Kevin Smith, CEO at Venture Comet: Helping founders unlock equity earlier in their startup journey

0:00Hello and welcome back to the Scaling Europe Show presented by Deal. I'm Seb Johnson. Today I'm joined by Kevin Smith, CEO, founder of Venture Comet. How are you doing today, Kevin? Yeah, great. Lovely to be here, Seb. Thanks for having me on. It is my absolute pleasure. I'm thrilled to have you here. It's good fun. Tell me a bit about yourself for those who don't know. Who are you, what are you building and why? Well, I started out as a software developer 25 years ago, so a different lifetime. I was never a very good developer, honestly. So I soon got out of that and moved into kind of, you know, agile delivery and coaching and management.

0:37And then I kind of just fell in love with startups. I had quite a few of my own startups, different types of companies, different kind of mixed success stories. Founded a, co-founded a company in 2016 called Credus, which did pretty well. That was a seven-year journey. We sold it in 2023 to a company over in Canada. And I exited the business as part of that or soon after and set up Venture Comet, which is what I'm working on now. And what is Venture Comet? Sorry, yeah, take it away. Yeah, yeah, yeah. So it's a platform. Our kind of raison d 'etre, if you like, is to help founders. So having been on the journey and experienced how tough it is in different ways, there's a couple of things in particular, which I think is really, really tough for founders.

1:24Some of it is solvable problems with the right solutions. And the big one in particular is helping founders to release equity value throughout the journey. I think as founders, we give a lot. We make a huge amount of sacrifices, as we all know, and I'm sure people who are watching this can relate. Typically, you know, low pay, long hours, family sacrifices, lots of things going to given up in the name of trying to keep keep runway maximized and overheads low and so forth and you very often get to a point especially around year three and four of the founder journey where it all starts feeling very real and and quite difficult and I mean that especially in like on a personal level you know things like family and partners and stuff and it continually missing life events and not being able to do the things that your mates are doing because they're doing well and their careers are progressing.

2:20And very often you're stuck on minimum wage, working 80 hours a week, trying to build something for the future, which is great, you know, and we love the journey and, you know, and the outcome can be spectacular and life-changing. But very often around years three to four, it starts feeling like a grind, really starts bringing into question whether the journey is actually worth it. I think the first couple of years are always super exciting and, you know, there's buzz and you know we're going to make something amazing but around that kind of time three four five years it starts starts feeling quite hard work so but our solution help standards to release a small amount of their equity value and by that point when you get to years three and four you've likely built up a reasonable value in the business you've probably got a valuation in the millions at that point and as a founder you're holding a good chunk of that equity so you've actually got quite a meaningful equity stake on paper but it's all locked up and it's all illiquid and you can't touch it and all those kind of things we all know about in terms of the illiquidity problem in startups so we allow founders to release up to five percent of their equity and we do cap it at five percent to kind of stop the notion of early cash outs or spooking investors or people taking money off the table too early so we cap it at five percent but that's quite a meaningful amount.

3:39I mean, as an example, if you've got a 4 million valuation, and you're a 40 % shareholder, your equity is in a region of 1.6 million, 5 % of that is 80 ,000. And 80 ,000 to a founder who's paying himself a low wage and making constant financial sacrifices is quite significant. So our solution is all about trying to get that kind of sum of money out to the founder, into their pocket to help them on the journey it helped them go through those difficult years three four five six in particular and get to a point where they can start getting into potentially more meaningful raises when you start getting into kind of series b territory when secondaries do become more of an opportunity and liquidity events are a bit more common helping finders get through those barren in between years keeping them in the game and keeping them as far as possible in the best well-being state and avoiding kind of mental burnout and financial burnout which comes from stress so that's really what it's about it's trying to trying to help founders in that way get money off the table without wrecking their exit i should say so preserving the upside keeping always keeping 95 percent of equity value in the business but having that release valve to help them along the way amazing what should you know what should founders be looking out for to suggest that they are at the right time for this you know is there certain revenue milestones or business maturity what kind of things do you look for to suggest that actually a founder is at the right time at the right place to release an equity?

