Episode 20: I swapped Olympic dream to launch tech firm

0:01Chris Maguire:Welcome to the Dealmaker Uncut podcast where we speak to some of the UK's most exciting entrepreneurs and hear their investment journeys. We'll discuss the challenges, successes and lessons they've learned along the way with expert deals commentary from Jonathan Boyers, Head of Avarice and Marcel Corporate Finance and me, Chris Maguire, Executive Editor at Business Cloud.

0:25Chris Maguire:So welcome everyone to the latest episode of the Dealmaker Uncut podcast powered by Alvarez and Marcel. My name is Chris McGuire and I'm the Executive Editor of Business Cloud. We're in London and I'm joined by the multiple award-winning dealmaker himself, Jonathan Boyers. Jonathan's been involved in deals totaling billions of pounds during his long and illustrious career and he's now the Managing Director and Head of Alvarez and Marcel's Corporate Finance Practice in the UK. Welcome to London, Jonathan.

0:51Jonathan Boyers:Hi, Chris. Great to be here.

0:53Chris Maguire:Looking forward to today. But in a second, we're going to get you inside the deal. In the first part of today's show, we're going to be interviewing our special guest, who Jonathan's going to introduce. After that, we'll have a short break. And in part two, Jonathan will be leaning on his, can you believe, 38 years, I didn't realise it was that long, Jonathan, years of working in corporate finance to answer the listener question. So Jonathan, who are we speaking to today?

1:16Jonathan Boyers:Thanks Chris well today we're speaking to Tom Dunlop who's the CEO of legal tech firm Surmise. Tom's just recently completed a 50 million dollar fundraising exercise in January I think to accelerate the global expansion of the business. Welcome Tom. Thank you for having me guys.

1:36Chris Maguire:Tom I'll kick off with a couple of soft questions before Jonathan goes for the jugular. I'm going to take you back to the very beginning I think you're the only person that we've had on the Dealmaker Uncut podcast that turned down the opportunity to compete in the Olympics because a lot of people don't realize this about you you were the European number one badminton player so why did you turn your back on the Olympic dream?

1:59Tom Dunlop:Well I'd say I'm not necessarily to my back on this Chris it's still very much alive there's still time no I think I you know I guess my life revolved around sport there was no necessary indication I was going to go into tech, no indication I was going to be a lawyer at that stage. But I think when I was a junior and I was in this kind of amazing world, really, where Team England would travel the world and I was a teenager, I had no responsibilities other than studying really alongside. When I became a full-time professional, it was kind of like, right, this has to either pay for my living or not.

2:35Tom Dunlop:And badminton, believe it or not, is not the best paid sport in the world. and so I had to make that decision do I kind of commit for the next four or five years on the dream of going to the Olympics and we're not doing it for money you're doing it for the for the thrill of winning I mean that's the the kind of pure um athlete mindset of you're not you're motivated by winning you're not motivated by monies but um at the same time I did my law degree I could kind of see a different path I kind of fell out of love with it a little bit um so I wanted to pursue a

3:03Chris Maguire:different I know a lot of people who were you know professional or semi-professional sports people and they take that into business and the disciplines that they learned and how to handle disappointments and stuff. You pursued a legal career, which you mentioned. You became an in-house lawyer at Absence, where you met Charles Charland, who became an investor in Surmise as well. When did you first get the idea for Surmise?

3:24Tom Dunlop:So the first idea for Surmise really was probably triggered when Absence actually went through an acquisition itself. So I was the lawyer, sole lawyer for this company. It was going through quite a big transaction, actually. and I had to basically review about 500 contracts as part of the kind of internal red flag process to get ready for the acquisition. So I was sat there in this kind of high-tech software company literally printing off these 100-page contracts with a highlighter trying to find particular clauses that might cause a problem. I was doing that alongside my day job and it probably took me about three months as well as trying to keep up with the volume of the day-to-day.

