Award winner - Summit | Exit of the Year: Balderton (represented by Rob Moffat)

0:00It's a bit of an old adage invention that's all about the team and that's particularly true when you're investing pre-seed. When we invested in Dream, it was literally five founders, zero employees, I think 12 slides. Traditional approach we heard from sort of US VCs was it's all about IPOs and nothing else matters. And that's wrong. That's really unhelpful advice, particularly given now that IPOs are so far out, takes such a long time and are so rare. We've been very open to different forms of capital return, whether that is secondary transactions or whether that is 100 % of our stake going to private equity firms or other financial buyers.

0:36What was key to them is they did not want the standard private equity transaction where they take the keys. It had to be something where the founders still had complete control.

0:45Rob Moffat:We are live. We are live. We are live. We are live. We are live. We are live. We are live.

1:02It is an incredible story, the Dream Games story. Meeting the founders for that very first time with five of them out there in Istanbul, a very short-form presentation, a real lesson, I guess, in conviction in teams. And we'd love to hear a little bit about more of that journey and then how that makes you think about your conviction around investments going forward. It's a bit of an old adage invention that's all about the team, and that's particularly true when you're investing pre-seed. And when we invested in Dream, it was literally five founders, zero employees, I think 12 slides. And I was given a tip from an angel investor, Akin Babayuget, who said, I should meet this team.

1:43They're pretty special. They all came into sort of one room at Balderton, and I thought they were amazing. And we gave them the term sheet within a week and a half, had the investment closed a few weeks after that. and as you say, it was a pretty rapid story. We spend a lot of time thinking about what makes amazing founders and it's hard because there is no clear pattern and every investor I talk to, I'm interested in how they think about this and every investor has a different mental mindset on what makes an amazing founder. But yeah, we look at someone like Sonera Dream or Nick at Revolut. There are different characteristics where they are truly above and beyond.

2:17They are sort of top globally in certain areas. for Suneir is his complete obsession with making games. He spends all of his time playing games, working games, building games, and he will be there analysing every single frame of animation to make it absolutely perfect. And I think that obsession about quality and the amazing product that they build is super important and why Dream of being so successful. It's fantastic. I heard a little bit about some of the things that you talked about, how Snare develops the product and that rather than backing a stable of products from day one that real focus on doing one thing doing incredibly well perfecting it working time and time again to get the very very best product I think is a real it was a real education lesson so anyone who hasn't had chance to listen to some of the work that Rob's done around that and talking around the product development side of it it was super interesting and we could spend a lot of time talking around the growth of the business and how it went from as I say zero to 1.5 billion a phenomenal story a phenomenal story and so now I did a great job but I think this award is all about the exit and therefore it's probably worth spending a bit of time on that because something we all think about which is completing the cycle and returning capital to our LPs and our shareholders and I'd love to just hear from you, given the type of exit, how you went about that process both within thinking about it within the Boulderton Partnership but then also working alongside your other co-investors and the founders to achieve the result you did.

3:52The traditional approach we heard from sort of US VCs was all about IPOs and nothing else matters. What you do is you invest in a bunch of companies and then a few of them IPO and then that's how venture works and that's wrong. That's really unhelpful advice, particularly given now that IPOs are so far out, take such a long time and are so rare, and given the challenges with taking companies public globally, but particularly in Europe, it's not the only way for us to return cash to our investors. And that's why we've been very open to different forms of capital return, whether that is secondary transactions or whether that is 100 % of our stake going to private equity firms or other financial buyers.

4:34and obviously Revolut had a lot of publicity last year around their substantial secondary sales and we participated in that and that was a great result for everyone involved. Dream was a different story. So Dream was they had us, Index and Makers Fund as their main venture investors and a few other smaller ones. They want to build a very long-term generational company. They want to build the next DreamWorks or Disney. So that's their ambition. they never want to sell they don't really want to IPO either and it would not be a straightforward IPO story for a company with at the time it was one game, Royal Match so one mobile game with five years of history was not really an IPO story either.

5:21So I think the founders were thinking about what works for us we recognised we took venture money that venture money wants to return but we want to look for a solution which enables us to focus on the games and focus on building. We had some discussion around that. The founders did some thinking amongst themselves and became clear that private equity was actually a really interesting route for them to go to. They had some very strong inbound from a few private equity firms, took that on board. I think fairly quickly sort of reached a valuation, which made sense. And then it was all around terms.

5:51What was key to them was they did not want the standard private equity transaction where they take the keys. It had to be something where the founders still had complete control. And so that was a lot of the discussion with the firms coming in was around terms. Lots of legal work. The law firm's made a lot of money. A lot of the teams within HSBC are working with very large private capital firms as well, private equity firms, some of those largest asset managers in the world. And I think one of the things that we've seen is there is increasing interest from those firms in our parts of the market, in innovation.

6:28They are seeing as a real source of growth. they are having to be aware of it and the impact it's having on their companies. So we're spending a lot of time bringing those two ecosystems together. But Rob, from this experience, how do you see private capital or private equity's interest in innovation? Where else have you seen it across your portfolio? What role might it play? So I think private equity can get excited by sectors where they see real revenue durability. And that historically was not the case in games. So that was why I think private equity kind of stayed quite clear at games, because you have these sort of hits and then you sold a bunch of units at$70 and then that was it.

7:05Whereas in mobile games, you have these amazing annuity streams of people who play these games for decades and keep spending on the games. So I think they like that revenue persistence. We finally also, well, did like software as a service, maybe a bit less so over the last few months, but we'll see where that stabilizes. Capital markets is definitely an area which PE find interesting. KKR came into one of our investments Premier Lab at the end of last year, which is a capital markets business and took a substantial share in that business. So definitely seeing interest in the capital market space.

7:38Again, very sticky, committed long-term revenues. And yeah, I think AI probably is too early. It's probably too expensive for PE at this stage, but there's obviously a lot of interest and we'll see where that stabilizes.