For one of Europe’s most influential investors, Barry Maloney keeps a low profile. The big, genial Irishman is the driving force behind Balderton Capital — the London-based VC with one of the best hit rates around. But he doesn’t often give interviews.
“We prefer to let our companies do the talking,” he says, when we meet for coffee at the company’s offices right in the center of the British capital.
There’s plenty to talk about — not all of it good. Read the headlines, and things look gloomy across Europe, Balderton’s sphere of influence. Greece, Spain, Ireland are all struggling. Britain is troubled. Even Germany doesn’t look impregnable. But Maloney is positive, almost ebullient. Maybe it’s his jetlag, or maybe it’s blarney, but he thinks startups are bucking the trend.
“I think we’re probably more excited by what we see going in Europe today — and we started 11 years ago — than ever before,” he says.
“What’s very interesting is if you’re backing disruptive business models, it’s just amazing to see how companies can grow irrespective of what the GDP environment is.”
Maybe so, but surely the wider economic situation plays a part. Surely if purchasing power is down, things are harder? He doesn’t think it matters.
“When you look at the revenue growth of companies that have breakthrough models, it actually doesn’t matter what’s going on in the UK or France or Germany or Italy or Spain,” he says, underlining the point. “That’s what’s so exciting.”
‘Deckchairs on the Titanic’
What he doesn’t hold much hope for, however, is the possibility for improved exit opportunities inside Europe, unlike some of his competitors. Index Ventures, in particular, is lobbying for regulatory changes to encourage more European tech IPOs, a move which has seen the British government say it wants to relax the rules on going public.
But Maloney — and by extension Balderton — feels very differently.
“There is no European tech market, and in our view there isn’t going to be,” he says. “Changing the rules for this thing is like rearranging the deckchairs on the Titanic. So the reality is that most of the companies we invest in will list or be sold in the US. Every company we’ve sold, we sold to a US player, no exceptions.”
His thinking has been formed, in part, by one of the few European IPOs that the company has been involved in — gambling outfit Betfair (s BET). The company went public in 2010, and although it has a huge chunk of the lucrative betting exchange market in Britain, it has never really achieved the share price that investors think it deserves.
American attitudes towards gambling prevent the business from listing on the Nasdaq, but he has no doubt that its business fundamentals would make it much more valuable if it had been able to go public in the US.
“I don’t think generally investors and the analysts really understand technology here in the same way as it’s understood in the US,” he says. “That’s the single biggest issue, and that’s a structural thing that’s going to take years to change. Government can’t just flick a switch.”
Balderton’s philosophy differs from many of its rivals in other ways too.
It has restrained itself, by and large, to series A investing. It doesn’t go after particular markets, themes, or ideas — instead it just looks to find a handful of entrepreneurs each year that it thinks can take their business global. And rather than have a group of partners who each bring in and manage their own deals, Balderton’s small team pool their knowledge and make decisions together.
This, he says, is part of the company’s sell to the entrepreneurs it approaches. Balderton may not always have the most money, but they work hard on making good picks and cultivating strong relationships.
“Look, if you have a really clever idea that has a global dimension to it, you’re going to get money,” he explains. “I say to entrepreneurs to make sure that whoever’s money you take is somebody you like and respect, because it’s like a marriage. If things work out, you’re going to be together for a long time — and you’d better like each other, because you’re going to have up days and down days.”
‘If it goes wrong, it’s like a bad marriage’
One deal that had more down days than up must be Habbo Hotel, the Finnish social network for kids. A TV news report earlier this year accused the company of doing nothing to stop pedophiles infesting the site — and though the site promised to clean up its act, Balderton took the unprecedented step of publicly dumping its stake.
Maloney doesn’t talk about the affair specifically, but it echoes through some of his comments.
“From Balderton’s perspective, I say make sure you work with someone you like, because if it goes wrong, it’s like a bad marriage — it’s awful stuff.”
Habbo might mark a low point, but Maloney is proud of the big hits that the company has been involved in — MySQL, Bebo and Betfair among them. Current high profile investments include the money lender Wonga, vacation rental site Housetrip and games studio Wooga. In many cases, Balderton holds bigger stakes than anyone other VC, though it rarely trumpets its wins.
It’s a good record — great, even — but Balderton doesn’t get it right every time.
Names that the company looked at, but didn’t get, include the food delivery service Just-Eat (“we got out hustled”) and Spotify (“we couldn’t get comfortable about the dynamics of how you manage the content being owned by somebody else”).
One other company they ended up missing out on was Skype (s MSFT). The reason, says Maloney, is that they couldn’t form an agreement with founders Niklas Zennstrom (pictured) and Janus Friis to bring in a new CEO if it became necessary. That killed the deal, but the Irishman sticks by his guns.
“To this day, we wouldn’t change that decision,” he says. “When we’re doing series A investing, at that stage, those things are really important to us. The reality is that a lot of entrepreneurs, when they start off, are very skillful at getting a project going — but very few of them are good CEOs. That’s not a negative, it’s just a different skill set, and a company needs both if it going to succeed.”
The truth is, he says, most successful companies were started by people who knew when to step aside. Good founder CEOs are like gold dust and only a few who think they’ll make the grade can actually manage it.
“Just look: there are very very few examples, I can probably name you five or six,” he says. “You’ve got Ellison, Michael Dell — a tiny number of names. The rest of them, thousands of other companies, go through this change.”
“You understand what I mean when I say we want to back people who want to become rich, not famous. The guys who want to be famous get you into some real trouble.”