4:02Tom Dunlop:so at that point I was just sat there thinking hang on a minute this is like this is bonkers when you look at what the rest of the business is doing trying to innovate and always move forward I'm there as a lawyer with a highlighter and printed out paper trying to find these like clauses buried in a haystack so that's my co-founder Dave who's a software engineer who works for AppSense and was basically like surely there's a better way how can I create a summary of this contract really quickly I know what I want to find but I need a tool to do it for me so So I guess that was the genesis of Surmise and really where the initial idea came from.

4:36Jonathan Boyers:And you went to work at Zuto and then in 2018 you actually set up Surmise. Do you want to just talk about the journey just to taking that idea and building up the proposition?

4:49Tom Dunlop:Yeah, it's an interesting one because I think at the time I actually went through this period where I was like, oh, maybe it's not that exciting of an idea because it's exclusive to me as a lawyer. so I'm kind of sat there thinking you know no one else will have this problem should I bother investing more time into it but then as I started to really lean into the concept speak to other people I was obviously still a lawyer at the same time and I could speak to my peer group because I knew a number of other in-house lawyers they really validated the concept and really were like this I would use this for so many use cases and then I spoke to law firms and they had the same kind of reaction and I guess in my head this is probably the sportsman's mentality where I was like what's the worst case scenario like I don't make it I don't kind of create the company I can go back to being a you know pretty high paid lawyer that is a pretty good backup plan so for me it wasn't really risk really at that point to kind of lean into some eyes and I'd had enough validation I think that you know a lot of people talk about this that the best founders or the best ideas come from really feeling that pain and you're so passionate about finding the solution that it was one of the most exciting and kind of I'd do my day job then at night I'd be there thinking of all the great ideas we could do for the products and that's what got me really excited so um you know you could argue the time and we spoke we spoke before about what does my wife think I remember getting the first pre-seed investment the same week my second child was born and then three weeks later we moved house um into a more expensive house I then took a 50 % pay cut because I started a business so you know timing wise it was definitely not like the best time in the world but I was just so confident and so bullish because it was my use case.

6:28Jonathan Boyers:Yeah and the business now has got to ARR of sort of eight figures. Yeah went into the eight figures yeah. And 60 staff in Manchester 30 in Boston you've just opened in San Diego so you know just describe where the business feels today.

6:45Tom Dunlop:Yeah it's kind of when I guess it was one of these investments or one of these deals really allows you to kind of pause and reflect and it is even when you read out the numbers compared to, I can still remember when I'm sat there in a shared desk and there's two of us to build a business with 100 people so far and still growing exponentially. But as a business, we're, you know, I guess predominantly now US focused in terms of revenue. So that was a big switch that has happened in the past few years. We have the kind of, I think the split in terms of investment will probably go in the US as well.

7:20Tom Dunlop:as we're really pushing the boundaries and open up those offices in preparation for this funding so that we can really grow the teams out there. And I guess from a product point of view as well, obviously I started with my use case and this was kind of really important to me and I thought everyone found it. I think when you go through the journey, you kind of put so much emphasis on that aha moment when you realize that pretty much every product or company pivots so much and you kind of focus a lot more actually as you go on that journey. So now we're exclusively on in-house legal teams that we provide the product for.

7:52Tom Dunlop:I guess our product now is basically any interaction with a contract, we make it more efficient. So the whole contract lifecycle from the initial creation through to review and we do AI redlining, for example, when you're doing the negotiation, to the repository where we summarize those contracts still. So very much a holistic product end-to-end. We serve just corporates with in-house legal teams and very much focus on the kind of mid-market focus as well. So, yeah, it's been an amazing kind of journey, really. But yet, I'm sure you hear this all the time, it really does genuinely feel like it's just the start.

8:29Tom Dunlop:We've found our focus. We've got the fuel. Now is the time to push.

8:32Jonathan Boyers:Can we just talk about the fundraising processes then? The first fundraiser was pre-seed.

8:38Tom Dunlop:Yeah.

8:39Jonathan Boyers:How easy, how hard was that to do?