5:03Yeah, it's a great question. We have, so our guardrails are minimum two and a half years. So anything before that, we feel a bit early. So I think when you start getting to year two and a half, year three, we normally like to see decent traction and revenue in the business. Ultimately, we're releasing the value through a secondary sale to a trusted panel of investors who will take a small position in the company. But obviously, they need to be able to see a pathway to a significant outcome in the future. And people like to see traction and proof of market fit and so on. So I'd say you need to be thinking in terms of having good traction, having decent revenue, that needn't be millions and millions of ARR, but having a decent amount of revenue and a decent product market fit and really like evidence that you're on the pathway to an exit event.

5:52That's really what we need to see. If you can really feel you've got a tangible plan to get to an exit, And that exit is significantly bigger than where you are now. And you feel you're in a position where you'd really benefit from 50, 80, 90K. Then you are a prime candidate to, we call it nibble, come and take a nibble of your equity. Nominal incentive-based liquidity, NIBL. It's all about like a small taste of success is what we're going for, taking a nibble. So if you're in that ballpark, you may well be eligible to have a nibble. And why was this the business that you decided to build? You know, you got back in the arena pretty quickly.

6:28You had your own exit. Was this something that you wish you'd had when you were a founder growing your own business? Yeah, yeah, for sure. I think founders, and we were certainly in this position, can end up just looking for any exit in the end because you become quite eager. I don't want to use the word desperate, but eager for a result. You know, you've been in the business a long time. You've made a lot of sacrifices. and um we i don't think we in the end we rushed our exit but i think we were probably quite fortunate in the way it all worked out and and it was a decent event but certainly there are points on the journey where we sat down and really thought about how do we just get something out of this you know and i think i honestly think if an opportunity had come along around years four and five we would have exited for a pretty low value just to get and that would have been a shame you know but then we would have done because we all wanted to get a return had something like this existed and we could have got 80 90 100k for a couple of consecutive years in a row i do i do think that would have been a difference between us not considering early exit opportunities and and that's a lot of it really it's staying in the game you know it's hard to get through those years and i think um i think soon as my own experience that would have made a difference to me and my family and and my I mean my enjoyment of the journey but I think I think the mood music is changing by the way as well I mean the kind of notion of fans just have to be kept you know kept desperate and starving hungry yes of course you need to be hungry you need to be all in for getting to the exit event but often the way to get the best is not to be completely cash strapped you know if you're worrying about paying your rent you can't go on family holiday you can't you know you're genuinely quite worried about finances and starting to think about just how do I how do I get something out of this that's not the mindset to be trying to go through and build you know in years four and five up to a big business so I do think it certainly would have made the journey better for us and I think um avoided some of those potential early exits which fortunately didn't happen and a lot of people I speak to I mean it's not when we kind of and look this is not we're not the first person to come up with secondary sales I mean they're starting to become more common now.

8:46I think the UK government is now talking about there being over a trillion pounds locked up in private equity in businesses. So I don't mean private equity as in PE, but as in equity privately owned by founders and early angel investors. So there's a huge amount of equity locked up. And I think increasingly we're going to see mechanisms and platforms to help release that. The government's Pisces initiative, FCA Regulator Initiative which is aimed at doing exactly that helping founders and investors and employees to be able to release some of the equity gains they've made so I think we're going to see more and more of it over the coming years and I think it's a really a really good thing and founders as you'd expect are quite keen on it generally but everybody wants to release equity some people want to keep hold of all of it totally fine and those that are in this position and kind of relate to what it would mean to have that kind of money.

9:41I was very open to it. I've been surprised in a nice way about how open the investor community has been to it as well. I did fear that there'd be pushback, you know, from certain VCs, funds, and so on, that just conceptually, the whole idea of just taking anything off the table is just a no-go area. but um i just haven't found that at all so far touch wood in in in my experience it's been i do think the mood music's changing and people are more open to realizing that like this it's not a cash out it's not someone just grabbing money so they can run off but finally it's been able to release a little bit of their gain realize some of that success is not a bad thing yeah i mean it's amazing across the market we're seeing it so much more than we did three or four years ago and i think earlier and i think you're right that the the The attitude of VCs is a lot more like, yeah, take a bit of cash off the table, kind of secure yourself in your own financial state and your family.

