E180 | ACT | Rana Yared from Balderton

0:04Hello, everyone, and welcome to At The Cap Table Podcast, the exciting new series dedicated to hearing from the top European female investors who are taking the VC industry by storm. Coming to you from London, I'm your host Sarah Finnegan. Our first guest is the amazing Rana Yared, General Partner at Balderton Capital, one of Europe's most successful venture capital firms that has raised almost$5 billion across 10 funds over the past 21 years. Balderton has backed some of the continent's most incredible companies, including Revolut, CityMapper, Workable, GoCardless, amongst other global tech leaders.

0:46Before Balderton, Rana was a partner at Goldman Sachs, first in the Principal Strategic Investments Group where she led the bank's fintech strategy and then later with GS Growth. In the inaugural episode of At the Cap Table, we discussed the state of entrepreneurship in Europe and why the startup scene is booming like never before, differences between European and US investors and founders and some of the opportunities found across Europe. Balderton's investment strategy and why a great investor involved producing returns while also improving the world around you. And how Rana has supported founders from seed to successful exit and lessons and reflections on every VC and founder you should consider.

1:25Plus much more. And now some words from our beloved sponsors. Tactic is the leading forecasting and scenario planning software for venture capital funds. tactic combines portfolio construction portfolio management forecasting and reporting into a unified platform investors are empowered with data-driven insights on fund strategy reserve allocation exit planning and fund performance tactic was built using quantitative techniques research from hundreds of data-driven fund managers and is trusted by over 250 funds globally today tactic is a proud sponsor of the first season of the at the cap table podcast series If you'd like to learn more, please check out tactic.io.

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3:00Rana, thank you for joining us and welcome to At The Cap Table. It's great having you on for our very first episode. We are basing ourselves this morning in the Balderton offices in London, so thank you again for hosting us. First of all, we'd like to start by asking how the Balderton name actually came to be. If you could share with us the origin story, tell us everything. Thank you for being here. Thank you for having me. I wish the origin story were an exciting one. In 2007, when Balderton was originated, they were part of Benchmark. It was called Benchmark Europe. When they split from Benchmark, they needed a new name.

3:38They walked out the front door. They were on Balderton Street, and thus they named the firm. And the name has stuck with us ever Now, today, we're really excited to be speaking with you on a number of different topics. But before we dive in, let's start with hearing a little bit more about your background. You had a distinguished career as an investor at Goldman Sachs and then more recently made the transition to venture capital, both finance, but very different piece. Maybe you can tell us more about that experience and transition. Definitely very different, but also very much the same. So I'm now on my 15th year as an investor, of which 13 of them were spent in Europe.

4:19I think my journey here has been one that has largely been graced by luck. I was telling you earlier, Sarah, what I termed my first Goldman miracle. So I didn't think I would ever work in finance. I was going to go get a PhD. I recruited at the University of Penn just because my friends told me there's no way you can't apply for jobs. And I ended up getting the Goldman job. I didn't accept immediately on the phone. It drove them crazy. I was called up in the autumn of 2005 to meet Tim O 'Neill, who at the time was the chief strategy officer and Megan Taylor. And I had a pretty inauspicious start.

4:55Tim asked me, what do I want to do in 10 years? And I said, Tim, I think I'd like to open a patisserie from my first Goldman Miracles. I did not withdraw the offer on the spot. Instead, he kind of leaned back. He looked at me and he said, you know, you're of Lebanese origin. My neighbor is of Lebanese origin. I think you really have it in you to be fantastic at this. Just come here and then we can talk about that patisserie later. His neighbor was John Mack. And there was like, you know, two continents, an ocean and like a solar system between me at 21 and John Mack. But it was enough to convince me to do it.

5:30And that was the inauspicious start to what ended up being a pretty auspicious long term career at GS. And coming here to Balderton was the same. I had never looked to leave. I got a call one day from a Goldman partner from a previous generation, Tim Bunting, who had been a general partner here at Balderton. He knew he wanted to retire. And Balderton has an amazing structure holdover from the benchmark days. It's an equal partnership in vote and economics. And that was a second to none opportunity for me. And so I picked up from New York, 34 weeks pregnant, moved to London and took this job and I haven't looked back since.

6:06Would you have to dive into Bolton a little bit more? So your focus is mostly Europe, but I believe you're investing in Solit of Europe. Maybe you could speak a little bit more about that. Our mission is pretty focused, actually, which is to invest in global winners coming out of Europe and to serve those founders in a very local and hands-on way. And so to the extent that we find ourselves investing outside of Europe today, it's really in one of a handful of circumstances. So the first is we are backing a founder that we have backed before successfully who has opened this next business outside of Europe.

