Erin Platts on SVB collapse and new role at Octopus Ventures: ‘There will always be churn’

0:00It was incredibly difficult when you build your business to take friction away from these founders and investors that trust you with their livelihoods to then be the source of that chaos was incredibly challenging. Hello and welcome to the Sifted podcast, the show where we help you get to know the brightest and boldest people and companies in Europe's startup ecosystem. I'm Amy, Sifted's editor and your host. And today I'm joined by Erin Platts, the CEO of London-based investment firm Octopus Ventures. Erin joined Octopus in January at the start of this year after a two-decade stint at Silicon Valley Bank, where she was UK CEO during the collapse in 2023.

0:40She then oversaw its sale to HSBC, in which it became HSBC Innovation Banking. Erin is also a member of the UK's Capital Markets Industry Taskforce, along with wearing numerous other hats. So she's well-placed to talk about funding challenges facing companies all the way from pre-seed to IPO. Erin, welcome to the show. Thank you. Thanks for having me. So this is, very excitingly, your first podcast since joining Octopus. What is your mission at Octopus? What is the big task you've been set? I imagine it must have been a juicy role, given that you left this amazing role that you used to have and the company you were with for so long to join Octopus.

1:20Yeah, so it was a couple of different things of why I decided to join Octopus. I think firstly, it's continued to be led by one of the best entrepreneurs I think the UK has produced, Simon Rogerson. He started the firm 25 years ago. And once you dig into Octopus group. It's really spectacular how much happens to support founders, not just within the innovation ecosystem, but quite broadly across the UK. So I really loved that. It's B Corp. So that was exciting. And as I was thinking about my next opportunity post a couple of decades in banking, I was looking for a few bits. So firstly, it was staying even closer to the amazing founders that we get to work with in this ecosystem.

2:05I moved to the UK 18 years ago, and I fell in love with the ecosystem here, and I just wanted to continue to do everything I can to support it. I wanted to stay in a capital deployment role, but I also wanted to make sure I didn't lose the operating muscle that I sort of built up of running the bank for so long. So a combination of those things, and then when you look at Octopus Ventures, the diversity of funding sources we have is really, really unique within the UK and Europe. So the combination of new adventure, finding a values fit in terms of the organization, entrepreneurial spirit, and then being able to join a brand that I think is really exceptional across the UK and globally with what the folks at Octopus Energy have done, and then join to help sort of refresh it and think about the next five to 10 years in terms of what we can build and grow to be, what I'm hopeful is the destination platform from a European capital perspective, helping to fuel founders at every stage of their growth.

3:02So we've got some room to grow to be able to achieve that sort of vision and mission. But that to me was the exciting ambition that sort of led me to join Octopus Ventures in January. And as you mentioned, Octopus Ventures, it's not kind of structured, it's not funded in the way a typical VC we might speak to at Sifted is. Can you explain exactly how it's funded? It's got VCT and EIS funds. What are they for anyone who doesn't quite understand them? Absolutely. So we have four different sources of capital that we get to deploy into early and gross stage technology companies. So the first in the heritage of Octopus Ventures is tax efficient capital.

3:43So we raise money from retail investors through our sales team in the UK. And those are tax efficient investments that we can then invest via venture capital trusts or the EIS schemes. And there's a whole bunch of rules within those schemes that probably won't get into in this particular podcast. But what it means is that we can open up to retail investors that don't really have the opportunity to invest in private technology companies in the way that institutional investors have through the venture capital trusts and the EIS products. So historically, that's been the bulk of our funding. However, we also have access to balance sheet funding.

4:25So Octopus Ventures is part of Octopus Investments, which is a 25-year-old diversified fund management business. So we've got the balance sheet and cash from the broader business that we can reinvest into companies and funds, depending on whether we want to seed those funds or double down on an investment in terms of following the winners in our portfolio. The third is institutional. So we have one fund, our first check fund led by Kirsten Connell and Tilly Fleming, two fabulous investors. And that's a more traditional LPGP fund. So raising money from third-party institutional investors. So looks and feels quite similarly to, let's say, the other venture funds that you might have had on the show before.

5:12And then lastly, we have a whole infrastructure that we've built to allow family offices and private banks to invest alongside of us as well. So that is so unique in terms of the ability to work with pre-seed founders all the way to growth stage and sort of everything in between. So you mentioned just now that Octopus is in maybe a need of a little refresh. What is the mission around that and what can you tell us what might that look like over the next five years, say? Yeah, so the ventures team, they've done a brilliant job over the last number of years and especially being known for supporting founders at the earlier stage.

