to thinking about public markets, it's actually not seen as a huge step change in what they're doing. We are also looking at creating a new type of wholesale market in the UK, which the government is committed to and is referred to as the intermittent trading venue by the UK Treasury, which is really about giving private companies opportunity to access periodic liquidity.

19:17And we will be leveraging some of our public market assets to deliver that. So, you know, I think technology transparency have a role to play in both private and public markets. And our approach is what we're doing together isn't to create a watered down version of public markets, but look at actually what assets could support private markets from public market infrastructure and what is really, really essential to be preserved in the private market space. It's very much a long term bet on the future. That's kind of exciting. The future is going to be very different from today. Can we unpack it a bit?

19:52Can we unpack a bit what that vision might be in a couple of years, both for the VC, but also even for the underlying asset of the VC, the founder itself, right? Because you're talking about the funding continuum. And at the end of the day, that impacts the most the entrepreneur. That's right. You know, you said intermittent funding, funding opportunities or something like that. You know, what does that mean exactly, right? Because I get inside El Seg and with the government, you guys have had to come up with a concept that describes for most founders intermittent what? So as a founder or as a growing company, you want to have the capital in place, whether that's financial capital or human capital in place to be able to deliver against your strategy.

20:34And obviously you can only employ the human capital if you have the financial capital. So what you want to do is not have to spend all your time trying to raise money or experience the different cliff edges that can exist between different funding rounds and, you know, different types of clusters of investors you have to reach out to every time you need to raise a higher amount or the next round. And that's really what we, you know, we're referring to when we talk about enabling a more efficient funding continue. How do we make that journey seamless? We've talked about growth in the private markets, assets under management, capital being raised through those markets.

21:15And that's partly because of technology. That's partly because of a lot more investors, be that high net worth individuals or institutions, family offices, or anything in between are looking at that asset class because they're looking for growth and, you know, cool opportunities to access. And because there is that diversity of investors is increasing in that space, they all have different investment horizons than, say, the traditional VC might, and they may want to find those liquidity opportunities at different times. So flow are working to enable companies to be able to raise capital through a number of different ways, directly through flow or managing their own deals on flow or working with a bank on flow to raise that capital and also enabling funds to use that infrastructure to raise capital and allocate that capital.

22:11As London Stock Exchange, we're trying to do is then look at, okay, how do we then get those companies thinking about their next stage of funding if it doesn't come through? How Flow is supporting them? How can we also create opportunities through the public markets? Obviously, you know, we are an operator of public markets, but then actually what else could better link the private and public markets? Because currently the two things are quite different. If we take the UK, for example, you know, private companies still have paper shares. How can we use some of the infrastructure that exists in public markets that allows digitization of those shares or digital representation of those shares?

22:49But also, how do we create those opportunities for those diverse set of investors, shareholders in these companies to be able to sell their stakes in these companies at a point where they wish to, rather than it being completely controlled by when is the next funding round for the company going to be? So that is the periodic liquidity that we think private companies need. And especially so, A, because they have more diverse shareholders, but also they're staying private for longer. They have a strong employee representation on their shareholder register. And I think, you know, again, that is really having employee representation in a company's ownership is also really important as a founder and as a management team because it incentivizes and motivates your teams.

23:40But then what good is it if that employee ownership, if there's no kind of exit opportunity for those employees? So those are kind of the opportunities we're looking to create together and as separate entities for founders and their investors. This is what captivated me when I first heard about your partnership and what you're doing, right? Because it's a grand vision that you share. And then LSAC has some tools and you're working with the government to allow for a whole new framework of enabling the funding continuum to be less of a disrupted continuum, but a good flow, to put it like that. And then you've got flow, which is, I almost meant to say, much more practical.

24:22It's saying as a VC, you've got issues around running your fund, you're getting too many deals that you don't know, you have a difficult time dealing with without having a huge staff on hand and so on and so forth. And you've got a back office that costs you far too much. And there's all these structures that are required that you must be able to be done smarter. And you've got founders on the same side with similar issues. And that is the overarching, the combination of those two, which one is very operational and the other incredibly visionary and strategic. Marrying those two in the partnership, I think is incredibly interesting.

24:59I totally agree. And I must say our partnership has been working really, really well. And I guess in the end of the day, it's all about pragmatic thinking. You have a problem, you need to pragmatically solve it bit by bit. And then you need to say, okay, this is what we are good at and this is what you are good at. And together we are, you know, literally going after and solve this problem, which is gigantic. if one of the largest, if not the largest financial opportunity in the world. And so for us, actually, our collaboration, as mentioned before the call, we have daily meetings together to have our discussions of our different product offering with the same client.

25:36In the end, there's a lot of parties that are just operating in this ecosystem. And you asked earlier, where are we different maybe from the other parties that have attempted this in the past or are still in the process of attempting it? I think what people always do is they say, okay, let's look at the problem head on. We need to create a market for secondaries or we need to do this. And so they get started on some direction without taking the time to strategically think about how do I get to that point if I have time and solve the surrounding problems to get an adoption of the market of your technology.

26:14And so what a lot of people tend to do is create immediately centralized solutions where it say, we want to have a centralized solution. Everybody should come to my platform, et cetera, et cetera. And so what we really wanted to do is there is a place for centralized markets and there's a place for bilateral trade or decentralized markets, because that's how every other market works. So if you look at the bond market, you have trading tours in place, which I used to work at, where bond deals are being guided by people that know the issuer really well. So the concept of having a technology where you can run and do book building in syndicate format in the comfort of data security and data privacy was really important.

26:57But to also have something on centralized where you can have the centralization of scale of a very experienced trading venue and marketplace, that combination of in and out of different types of utility that is needed at different points in time. That is truly unique. And I think that in that way, we respect the players, respect the VC firms and the banks to keep doing what they currently are doing without massive overhead when it comes to compliance or regulatory requirements or not having an ability to capture data in a way they would like to or gain efficiency and scale. You know, everything is just difficult in this space.