6:44So Merama is a great example of that. The second is the business has moved HQ out of Europe, but still has a really significant nexus to Europe. An example of that would be our investment in Flywire, a company I was honored to back twice, once at Goldman and once at Balderton. They are Spanish. Were born in Spain, still have a significant presence there, but are HQed now in Boston. The third is for the growth fund. We do play by FIFA rules, which means we count Israel into Europe. And so we end up investing out of Israel for the growth fund. We have a company, Coro, there. And then the last reason we would do it is a U.S.

7:22or an Asian company, for that matter. very clearly tells us that they are looking for a European investor because their next step is expansion into Europe. And so we have the ability to do what we do best, which is provide a 360 support to the founder and their management team here on the ground in Europe with whomever they decide to place here and here. So we are not broadly looking to invest outside of the European ecosystem. We think that the opportunity is absolutely immense here and we look to support it in the peripheral with some ways that take us outside of you. You mentioned that you moved to Europe from the US to London to join Bolton.

8:02Interested in hearing more of your thoughts on what is the state of entrepreneurship and innovation in Europe right now? What makes you excited about Europe and the entrepreneurial ecosystem? That's a great question. It was really a very conscious choice to move. So I've been in the European ecosystem since the summer of 2008. It's come an amazingly long way. And sometime in 2019, I started spending more of my GS time focused on Europe. And my reasoning at the time was that if I think about the number of quality dollars chasing each quality opportunity, there were fewer dollars chasing each opportunity than there were in the U.S.

8:42And even now with all the U.S. firms who have tried to put an outpost here in Europe, it remains the case that it is less hype-cycled and fewer dollars chasing each awesome opportunity. So I felt that we were on the precipice of what I thought would be the golden age of European investing. I wanted to be a part of that. Bulletin gave that opportunity. Some of the signs of that were things like individual city ecosystems becoming really self-sustaining. So I've talked about this in the past before, this idea of tribes. So you think about what's happening in Stockholm. It's that the exit events that came out of Spotify and Skype, for example, have launched a troop of angel investors who then pour money, time and ideas back into the ecosystem.

9:30Then the same thing has happened in Berlin around Rocket Auto One. Here in London, the same has happened. In fact, our portfolio companies, Revolut and GoCardless, have spawned their own tribes here and on and on. And when you start to see that effect of individual ecosystems becoming really self-sustaining at the seed level, that's really a sign that you're about to truly launch. And for me, that's what makes Europe so tremendously exciting at this exact moment. Looking at your experience and your career to date, you've been privileged to back and support a number of super impressive and seasoned founders really, really early on in their journeys.

10:08In many cases, to successful exit. Perhaps you can speak to some examples of how you supported founders to IPO stage. How can founders best prepare for this, for an eventual IPO? and can you impart any crucial advice for founders that are considering embarking on this exciting journey? That's a very packed question so maybe I'll start by unpacking it a bit so the best way to support founders that we invest in early in my mind is to have them take each step in its own time. So it's easy to sit at Ciri's seed and say, I want to IPO. It is incredibly hard to get there. And if you try to draw a straight line from seed to IPO, I think you'll inevitably drive yourself, your investors, your spouse, and everyone around you, Casey.

11:01And so as seasoned investors, we at Balderton have a job of keeping the company, our fellow investors, potentially the board, focused on this concept of taking each step in its own time. And what that means is that, you know, the focus in series seed and series A is finding that product market fit, having an MVP, a few lighthouse clients and a repeatable sale. So that's the focus there. You have fast forwarding the clock in series C, your focus, what will be the efficiency potentially of your go-to-market strategy. It could be an international expansion. It could be taking product to platform, whatever it is, just helping the founding team break each step that they are taking into more actionable journeys where success is just getting to the next step.

11:52Right. So that's the first part of your question. The second part is how do you prepare for the eventual IPO? And that is a journey that starts long before the IPO. You can't wake up one day and say I'm going to IPO in six months. There's a journey that comes around how your business is organized, the metrics around your business, the quality of your earnings that you and your board will spend a lot of time on because you want to be received as well as possible in the public market. The obvious exception to this is healthcare development companies that may in many cases be pre-revenue. So I add that caveat just to not be all-encompassing.

12:28You'll have really boring conversations around controls and Sarbanes-Oxley if you're in the U.S. and the quality of your how you produce financials, which I know sounds like it's insane drudgery, but actually to face the public market successfully, a huge part of it is having extremely reliable methods of getting all of your financials out the door. Your cap table has to be in good shape to withstand the public market, sending a signal ideally that there are people in there who are not running for the doors when the lockup lifts. And the last step of that is you have to go on the roadshow and you have to listen and see what the potential new shareholders are going to say about the company.