5:54And we want to really, really keep that heritage and make sure that we are working with companies from really that first idea, 100K tickets into these really early stage startups. But what we're hoping to be able to do is, as the whole ecosystem matures, is continue to support companies at every stage of evolution. Maybe not every stage, but really up to that growth landscape. And taking a step back, as you would have talked about in the show a bunch of times, there continues to be a funding app, in particular for domestic funds, investing in that sort of Series B, Series C plus range. I think there's a massive opportunity for domestic and local investors to continue to support our founders longer in that journey.

6:37In terms of where we want to bring ventures, I would love us to be that really holistic platform that is able to support companies at different stages of maturity. But what I think that means is we need to have the right sources of capital, the right teams, and the right, let's say, sub-strategies to make sure that we are correctly deploying that capital for the absolute best returns and best experience for our founders. And we're able to do that, again, I think because of that unique funding continuum that we have, which is really hard to replicate. So it is an ambition. It's not something I would say we have completely done today, but I think that's what gets me excited about being that platform.

7:22And then underneath that, if you think about all the stuff that entrepreneurs need to be successful, whether that's access to talent, access to revenue generating and growth opportunities, because of our scale, I'm hoping that we can reinvest and make sure that we're really leading from the front in terms of those other activities that entrepreneurs need. Makes sense. So a month ago, the FT published a fairly damning report about one of your venture capital trusts, Octopus Titan. which is an investor in around 130 early stage companies. And it basically had net assets of nearly 1.4 billion in 2021, but since its value dropped by almost 600 million, which is kind of a worse performance than comparable trust.

8:08What kind of went wrong there? And when you're talking about in future, thinking about the kind of, you know, the mix of where Octopus gets its funding and the kind of products that you're allocating it to, So, you know, are you going to be drawing back from those kind of VCTs or, you know, what's your thinking around that? Yeah, absolutely. No, and, you know, we have to really acknowledge the poor performance that we had and will continue to have in that particular fund. So I'll share some observations. Obviously, I'm 10 months in, but this has been one of my number one priorities to really dig into what went wrong and how we can continue to, let's say, fix those issues so we don't see them again and actually get back on track.

8:54Because there's some absolutely phenomenal companies in the Titan portfolio. And we have thousands of investors that are looking to us to get things back on track. So a few reflections. So firstly, you know, the fund raised quite a bit of capital in the 2019, 2021 at the top of the market range. And because of the rules of VCTs, the money that you raise is time bound. It has to be invested within 12 to 18 months. There's a whole bunch of ins and outs, but largely that money is time bound. And so we deployed a good slug of capital in the top of the market. and that has led to some of the deterioration in performance.

9:37As we know, the venture capital trusts are public vehicles and they need to be valued every six months and that information is public as opposed to a lot of these LPGP funds that are co-invested alongside Titan VCT but don't have to share any of that public information. So a lot of this is happening across the industry But we have seen, of course, a really, really poor set of results on a continued basis. So that's one, I would say, symptomatic issue is we raised a lot of the market and deployed it at the top of the market. As the whole, let's say, market shifted externally, in hindsight, we probably didn't react fast enough to what was happening around us.

10:20As an example, when some of our star companies were raising at these higher valuations, we didn't take money off the table. We just kept supporting those founders and doubling down. In hindsight, we probably would have benefited from taking a little bit of that capital off the table at the time. So what we've done, and we've just concluded the review that the board kicked off about 12-ish months ago and shared our results, shared and voted on a revised strategy, and kind of summarized a lot of the actions that we were taking to make sure that this does not happen again and we get this fund. operating back on track.

10:59So updated team, new portfolio optimization team and strategy, thinking about how we fundraise differently. So there's a whole host of actions and interventions that we've made. And we're hopeful that those will bear really positive fruit to low and slow recovery because it is such a big vehicle to your point. Do you think then the octopus is kind of overweighted on, say, the VCTs or do you have an interest in raising more sort of LPGP funds in future because I mean as you say if you have an LPGP fund and valuations are crazy high you can to a certain extent delay you know you don't have to invest all your money say in that eight you know 12 to 18 months where it's a bubble you don't have to publish your performance every six months what are you thinking about the kind of mix of strategies moving forwards?

