Earlier this month, co-founders of leading on-line video business Base79, Ashley Mackenzie and Richard Mansell, enjoyed the epic moment of announcing the sale of their business in a deal valued at £50 million.
The acquisition was agreed with Rightster Group and the combined business will create the largest YouTube multi-channel network (MCN) outside of North America. As early investors in the business we’re immensely proud of their achievement and the journey they have taken to date.
Success in business often looks so easy in hindsight and yet as venture investors we know this is not the case; despite being lucky enough to work with some of the best and brightest teams in the UK. In the case of Base79, Mackenzie and Mansell co-founded the business in 2007 and officially opened doors for business in 2008 – the magic first revenue! ‘Overnight success’ is not a term most entrepreneurs are familiar with and six years is a relatively short period of time to go from founding to exiting a company.
Perhaps more important than the length of time is the global context into which a business like Base79 was founded. Like so many of the successful growth businesses that are noteworthy in 2014, many of them were founded during one of the most severe financial crises of modern times. Mackenzie and Mansell were writing business plans, persuading their loved ones and resigning from their previous roles during the booming economy of 2007 and yet started trading in the year that witnessed the beginning of the longest recession in the UK for more than 60 years.
In my opinion it takes incredible determination and resilience for any founder to start a company in 2008 and see it through to delivering on their original vision. Resilience, or ‘grit‘ as it’s sometimes called, is one of my all-time favourite founder characteristics.
It was not only early clients that Mackenzie and Mansell had to persuade during this period of severe global dislocation but also investors. Base79 has gone through an almost textbook route of funding for a high growth technology business, having successfully raised an angel round in 2008 from a list of impressive industry veterans (Peter Bazalgette, Rupert Dilnott-Cooper and Kelvin Mackenzie), a Series A round in 2010 from an early stage UK venture capital investor (MMC Ventures) and a growth capital round in 2012 from a group of well-known US investors with deep ties into the media industry (including The Chernin Group and Evolution Media Capital backed by CAA and TPG).
The 2008 heritage of the Base79 business and the founders’ track record of raising capital during that period begs the question of what Mackenzie and Mansell managed to get so right. As a venture investor the shorthand version of what we look for in a business is team, momentum and market size. In our view Base79 had all of these.
Team is a difficult criteria to pin down but even when we originally invested in Base79 the early team was led by smart and proven media executives. Not only did they understand the industry but they had a vision of how the industry was going to develop and they had the ability to bring others along with them on that journey.
This brings me to my second favourite founder characteristic: the ability to sell. I don’t mean classic sales techniques but instead the ability to persuade others to believe the vision; this includes investors, founding team members, suppliers, board members, employees, partners, customers, press and eventually acquirers. The case with Base79 was no different and we believed that Ashley and Richard had the right combination of skills, experience and personality to do this in spades.
Momentum is an easier investment criteria to pin down. At MMC we invest in what we call Series A stage companies. That means we look for a team to have existing commercial traction. We want to see that there is demand for a product or service, that others are willing to pay for it and that the team can deliver on it. Again in the case of Base79, Mackenzie and Mansell had done the hard graft on this and had a small but growing list of high profile partners and customers. This momentum when combined with great execution meant they could go from £263,000 of revenue in 2009 to c.£10 million in the four years to 2013.
You’d think that market size would be the easiest investment criteria of all to define but in many of the most exciting investment opportunities investors are required to make a leap of faith between the market size today and the potential market size of the future. Whilst this question can be a challenge it also creates one of the genuine privileges of working in venture capital which is that we get to work with teams that literally create and shape their industries.
I definitely feel this way about the team at Base79. When they founded the company in 2007 it was just two years since Sequoia had made their its investment in YouTube. The online video market, as we know it, just didn’t exist before this time. When we were making our first investment in Base79 we knew that the market wasn’t big enough (2 per cent of online video was being monetised) and we weren’t sure what the long-term business model was, or who the major beneficiaries would be. Google, via YouTube, controlled the majority of short form video content being consumed on-line and there was no way of predicting what type of ecosystem would be built around them.
For a market that’s moved so far and so fast over the past few years I still find it genuinely remarkable how close the Base79 proposition today is to the original vision that Mackenzie and Mansell presented to us. We wish all of the team the best of luck and look forward to watching their continued success.