13:11And then the job of the pricing committee is ultimately to make a recommendation as to whether or not to go public. And each of these steps in its own right is somewhat is huge and is completely forgotten when people say, and now we're going to go public. So just regrounding us in the process is probably an important reminder of the importance of the process to the success at IPO. On the topic of having impact as a board member, what are some of the key learnings from several years of sitting on multiple boards? I mean, first question, are there any mistakes that investors have made that you've seen on boards?

13:45And second related question, is there anything that founders can learn from this based on that? So the two most common mistakes that I've seen in the years I've been on boards are the board confusing themselves into thinking that they can run the company. So boards don't run companies. Boards advise management teams and they protect the shareholders. And the second mistake is insufficient governance and challenge. So sometimes that governance is lost in the deal docs. I advise against that strongly. But often it's easy to be in a boardroom and be friends with everyone, fall into the famous Graham Allison group think and not challenge.

14:23And the job of the board and its duty to protect shareholders is indeed to challenge. And the lack of challenge often is found in almost any major disaster that companies incur. You go back to the minute, you go back to your memory and you say, you know, we should have pushed on something more. The other item that I would just highlight as advice as a board member is act quickly when you think something is wrong, not in a cavalier way, but quickly. So, you know, one of the most adverse things that can happen is a board concluding that it's time for so-and-so or such-and-such to move on, or it's time to pull the plug on a particular experiment and not spend another X number of million dollars.

15:02And it's really easy to give a little more time. Many times, it's really hard to pull the plug, but pulling the plug is often what the company needs to actually refocus itself on being a success in the areas where it has strength. Coming out of the frothy markets of recent years where companies were launching, new funds were created, everything and everyone got funded. We are operating in a much different macroeconomic climate now with the downturn, but there is still lots of capital around and several smaller hot pockets of hype. So Gen AI, climate tech, there's a number of others. I think as a VC, how do you stay focused on your thesis and make the best investment decisions?

15:45What are the fundamentals, non-negotiables that you always revert to? It's really easy to look at this particular part in the cycle and say, there's quite a lot of noise. So we tend to associate noise with the down cycle. But when I think about this concept of investing through the noise, I would say there was as much noise in 2020 and 2021 as there is today. Part of the challenge when the noise is hype is sticking to your thesis, having the courage of your own personal convictions, not running after everything that everyone else is running after and staying very close to what you and whatever capacity you function as an investor can consider home.

16:24And so my non-negotiables have been non-negotiables in both extreme hype cycles. And now as people are more risk off. So the first is that you need a solution that actually solves a problem, not a solution in search of its problem. Founding team that is able to meet that challenge. Ideally, you need to judge that the timing is now to solve that challenge, right? So we've heard the concept of people being before their time with their idea. You want to check that you're not before the time in your ideas. Also on my non-negotiable is I just can't handle the one week meet a founder, drop the term sheet and like move on cycle.

17:02This is for me, the epitome of when you need to push through the noise. The average investment that we make here in Europe, indeed, also in the US is longer than the average marriage in both the Joe's jurisdictions. It is would be considered ill advised to enter into a long term personal relationship on one week of of knowledge in your private life. I think it's also ill advised in your business life. And this concept of really getting to know founders before you collectively decide that you want to embark on a partnership together is for me a pretty non-negotiable. And finally, I would just say to tie back the answer on boards, meaningful partnership as expressed through governance, right?

17:40So we aim at the early stage to own about 20 % of the companies that we invest in. We think this makes them important to us and us really important to them. And we think that good governance provides the challenge that I had mentioned earlier, and also provides the checks that can often but not always prevent unfortunate outcomes. And that for me is like a complete non-none. Rana, we would love to end the episode with a final question. What advice would you give your younger self? It's funny that you mentioned that. So I have a daughter and a year ago or so, I actually wrote her some of this advice.

18:22And again, it goes back to my first boss at GS, Tim. And Tim at one point had sent me something called the rules for the unruly. And you can look them up on online. And I put them on a nice note card and I stuck them to my board of my cubicle as a 22 year old. And they are amazing rules. So the first is to remind myself that the path is not straight. Mistakes don't need to be fatal. People are more important than achievements or possessions. Never stop doing what you care about most. Be gentle with your parents. Learn to use a semicolon. It's important, you know, and the completely irrelevant to venture or business was you will find love.

19:02But the first six are incredibly relevant here. Looking at them has often just reminded me in a flurry of a potential panic to just stop, breathe, think and realize that outcomes are not linear. And there's always, almost always an opportunity to change the line of the outcome with just some calm thinking. Awesome. I love that. Rana, thank you so much for joining us at the cap table. This has been super fun for me as well. Thank you so much for coming down to the Balderton Stable. Awesome. Thank you. Thank you for listening to this special episode on the European VC. If you love our show, join our community by subscribing at eu.vc.