11:48So I think as we as we want to build this sort of pre-seed to growth continuum from a UK and European perspective I would like us to continue to diversify our sources of funding for a couple of different reasons. And that's not, we are going to continue to invest in and love our VCTs, our venture capital trusts, because they are such important vehicles. And I feel really strongly that retail investors should have access to these private companies. I think it's a really, really important tool to allow that to happen and to continue to foster growth within the UK economy. So we're going to love our VCTs, but we want to learn from what happened with respect to Titan five, six years ago to make sure that we don't get into the same spot with any of our other vehicles or frankly, whether those be tax efficient or otherwise.

12:37We've got some great examples. Our Apollo VCT, which is B2B software focused, is performing very, very well and just announced its intent to fundraise off of the back of that great performance. But I would like, to your point, to see us have multiple sources of capital because it just gives us more flexibility to be supportive to founders, whether that be doing increasingly an increasing number of investments in broader Europe, being able to do more later stage investments, which some of the venture capital rules don't allow you to do. But for me, what it comes down to is having the right source of capital, the right pot of capital, and the right team deploying to get the best possible results for investors and founders.

13:22And that, I believe that should continue to be all four of those components that I mentioned earlier working alongside one another. And what you mentioned the team a few times there, and there have been quite a few team changes in recent years. Obviously, quite a lot of this happened before you joined, but there was a kind of a spree of, you know, Octopus did, I think, correct me if I'm wrong, hire quite a lot. Also in that time when it was raising quite a lot of money and valuations were very high and then sort of saw the team. I don't know if it downsized or at least, you know, kind of dozens of investors left.

13:54Is that a kind of ongoing process or do you feel now the kind of that you have the right team in place? A bit of both. If we're, you know, being direct, I think, and I'll have to double check my numbers. I don't think it was dozens, but it was a high degree of churn. And I think, again, when your largest fund has such significant performance issues, you would expect to see change of folks. And I think the whole market had to make really difficult decisions around right-sizing their teams post-21, 22, or 19 to 22. So we were absolutely part of that as well. We've brought in some amazing new people, and we have some fantastic talent also in the organization.

14:42I think with any platform and company or fund that really is striving for top decile performance and consistent high-performing output, you're always going to see some movement within teams and with talent. I wouldn't expect to see the significant numbers that we saw historically exit the ventures business. Most of those were specifically related to the fund that we've been talking about before, Titan, where we've seen lots of really, really good sticky talent with respect to our other funds. So lots to do. We're hiring across the board to make sure that we've got the right folks in the right seats for the business for the next 10 plus years.

15:26But I'm hoping some of the more volatile churn on the people side is quieted down a bit. And are there any roles in particular you're looking for? One of the things you mentioned earlier was that maybe the fund could have been better at selling stakes when, you know, valuations were high or kind of managing the portfolio perhaps a bit better beyond the initial investments, perhaps also thinking about follow-ons reserves. Are you hiring particular people to manage that side of things? We do. Yes, absolutely. So we've brought in a gentleman called Jamie Connell. He started about two weeks ago. So he's 30 plus year industry veteran that came in to lead the portfolio optimization and strategy function.

16:10So for me, having five or six active funds, having hundreds actually of active portfolio companies, we do need to invest in the foundations and infrastructure. So we make the best decisions, but also that the entrepreneurs that decided to trust us with their businesses are getting the best possible, let's say, support and service. So Jamie is building a team around him. We've got lots of open recs at the moment. So we are looking for a fantastic portfolio talent to join us. People that have been operators, people that have seen what good looks like in terms of scaling businesses from series A onwards, capital raising, whether that be debt or equity, exit preparedness, M &A experience.

16:54And we've also just brought in a few new folks in our talent team led by Laura Wilming, and they do an absolutely fabulous job helping with providing support and advice, almost like in-house consulting with respect to management teams and leadership or design. And they'll also do some recruiting for some of our portfolio companies as well. So that component, right? And let's be honest, every venture fund has these services and support layers as they should. so while we're not any different we want to make sure that we're getting the best possible feedback from our entrepreneurs on those sides as well mentioned as well a few times about doing more european investments and i'd say again tell me if you don't think this is fair that octopus is a much better known vc in the uk than i think elsewhere agree europe yeah what do you think needs to be done what are your plans to get you know a french founder german founder a Slovenian founder raising a pretty hot pre-seed or seed stage round to take Octopus rather than insert other name of seed stage investor across Europe.

