Investor Talk: Hoxton Ventures’ Rob Kniaz and Hussein Kanji
GB catches up with two young tech leaders about to launch their own VC fund
This week Growing Business sat down with Hussein Kanji, formerly head of M&A at Microsoft, and Rob Kniaz, a former senior product manager at Google, to discuss plans for their new London-based venture capital fund, Hoxton Ventures, which will specifically target young, disruptive tech businesses.
Both Kniaz and Kanji have previously worked as tech VCs, with Accel and Fidelity respectively, so are ideally placed to comment on the tech investment scene, and what investors look for during the pitching process.
What sort of companies is your new fund targeting?
HK: We’re targeting early-stage internet companies with a global focus, and we’re focusing on where the markets are going to shift, in the hope of finding start-ups who are already anticipating where the next shift will take the market.
A couple of years ago, for example, there was a general theory that people would consume web content on a mobile phone, but no-one was sure how it would work. There was a whole set of start-ups that were created in the process to build mobile advertising solutions for the day when web pages would actually be consumed on the mobile web.
Then the iPhone launched and there was exponential growth, and all those start-ups did well. There was one in India, for example, called the Moebilus, there was another that got sold to Google, another got sold to Apple. We’re looking for shifts similar to that.
RK: We’re focusing on companies with a global focus. Historically people have often focused country by country in Europe. But it’s hard to build a big, valuable company if you’re focusing on just the one country.
But most web-based companies are globally focused, aren’t they?
HK: Not necessarily. In Germany, for example, many companies have tried to clone an American service. These companies are, by definition, not globally focused – they’re trying to build and replicate something that’s taken off in America and make it work in a certain country. That’s really not for us.
We spend a lot of our time thinking about new markets that are global. The internet’s a very level playing field – you build an English-speaking service, you can be global from day one.
What lessons have you learned from Google and Microsoft?
HK: Probably the biggest thing we’ve learned is how to hire. Both Google and Microsoft have very rigorous hiring practices. Both have good weed-out culture, making sure they don’t hire the wrong person.
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RK: Yeah definitely. You get a framework for how to look at interviewees to ensure they fit the right skillset. I think I did 600 interviews over three years, give or take. You start to notice certain kinds of people, and you know within the first 15 minutes whether a person will be a good fit.
You’re both from America. Why did you choose to start in London?
RK: In terms of start-up activity, London is the capital of Europe. It can be expensive, so Berlin’s also attractive for a lot of people, but if you’re doing a start-up you want to be where everything’s happening.
London’s particularly good if you want to serve other parts of the world – the Middle East, India, Africa. You can’t really beat London for that. Even New York or California can’t beat that sort of functionality.
What chance does the UK have of producing the next Google or Microsoft?
HK: That’s the million dollar question – maybe even the 10 million dollar question! The world is democratising, and you can build a tech company from anywhere. The field is flat, so if you can assemble the right sets of people, the right sets of capital and the right strategic vision to go for a ‘home run’ rather than building something small, there’s no reason you can’t do it in London.
For tech start-ups seeking investment, how important is it to find a specialist VC?
HK: I don’t think you need a specialist per se, but you want someone who has the right domain expertise, and has been part of a company that’s built itself up. This is a little bit of a specialist business; it is difficult to find guys with the long-term patience and the right strategic connections to say, the West Coast if you’re building a tech company.
RK: As an investor, the things you can help with the most are the hiring and domain expertise. If, say, you’re starting a cupcake business, someone with experience of the baking industry or the dessert industry can bring you advantages other investors can’t.
What numbers does a prospective investee need to know?
HK: If you were coming to me for investment, I would expect you to know the micro-economics of your business really well, and articulate what makes the business turn and generate profit – maybe not now but definitely in the future.
RK: You need to know the key drivers of your business. If it’s a website, for example, what sort of advertising revenue will you get per page? What is the cost of driving traffic to your site? What do partnerships cost you?
HK: I’d also expect someone to outline a path to creating a billion dollar company. That’s our bar.
When applying for investment, how do you demonstrate the idea is not a wild dream?
RK: You understand how the business works at a low level – your first 100, 500 customers. It’s then easy to project that model up, to understand what happens when you enter a new market, and what happens when you launch a new product.
What are the most common mistakes companies make when pitching for investment?
HK: We often find they’re not prepared to discuss the economic drivers of their business, and have an investor turn around all their assumptions and pose new questions.
RK: Some people don’t understand whether or not they should be venture funded in the first place. People look at Dragons’ Den and think venture capital is glamorous, but it’s a unique beast and has to be driven by exponential growth.
The company has to become very large for venture capital to be economically viable, and for the model to work. For some businesses, such as retail, alternative funding methods such as debt might be better.
Does an investee have to have commercial nous?
HK: Not always. Silicon Valley was driven by a bunch of engineers who’d never had commercial experience before, but were able to build a product in a new market and learn the commercial parameters quickly. No-one could have predicted that Mark Zuckerberg would be a great CEO, but Facebook is a multi-billion dollar company.
Hoxton Ventures’ Rob Kniaz and Hussein Kanji were speaking to Growing Business at Internet Week Europe, a five-day programme of web-related seminars and networking held in central London. For up-to-date news and reaction from the event, please click here.