10:42And it kind of lifts the burden to enable you to focus on the business yourself. Totally. I do think it does change your mindset. You know, I think if you go from a position of if you're in a position as a founder, as well as all the other stresses, you're generally quite worried about your financial position. Suddenly you're having that. OK, I'm going to worry about that anymore. I've got a financial buffer and to be able to go to your partner, you know, we can do this, we can have the new, whatever it is, isn't it? And it could even be a deposit. I think it's a really meaningful thing in the context of the journey and well-being.

11:15I think it's a very, very meaningful thing. And what's the role that you play in sorting the other side of the table then, whether it's the investors who are looking to kind of get great access to great shares and great companies? What do you do there and who are you kind of bringing in? yeah so we have a an extending panel of investors um we we started out with our own network and an extended network and extended network and extended network uh that tend to be individual investors who are like like you say looking for good pretty passive opportunities in growing companies our our ethos really is not to cause disruption we won't do anything that puts a blocker in place for a future exit.

11:55So the positions are designed to be cap table friendly, designed to be founder friendly, designed not to hinder the business in any way. But there is a growing appetite increasingly, especially with angel investors, to look at secondaries because one of the things you don't get with secondaries is EIS relief, which is a shame, but that is the way it is. EIS relief is only available on primaries for growth capital, put at risk for at least three years and so on. whereas secondaries are you know inherently more more liquid and therefore not subject to EIS tax relief um so some angel investors therefore aren't interested they only invest in EIS but again increasingly the mood music is changing and people are starting to realize that investing in companies and certainly I'm I feel this myself as well as someone that does some angel invest in myself it's not just about the tax relief it's it it's about investing in companies that you believe are going to go up and perhaps have more liquidity over a shorter period and so there is there is a I think there's a really exciting emerging space for secondary sales and I think more and more investors are seeing that it's not just about very early stage and EIS tax relief being able to take opportunities in companies that are demonstrably growing you know are on a pathway to a good event and are only available because you know you're helping the founder as well by getting them some much needed uh so much needed cash uh cash out of the business for themselves you tend to find that you end up with a very good position in a very motivated company so you've got founders that are in a good place have had a bit of money off the table very often these companies would have recently gone through a raise or had validation they've got market fit so that they're really quite attractive positions and and i think increasingly we're finding an appetite for that in the investor community yeah i mean that makes total sense I guess a lot of these companies and all these investors are getting great access to great companies at very early stages.

13:54What are you thinking about the future of Venture Comet? You know, I guess it's still relatively early days. You're kind of part of a trend that has grown very quickly in terms of secondaries. Where do you want to take this? How do you want to grow the platform? How do you want to do more and be bigger? Yes, it's a great question. I mean, there's other things we'd like to be able to help with for founders. So as part of coming onto the platform, we give you some really nice visibility in terms of your metrics. There's a scorecarding solution on there. So as well as coming in and being able to release equity, part of that is being able to drill into your numbers and get eyes on your financials and understand your valuation, your equity value and how that's changing over time.

14:31So we'd like to see founders using those tools more as well. So coming to the platform to release equity, but then staying for some of the tools and hopefully having another equity release and staying on the platform throughout more of the journey. And I think then potentially going a bit earlier into the founder journey as well and trying to get some of that visibility and scorecarding and understanding of equity movements a bit earlier in the journey as well. But for us, really, we're on a journey to help founders. We don't have a huge master plan of an exit ourself. We're really enjoying what we're doing.

15:06We love working with founders. We're all founders at heart. Everyone in the business has been involved in startups and has either exited or been on a journey through an exit process or as an investor himself. So, you know, we're all very much part of the community, big advocates and just like working with founders. So we will see where it goes over the coming years, I guess. Amazing. Anything, any sneak peek previews you can talk about? Anything coming up that people should be looking out for? I'd love to say there's a really cool thing we got we're launching into it but not really no I mean we're still you know we're we're really focused on providing a really good solid solution to get the equity release really you know operating smoothly and increasing scale for founders now that's the focus really continuing to make that and good as possible and to refine that process and there's a lot it's um you know there's a lot of when you think of that journey It's an important thing for founders.