18:06Yeah. So I would, I think it's a really fair point. I think we're really proud of our UK heritage and pedigree. And again, the lion's share of investments will continue to be in the UK, but there's such an amazing opportunity to expand the brand and the platform. So right now in our first check fund, so our pre-seed fund, probably only 40 to 45 % of our investments are actually in the UK with the majority outside dotted around the usual places across Europe. And the team has done a great job building relationships with the founder community within those ecosystems already. So I think from a pre-seed perspective, we've got some really good momentum, and we're slowly but surely building a fantastic brand led by Kirsten and Tilly.

18:54So we want to continue to give them support and fuel to do that. And then we're taking really a barbell approach. We're raising in real time this growth stage fintech fund that, again, we really want to double down because I think we've got a unique advantage in the UK with respect to fintech. But as there's European opportunities coming into the UK, we want to be able to capture them as well. This won't be an overnight success in terms of being able to raise funds and being the number one go-to partner across every single European geography. But if we're thinking about the next three to five years, the amount of opportunity and talent across the whole European ecosystem is something that we just can't ignore.

19:37The only other thing I would say is venture, especially at the early stage, it's a team sport, right? We've got co-investors that we love working alongside and we'll continue to build those and maintain those in the UK and further afield as well. Final thing on Octopus itself. Are there any sectors in particular that you're focusing on or is your plan to remain fairly generalist? I think we'll remain fairly generalist, in particular on our pre-seed, and Kristen and Tilly describe it much better, but they're purposely anti-thematic, right? They really want to make sure that they're getting access to the best founders, regardless of subsector, and they're really keeping their finger on the pulse of where the ecosystem is going.

20:21And then, you know, our Apollo VCT is very much B2B software focused. We're going to maintain that as a key pillar. FinTech and healthcare are also two sectors that we are doubling down in. But largely, we want to be generalist with some areas of specialization. Again, it comes down to the right source of capital with the right themes and talent to kind of lead those funds going forward. A quick one from me. If your company would like to get a message across to Sifted's audience of startup and scale-up leaders, VC frontrunners and tech advisors, why not consider sponsoring the Sifted podcast? You'll help us interview even more movers and shakers of Europe's venture ecosystem and analyse even more of the most impactful trends confronting them.

21:06And you'll reach a hyper-engaged listenership too. For more information, email commercial at sifted.eu. So, on to a different... rather huge leadership challenge you've had in the past. I guess almost overnight in March 2023, your former company, Silicon Valley Bank, collapsed with its US arm being shot by US regulators and the Bank of England following suit and booking, putting the UK subsidiary into insolvency. We didn't quite get your insolvency. Sorry. Good. We were still going. Thank you very much. Almost putting the UK subsidiary into insolvency. And it did at least throw the finances of a lot of a lot of UK and US steps into jeopardy.

21:51It was a pretty crazy week and weekend for a lot of us in the industry. Can you, but I imagine especially crazy for you. Can you remember the moment when you were like, oh, crap, this is this is really heading downhill fast. And what were your next steps in the moment? Yeah, I mean, I think that whole experience will be forever burned into my brain and psyche. I think it honestly, it fundamentally changed me as a professional and probably as a person. I mean, it was quite an experience. And I think we all have that, to your point, that collective shared sort of professional trauma that we had to work through.

22:30So I do. I remember it was the Thursday when we were starting to see some news from the U.S. the social media sort of spiral had started in the U.S., although it was a different situation here. Thursday night, I remember I was out to dinner with my husband, and I was quite distracted following the news, internal calls. And when we were heading out after dinner, I did not think that a bank run yet would have happened I didn't have insights into what was happening to the U.S. to the degree that I had the following day I knew that there was some pretty significant issues happening but I didn't quite expect the deterioration that would have happened in the next 24 hours so Thursday night was my first of four all-nighters And yeah, we worked really, really closely with U.S.

23:33colleagues. Because we were standalone subsidiaries in separate boards, separate management team, separate regulators, we had to make our own decisions on the ground to protect our U.K. clients and investors and various stakeholders. But we were tethered to the U.S. because of the brand and also because our technology was outsourced. So when we found out on Friday that the U.S. business was taken over by the regulators late Thursday afternoon, that changed the conversations that we were having with the U.K. regulators who worked really closely with us hand in hand to find the best outcome for our clients.