8:42Tom Dunlop:Well, I guess when I look back at it, it was very hard because I didn't really know where to go, if I'm honest. Like it was, you know, particularly Manchester, I feel, which was when I was trying to get the funding for it. There wasn't necessarily as much of an established network probably as there is now because that's really come on over the last few years. So naturally, I was kind of going to my network or people I knew. And as soon as you switch it from being, you know, I'm an employee and I'm in a business and they speak to you, then you go, I'm a founder. Can you give me some money? It's a very different conversation.

9:13Tom Dunlop:um but one of the obviously we ended up convincing uh charlie who was the founder of absence um to come on board and then one of the great initiatives actually that i really do believe in was the northern powerhouse fund um which obviously was by the british business bank managed by maven um and we managed to to get access to that fund um throughout but i'd say that that journey i mean there was about a year 18 month period where if i'm honest we probably were going to throw the town of in about three four times because we met people they didn't want to do it the terms were unreasonable um so it felt like a really long drawn out process so just to make sure i understand

9:53Jonathan Boyers:then so there was a there was a pre-seed fundraise and then there was a two million seed raise and then there was a five million pound series a and i think that was with yfm

10:03Tom Dunlop:and maven yes is that right yeah that's right and i guess in the early days before yfm charlie and Maven were kind of doing the majority of the investments. And I think we always saw it as being very milestone-based. You know, we deliberately kind of, you can go very American with these things and do a huge, you know, seed raise. You see seed raises now, the 400 million. I mean, which is crazy. But we've always, whether it's the Mancunian in us or whatever it might be, but we've always wanted to build an efficient business. We wanted to build a business that makes sense. And I think that when we've done the raises, we've done them deliberately because they were a specific fuel for a specific purpose.

10:42Tom Dunlop:Like Series A, when we did the 5 million, was deliberately to open up the US. We had enough traction that gave us conviction on the US, but we needed the fuel to actually hire people and do that in a very organic way. And that proved out that project's obviously very successful now. So yeah, it's kind of been a gradual journey, but I guess coming up to Series A was always very much about trial something, get the fuel to do it and then move on to the next and that was kind of how we treated fundraising I

11:11Chris Maguire:guess I'm going to come back to your 50 million dollar raise in a second but you've done over 150 investor pitches as well you're clearly very good at it we're talking about a lot of your successes because a lot of your pitches you know you look at the old tumbleweed moment as well what are your do's and don'ts with pitches and did you have any horror stories which our listeners and viewers

11:30Tom Dunlop:would find interesting I think I guess horror stories wise I mean the only one that was that I remember quite vividly was um on a particular call it was it was a remote call and I literally had the other but they didn't switch off the camera but they were on at their desk on the call physically looking away having a conversation with somebody else on the phone as well at the same time and it was this weird kind of moment where I'm like do I carry on do I not like is they're obviously not listening is it a test like you're you're constantly kind of thinking whilst you're trying to deliver well 100 % being rude um and kind of went through it and they're like yeah great sounds good we'll follow up and you're thinking that that was just a waste of everyone's time just just tell me the start um but i think my honest like what i've learned throughout these different raises is you have to really cater your pitch or your deck or the key metrics to whatever stage you're at and also the type of fun that you're dealing with um you know in the early days it was all about the story and it was all about whether they believe in me whether they believe in the market whether they believe in the solution that we provided that was the number one thing that they cared about but i was there with a financial plan that i got a friend to do for me with all these like complex formulas in a spreadsheet that showed how we're going to be at i don't know 100 million arr within three years and i was so impressed by that that you could almost lean in with that saying well look at the growth and you realize that actually just focus on what matters to them they don't care about that they know that's the load of like that you're not going to follow that plan they just either get excited about the space or they don't and you've going to make them excited and sell them the dream and as we've progressed through i think i've been probably learning and refining how i pitch the business what metrics am i leaning on what story am i telling depending on who they are is that a fund that wants to grow 10x you know their thesis is we have to back 20 companies and one of them is going to be big well that's the case you need to tailor your pitch to be we're basically a u.s company that's going for broke on being a billion business and that's it versus some of them are a bit more everything has to work we want to grow consistently 3x rather than you know become a decacorn which is kind of the u.s mentality so you really have to kind of be careful about how you're pitching what you're saying to make sure