16:06Again, the journey as good as possible, as reassuring as possible, being as helpful as possible, being as visible as possible and transparent about what's happening. All those things we can continually improve and make that better and more slick for founders, more useful for investors. So it's about that for us. It's continual improvement on the equity value release. I'm sure there will be lots of new cool things, hopefully, as the company evolves. but right now it's all about making that as good as possible. And what are you doing differently? You know, seven time round, back in the arena, you probably made a bunch of mistakes first time round.

16:42What are you doing differently to building your first company? It's really interesting. It is different second time. It's going to be, isn't it? It is different. You're coming in from a different place. I think there's less, I want to say less hunger because we're equally as determined to make a success of this and to do something worthwhile. I think we're probably a bit more measured in our approach. You know, if this had been the first company by now, we would have been trying to do 70 other things, definitely, you know, and probably doing 68 of them quite badly. So I think we're probably more measured.

17:22We're probably more, sorry, cautious, but I think we're probably more steady and realistic in our approach. on it i think it's learning i mean my last business uh credus we did lots of things honestly we we had a really good idv product identity verification in our kyc we had a great i i would say market leading solution out there and it was it was really really good it worked really really well and it grew to big volumes i think i think now you know over 50 percent of the property transactions actions in the uk use the practices it's done since i left as well it's kind of a that's not all down to me obviously um it's uh the thing we that was really good about creedus was always that it was always the idb journey the aml journey but we did so many different things honestly we at one point we built we were building a training platform then we added this other you know solution over here and then we we were trying to like you know do another version of something else over there um we dabbled into lots of different things and really when it came to it what we what we always had was just a really really good market lead in idb and associated processes expanded into tertiary things like you know proof of funds and stuff like that but i think you know staying within the lane is really important really really important you know i think finding your core product offer and making it as good as possible and it's very tempting i think to get distracted because as a founder naturally you're quite entrepreneurial you've always got ideas there's always something else it's easy to oh that could be amazing that could be amazing and yes sometimes it can but i think really you know it's such a cliche but less is more and i think really homing in once you've found what your core product is really homing in and making that as good as possible and iterating that rather than getting distracted by by bright lights which we definitely did and i think we definitely don't do as much now yeah i mean i feel like i'm probably doing that now i'm very early on in my journey but i feel like i'm always chasing something distracted by something you've got a thousand ideas of things i want to roll out or run out um and it's always good to sort of reel myself in a bit um yeah but yeah well look is it doing really interesting chatting i think rebuilding is really valuable i can imagine so many families who are early on in that journey can see real value from this and like you said it can be a really meaningful sum of money, especially, you know, again, like, the first eight months of skiing in Europe, I didn't pay myself a salary.

19:49And so, you know, you take that financial debt. I mean, I have started paying myself significantly less than I've been earning in a job for the last five years. So, yeah, I can definitely see the value and I think it's a great thing that you've built. I think, yeah, thank you, mate. I really appreciate that. And I think, yeah, it does, it's yourself and it's also, it's your family as well, isn't it? You're very aware of, you know, and you know we're always found we're building something for a bigger purpose and you know hopefully it all comes good in the end and and it's all worthwhile but yeah you're very aware through the journey it's it's not just yourself making these financial sacrifices those around you as well and friends and family and everything else so yeah i think being able to to give something back to them you know it's um and i you know i for me i mean the biggest the biggest reward for me actually with the exit and i i'm you know i i think it's similar but obviously on perhaps smaller scales of equity relief is seeing my daughter's face when i told her it was not you know i of course i i liked it but seeing my daughter's face when we went in and told what happened was it magical you know really magical that's for any you know you found us on the journey and it's tough honestly when you get to that point at the end you can go to your family and go this is what's happened that's that's what it's really satisfying for you but it's lovely for those that are sacrificed on the journey with you and i think having little nibbles of that to use along the way i i hope is a great thing and you know and i hope it makes a difference to people no it's amazing it's absolutely amazing and uh yeah no well well done i'm sure it's still early days but you're crushing it so far so anyway thank you for joining me Tim Absolute pleasure, Seth.

21:32Thanks for having us on. Cheers. Bye bye