24:14But, you know, it was incredibly difficult when you build your business to take friction away from these founders and investors that trust you with their livelihoods to then be the source of that chaos was incredibly challenging. And how did you go about communicating with your team? I am one of the things and Ellie Gilmore Gilbert Ellie Sherwin now is our CMO and one of the things she did brilliantly and was sort of our secret weapon. And we really fine tune this from COVID and didn't lose it was internal comms. So actually we had a really robust internal comm strategy and that's something from a leadership perspective that I maintain kind of going forward, which is over communicate, be visible, be present, be transparent.

25:04We work with grownups, right? We have to give people the information that you have. And there's always some context that a leadership team or a CEO needs to provide. But we over communicated. We didn't know what was going to happen, right? We didn't really know what was going to happen until, you know, Sunday to the wee hours of the mornings. We had different updates through the process. And actually some of those updates, I thought we were going to find a different home than actually where we ended up with HSBC. so we over communicated and I have to say one of the and one of the best memories that I have through that whole situation was seeing how the team mobilized to support one another to give a thousand percent to really try to take as much pain out of the process that they could for our clients that trusted us with their money and just the dedication and work ethic because a lot of it The acute pressure of that weekend was felt by all.

26:07And then Monday, we were able to announce HSBC. But the aftermath of that for our colleagues was absolutely horrendous. But they gave so much that it's something I look back on. I'm so proud of what the team, how they recommitted to the organization and recommitted to our clients through that process. What surprised you most about how the industry itself? Yeah, that's the other thing that, you know, I'll never forget. And that was that sort of shining light. You know, I've been in this ecosystem for a few years now and you build these relationships and you really, my whole ethos of give before you get has been something that I've, you know, tried to instill in the teams and the businesses that I've managed.

26:55And then when we were at the lowest of the low, right, we were on our knees, really, seeing the level of support that was garnered in the ecosystem, whether that be through co-investors, whether that be CEOs, people within the ecosystem, to really showcase how important this institution was to the UK innovation economy and share that with the regulators, share that with the regulators. government to make sure that we had all the support we needed to take care of things that weekend is something that just, it could get me emotional now thinking about it. It's just, it was such a, I'm so grateful for those partnerships.

27:38And you sort of don't realize how supportive people are within the ecosystem until, you know, they really need to show up for you. And they absolutely did. Yeah. I feel like there were a few firms that didn't really, I feel like there were a few who kind of contributed almost to the bank run, didn't they? Saying like, you know, telling their portfolio, get your money out. And then there was a whole bunch of others, as you say, who were like, you know, stick with it. Yeah, I mean, you know, bank runs happen because of loss of confidence. And so I think when you're, and I can see both sides. I've thought about this, as you could imagine, a lot.

28:16and I tried to think about what would I have done in that situation as a CEO with a hundred because we were let's not forget especially in the U.S. and to a certain extent in the U.K. Silicon Valley Bank was not just a banking partner we were sitting on 100 percent of their cash people didn't diversify you know I think that's been a big learning with Silicon Valley Bank especially in the U.S. with First Republic and a few other the bank collapses that happened in that period, people now are multi-banked. That wasn't really the case. So if you're sitting there as a CEO and your whole entire life and your family's life is tied up in this weekend, and if you're an investor with fiduciary responsibility, but what I do, I actually, I don't know, but I don't begrudge those founders and those investors that, you know, on the Friday and Saturday said, and many of them called me personally to tell me, And that's what I value most is just transparency and communication to say, hey, we're going to make this decision because of X, Y, Z.

29:20Absolutely, absolutely fine. I think the more challenging is folks that weren't as transparent. Do you think the ecosystem is in a better place now? I think we've definitely seen many more startups diversify, you know, where they keep their money. But we've also haven't we've seen it's almost opened the way for new entrants. It was almost like SVB UK used to be kind of like the one that people would go to. And now we see others. It's like Barclays Innovation Banking. There's JP Morgan. You know, there's a few others come in. Do you think that's net kind of good? Absolutely. One of the things I was always shocked about when I was running SVB was the lack of competition, frankly.

30:07I'm like, how are these other financial institutions not interested in the most exciting subsector that's changing the way that we work and we educate our children, just everything, right? And that has the potential to create such value. So I was always shocked by the lack of, let's say, consistent competition and services for this amazing community on the commercial corporate banking side, but also private banking side as well. I am a firm believer that we are going to continue to see exceptional founders, results, companies being produced in the UK and Europe. So I actually think it's a really good thing that this is now.