13:47Jonathan Boyers:that it's landing with with that fund you've also you've hired a lot of people over the last few years as well haven't you presumably there's a similar pitch to them i'm interested in how you brought that team together and persuaded so many people to come on board yes I think you know when

14:03Tom Dunlop:I was an employee I probably didn't put enough value on like culture and vision and and you know culture is thrown around as a as a term and I probably thought of it the same way when I started the business it wasn't because I wanted to create a great culture really it was because well at the time I had this burning use case I was excited about it when you start hiring employees and you're kind of telling them about the vision and they kind of get the energy from you I think they understand how passionate you are. And I've come to realize as a lawyer, no one listened to me. Like I was the in-house lawyer.

14:33Tom Dunlop:People would actively not listen to what I would say and do the opposite. Whereas when you're the founder and the CEO, everything you say is interesting and how you portray the vision and how you talk so passionately about what you're going to do brings people on the journey with you. And I think that was a big part of, and I learned a lot of that from Charlie. Charlie was this guy, this huge character in the business that he walked in everything you said you were kind of like you know you kind of believed every word that you said and if we're going to be a billion dollar business you were like yeah yeah you know we're in this together and so I think I took a lot of lessons from what he did and really tried to make sure that yeah about we brought people on the journey they understood why they were there they understand that they can contribute to the business um you know one of the things we do is this one percent award we we physically pay people um about a thousand pounds on each quarter for the best one percent idea for the best margin gains idea so we're saying like tell us how we can be better you can contribute and we're physically paying you the money for it so it's things like

15:32Jonathan Boyers:that that really make people i love that i often say you know in our business anybody can show leadership at any any part of the business somebody can have an idea that can improve the business i I really like that.

15:43Chris Maguire:I mean, Jonathan's built a quite formidable team at Averis and Marcel as well. So I think that 1 % idea might be introduced at the next commission meeting. The two things you mentioned there that made me think. The first was when you mentioned that story, that investor story, and they'd not turned their camera off. During COVID, I was chairing a meeting and there were loads of faces on there and one person hadn't turned their camera off or their microphone. And his wife said, what are you doing? He said, I'm listening to this really boring meeting. and I messaged him and said, I didn't realise I was that bad like that.

16:16Chris Maguire:Oh, I wasn't talking about you. But anyway, it was just, it wasn't the best. But the other thing, Charles Charlin, the thing I remember about Charles Charlin, when I think of him, I always think of this great big belt buckle that he always has. I always think he's like a cowboy. All he needs is a Stetson. You had a three and a half year gap between your Series A raise and your latest Series B, the$50 million. What did you have to put in place between your Series A and your Series B to get that because three and a half years is quite a long journey it is and i think it was

16:46Tom Dunlop:quite an interesting time after series a we we kind of had two choices we could double down on growth and know that we might have to raise again in a year two years very much go down the venture path um which would have been spending more and more money incurring a lot more costs probably not thinking as much about the metrics is it scalable but just doubling down and trying to take market share or we could grow and use the money to you know for us it was about establishing a u.s presence um and but but make sure that we're building a business that if we did want to raise again um we could just basically add fuel to the fire it wasn't that we just needed the cash and we're kind of burning through it to the next milestone and so we were very deliberate with that we noticed what was going on in the tech world as well at that point there was a big shift from growth at all costs to, I wouldn't say profitability, but just efficiency and understanding what makes your business tick.

