Saul Klein Interview
Brian Perry
30-Mar-07
Saul Klein is a founder (Lovefilm), serial angel investor, former global head of marketing with communications giant Skype, and a venture partner with venture capital firm Index Ventures, based in London. Mr, Klein shares with Brian Perry some of his thoughts and insights on angel investing and where the future of start-ups in Europe might be headed .
Saul, you certainly have a very impressive track record in working with various exciting leading edge start-ups, would you consider yourself just as much an entrepreneur as an angel investor? Can one exist independent of the other?
I think one can be an angel investor without being an entrepreneur but I think it is extremely valuable to have, in an investor, one that has experience with and has seen some of the things entrepreneurs and companies deal with on a daily basis. There are two ways to do this; 1. as an entrepreneur or 2. with experience in dealing very closely with entrepreneurs such as VCs do.
You have recently been appointed a venture partner at Index Ventures, tell us a little about what key attributes you would look for in a venture finance backed start-up company.
You always look for one of two things, and ideally both; 1. a great product or proposition and 2. a great team. I think you can have a great team but not initially have a great product. One would always back an A team with B ideas vs. a B team with an A idea.
You have been around long enough to see the highs and lows of angel and venture financing, do you see any similarities in today's markets that point to a repeat of the bubble bursting?
My view would be that great companies that can solve problems can be successful in any type of market. I wouldn't say we are necessarily in a bubble right now but people are more excited than they have been in the past few years. The market today is very different and much better than it was in 1999/2000. We now have an Internet that exists outside of the US. The underlying fundamentals of the market are very different than they were seven or eight years ago. I also think a lot of the ideas were a bit ahead of their time because of the size of the market and people's readiness to adopt new technologies. For example, Skype was not the first company to offer Internet phone calls but when services launched to offer in the 90's, the technology and number of users were not there yet. It was not that the ideas were not great, but the market was simply not there. Timing is very important. The available market for the end products was maybe five times smaller than it is today and really only one big market (US) existed in 1999/2000. Today, there are easily 5 - 10 big markets.
eBay's acquisition of Skype for $2.6 billion + was another blast of inspiration to the start-up technology entrepreneur and early-stage investor. As a VP for Skype at the time and knowing things from the inside, do you feel these sort of large deal exits are extremely rare and maybe come only once in a lifetime?
Very large exits are rare. I think companies that address a market opportunity and execute it incredibly well are incredibly rare. The ability for people to build very large businesses still exist and there are more opportunities than ever because of the global marketplace. A billion dollar company can come from anywhere, not just Silicon Valley, Boston or Seattle anymore.
Are there any specific industries or business models you are more inclined to review at present and what sort of returns would you ideally like to see?
The underlying fundamentals are still the same. Are they solving a real problem that customers have? Do they have a team to develop these opportunities? What is so much fun as an early stage investor is that these entrepreneurs and companies provide you with ideas that you have never thought of before. eCommerce is still a very, very big opportunity as more and more mainstream high street businesses adopt new technologies in telecomm and mobile. Also, a lot of really interesting opportunities in something that has been considered a little unsexy over the past five years, but which we consider to be very interesting, is enterprise applications. The quality of tools we use at work is mostly inferior to what we use at home. One example is that 30% of Skype users use the service primarily for business purposes. Reason being is that, aside from the cost savings, the easiness and functionality is superior to the alternative. Another example is Google offering office documents over the Internet now. Google's fundamental model is to build something in which understanding the people comes first vs. the system. Online advertising is also a very interesting market as we have now reached a tipping point with traditional media accepting this as legitimate and effective to use over the Internet.
I also suspect we will see a lot of growth in "bottom of the pyramid" type businesses. In a recent book I read, 'Fortune From The Bottom Of The Pyramid', the author basically makes a very simple point that there are billions of people outside of the market sphere of normal business that we presently don't market to. There is a huge market there and these consumers are now have access to the same technology, such as mobile phones starting to get into the hands of this mass market. This, along with clean tech, I see as possible investment opportunities.
The US angel and VC investing climate and activity is light years ahead of the UK, aside from the obvious population size differences do you see any other reasons why we tend to lag behind the US?
I think the main issue is around the density and clusters of various areas. I wouldn't say the US as a whole is actually ahead of the UK. I would say San Francisco, Boston and possibly Seattle (although I feel London is arguably even larger now) are ahead but it is all about the density and clusters. San Francisco and Boston are in fact such strong clusters because of all the academia, generations of successful entrepreneurs and many venture capital firms based there as a result. You don't get this in many places around the world but we are starting to see more and more growing clusters like these around Europe and especially London.
To date, what was the best angel investment you have made?
The best angel investment for me was Video Island. I was the founder and CEO and that investment turned into a business that is doing extremely well and which is now conducting business in five countries right now.
For More Information
Mr. Saul Klein
Index Ventures
52 53 Conduit Street
London, United Kingdom
W1S 2YX
saul@indexventures.com
