After quitting one of Europe’s major venture capital firms in the summer, Sean Seton-Rogers decided to set up a brand new fund with a little help from his friends, Michael Birch and Brent Hoberman.
After quitting one of Europe’s major venture capital firms in the summer, Sean Seton-Rogers decided to set up a brand new fund with a little help from his friends, Michael Birch and Brent Hoberman.
Life has a habit of confounding expectations. As a boy growing up in the US, Sean Seton-Rogers dreamed of hitting home runs for the Boston Red Sox. Although those sporting heroics never came to pass, things didn’t turn out too badly. Twenty years later, he found himself working as a venture capitalist, hitting a home run of a different kind with social networking site Bebo, which was sold in March 2008 to AOL for $850 million.
That was with Balderton Capital (formerly Benchmark Europe), where he stayed for four years until setting up PRO founders Capital this summer. Leaving one of Europe’s leading venture firms to go it alone may sound rather foolhardy in these uncertain times, but Seton-Rogers has no regrets. ‘As I tell every entrepreneur who comes in – personally, this is my entrepreneurial leap. I went through the same range of emotions they did: should I quit a good job? What if it doesn’t work out? All of those fears went through me.’
It helped having a family background where risk-taking wasn’t frowned upon. ‘My father was always the entrepreneur and ran his own companies, so I suppose from a personal perspective I’ve always had a lot of respect for people who don’t go for the steady pay cheque,’ says Seton-Rogers, who recently won VC Personality of the Year at the Investor AllStars Awards.
Social networks
Just as important, no doubt, is the pedigree of the four ‘anchor’ investors joining the firm. Combined, they have an exit value of over $2 billion and their names form a miniature who’s who of elite tech and online entrepreneurs of the past ten years.
There’s the founder of Bebo, Michael Birch; Brent Hoberman of Lastminute.com, which was sold to Travelocity for £650 million; Peter Dubens, founder of 365 Media, sold to Sky for £96 million, as well as internet service provider Pipex; and Johnny Goodwin, the man behind LongAcre Partners, an M&A advisory boutique acquired by investment bank Jefferies for £40 million.
Since launching the fund three months ago, these investors have raised £20 million, and now Seton-Rogers and fellow PROfounders general partner Rogan Angelini-Hurll are identifying other entrepreneurs to join and increase the pot of funds to £40 million. ‘All of our investors, as opposed to being institutions, endowments and hedge funds, are successful European entrepreneurs who have built and exited companies in the past,’ he says.
Aside from financial backing, the investors will also give help and advice to companies. ‘We believe we can get good deals, and entrepreneurs will want access to this wealth of talent,’ says Seton-Rogers. ‘They will have access to Brent Hoberman and Michael Birch, although you’re not going to be getting them for five days a week, of course.’
A time for heroes
It’s no secret that many venture capital funds are struggling, so although the names involved may be impressive, the timing of starting up a new fund seems rather odd. Again, Seton-Rogers is undeterred because the firm is strictly focused on targeting companies that are floundering in the equity gap. ‘For our fund, we’re looking to invest between £500,000 and £2.5 million into a business, and there are very few players in that space,’ he observes.
‘We’re going to be investing in digital businesses which are capital efficient. As we’re getting in early, it means we don’t have to sell the business for $300 million to $500 million [to make a profit]. We can sell for far less and still generate a meaningful return for the founders of a business and for us as investors. We can now play where most exits happen, which is the $50 million to $100 million range, and do well there.’
The equity gap in Europe is far more pronounced than in the US, says Seton-Rogers. ‘There are so many successful founders in Silicon Valley, so there is a lot more money floating around for early-stage businesses.’ In addition to this, there are more seed, early-stage funds and Series A funds. Evidently, Europe has its big players, such as Index Ventures, Wellington Partners and Balderton Capital, but those who dismiss the equity gap as merely an excuse for bad businesses that can’t find money are simplifying the issue.
Since launching, the firm has invested £1 million – together with a US fund – in a London-based company called TweetDeck, which has developed applications that filter information from social networking sites such as Twitter and Facebook. Seton-Rogers says PROfounders has received 550 business plan submissions and had 195 company meetings. ‘That tells us that there are still entrepreneurs out there and this gap in equity is there which we can help to fill.’
For the meantime, the fund will be concentrating on the digital media and online space. ‘I would love to be able to invest in the cleantech or medical sectors, but at the moment we don’t know about those areas,’ says Seton-Rogers, who is confident about seeing an up-and-coming crop of entrepreneurs developing the next generation of websites and internet software. ‘We have only touched the surface of what the web can do. Now that you’re actually getting broadband access in everyone’s home, I think there are so many things that can be done online.’
He is a ‘huge fan’ of e-learning. ‘You will have high-quality video coming through. Skype’s video-conferencing is terrible right now, but imagine what it will be like in three years. People in general are getting much more confident about using the web and inputting personal and financial data. We’re only going to have richer applications.’
Big names
Entrepreneurs tend to be self-interested, highly opinionated individuals, so it’s easy to imagine heated discussions at PROfounders, especially as other investors join the fray. Seton-Rogers acknowledges this could be a danger, but he believes the structure of the firm should guard against any prima donnas.
‘This is a proper fund structure, so when [investors] commit, they have to make an investment, but they can’t pick and choose which deals they want to be a part of. We do have the investment committee, which is made up of the four initial anchor investors, and they will decide on the investments.’
The scope for identifying bold, innovative companies is impressively ambitious. At present, the firm is strongest in the UK, but ‘some continental and Eastern European’ investors are expected to join the firm shortly. Seton-Rogers has opted for the ‘Eurovision Song Contest definition of Europe’, so companies will be accepted from across the region and beyond, including Israel and Turkey.
As for exits, being a new firm, PROfounders has none of the pressures to sell that are currently experienced by other funds. ‘The great news, from our perspective, is that we don’t have a legacy portfolio to deal with,’ he says, observing that, while it’s encouraging to see the M&A market loosening up, it won’t be on the agenda for two or three years. ‘In 2011 or 2012, hopefully the market will be robust, people will be willing to pay for high-quality businesses and we can think about exits.’
Clearly, Hoberman, Birch et al are convinced that the market will improve by that time, which is good news for entrepreneurs everywhere.
Vital Statistics
Date of birth: June 1975
Place of birth: Texas
Marital status: Married
Favourite film: Office Space
Pet hate: People who don’t know the numbers (see box below)
Business hero: Levi Strauss, inventor of blue jeans: ‘He built a new product that solved a major problem, flimsy trousers for miners, and then created a brand on top of it.