17:38Tom Dunlop:So we've been around through the 2021, you know, huge raises where it was all growth at all costs. And we felt a bit left out at that point when we raised our series A. And after that, it switched, the market kind of went off those type of companies. So we deliberately changed, well, not changed, but I guess focused on scalable metrics. So does the sales machine work? yes we're growing 100 that's great but is every ae for example contributing does the does the machine make sense are we spending too much on marketing for what we're bringing in um we looked at how pipeline converts we wanted the most predictable go-to-market engine possible so that if we hire another five aes it's going to work the same way does our support scale you know at the start we just had a customer success team that would do everything we realized as a product got more complex we needed to put implementation in as a separate team so we had to produce that after series eight so all these things were I guess refinements on the way the business operated but we had a real focus on making sure everything made sense and that's why we chose to do the series but it wasn't because we needed the cash we were we were fine in terms of cash as a business is because we got to a point where we thought you know what this foundation we can scale every function we know how it ticks we know how it operates and that's what that three-year period was about really it was going from product market fit to i guess scalable business um and that's kind of when why we deliberately raised this 50 million was we were in a good place to do it you

19:07Chris Maguire:must see jonathan you must see loads of times though companies that you work with going back to try and raise you know a year after their last raise without having demonstrated the growth that

19:16Jonathan Boyers:they really need yeah i mean obviously each each case is different i mean the name of the game is being really clear about what the plan is and what you're raising money for, what you're going to do with it. And sometimes, you know, we often see businesses raising quite frequently, but this case where it seems like the business has matured, and I am interested in hearing about how the raise that you completed in January,$50 million, and you brought in two new investors, I think your existing investors might have participated as well. Could you just talk about that deal and how that came together and um how you know talk about the new investors you've got kennett on board and if you can just talk about that for a minute yeah of course so i think

20:01Tom Dunlop:again following on from the series a i guess we've we've always been very deliberate about what path are we choosing to take and i think that isn't thought about a lot by companies in the early stage um you know like i remember in the early stage we we would you just want someone to give you money because you want to prove out the concept so bad you don't really care about what's going that happen in two years time you just give me some cash now and i'll prove that i can produce the products and everything is very short term i think post series a we're very much thinking about the long term and when we started to think about this round i was like well what do i want to achieve like what was the the goal of this round rather than to think about a number what does this round enable us to do we we had a few very clear objectives we our u.s growth is more like 200 250 year on year so we our issue was we weren't covering off of our our target market we we knew that we could only target about a third of the actual accounts that are our perfect ideal customer profile so we knew we needed to grow these go-to-market team and we reached conviction where um you know we we'd had enough proof points that we could just go and add another five and they'd work for example so we wanted to grow the go-to-market team so we we kind of landed on a number about what that would cost our engineering team and we've always operated a very lean engineering team and i think when we realize when we look to the future we we want a bit more of the supporting build up things like the qa the testing side some of the support functions um and start to bring on more junior talent as well into the team and get a bit of a machine going from a i guess my people point of view so that was one of the big initiatives um and then also if i'm honest because this round was participation from existing, but we had some legacy funds, angels.

21:44Tom Dunlop:They'd been on the journey for a long time. And I think this is an area of, I guess, investment that people don't talk about that much. Everyone talks about the venture side, which is very much raise a load of capital. You burn through it, then you raise again, then you burn through it. And it's kind of, you either grow big or kind of fail, basically, or run out of cash. I was actually keen to kind of sort out the cap table a little bit with this round as well and realizing we'd had some debt before that converted um into shares we had some very much non-participating shareholders that had been on a great journey to date and i felt when i look forward if we are going to exit at some point in the future like having a clean cap table and having a very kind of just a few investors rather than a long tail of angels and all sorts on there was um was a good thing to do so there's a few different aims with this funding and then when we brought it all together we we kind of came to this kind of 50 million dollar um number and it was you know about the process itself it was a long process um it's interesting to understand the effect that ai has had on raising and um and generally on the markets as everyone's seen with the public markets as well so that was an interesting dynamic that we probably didn't realize was as much of a dynamic um we went to the us and europe we've ended up with more European investors, which if you'd asked me nine months ago, we would have gone with a US investor.