Julie Meyer: Ariadne Capital

The Ariadne Capital founder on raising her first venture capital fund, ecosystem economics and defending her protégé from a "smear campaign"

Between defending one of her protégés from a “smear campaign” and raising her debut venture capital fund, Julie Meyer would be forgiven for not knowing which way to turn. Growing Business, however, finds her in formidable form as the embattled SpinVox’s most bullish backer

It has been a busy couple of weeks for Julie Meyer. When your role calls for you to be an entrepreneur, investor and adviser all at the same time, you have to get used to being pulled in different directions. But she knew what she was signing up for when she set up her investment and advisory firm Ariadne Capital in 2000.

At the moment, her advisory skills are being called on a little more than she’d like, as she goes through what may prove to be a watershed moment for her in this capacity. One of Ariadne’s protégés, SpinVox, has been the subject of a media frenzy. It was sparked by a BBC exposé claiming that the firm, which has received more than £100m in venture backing, relies heavily on staff at overseas call centres to transcribe users’ voicemail messages rather than its famed voice recognition technology. Founders and one-time media darlings Christina Domecq and Daniel Doulton are now at the centre of what supporters have dubbed a smear campaign by disgruntled former employees.

Meyer has defended them with admirable vigour, and it couldn’t have come at a worse time for her. She is in the process of raising Ariadne’s debut venture capital fund. While its size has not yet been confirmed (she was poised to make an official announcement as we went to press), she is expecting to raise £15-20m. Even before the “shit hit the fan” with SpinVox, when we first met, Meyer was pulling 15-hour days balancing fundraising with the needs of 24 fast-growing portfolio companies. She’s also a new Dragon – having starred in the online version of the show alongside Shaf Rasul since March, which is due to be televised in the autumn.

“It’s amazing what make-up can do these days,” Meyer smiles, when I reassure her that you can’t see many signs of her punishing work schedule. What is apparent, however, is a passion for cultivating an environment that supports ambitious entrepreneurs. It’s what drove her to set up Ariadne, and more recently Entrepreneur Country, a community of more than 27,000 entrepreneurs built upon a number of founding values, including a commitment to driving the economic recovery and being the most suitable backers of early-stage companies.

This idea of entrepreneurs backing entrepreneurs, of their experience being the catalyst that turns great ideas into global successes, is a well-versed mantra these days, but this wasn’t the case in 2000. She might have a keen eye for spotting game-changers (Ariadne was an early adviser to Skype founder Niklas Zennstrom, before the firm’s $4bn sale to eBay), but she has also proved to be a visionary herself.

The networker

Meyer was already a serial entrepreneur when she set up Ariadne. In her early 20s, she established a training and consultancy business in Paris, and she’s often referred to as a founding mother of the new media set in the UK, where she set up First Tuesday in the late 1990s. The networking event for entrepreneurs and investors in the digital community was sold to Israeli firm Yazam for £33m in 2000.

“First Tuesday was, by definition, an international network of people,” says INSEAD graduate Meyer, who started the event (which ran on the first Tuesday of every month) after moving to the UK in 1998 and landing a job at New Media Investors. Before online social networks came on the scene, she tapped into the importance of a global connectivity to business that we take for granted now. “It was kind of a natural thing to do,” she says. “I needed to meet people, I was in my first job and we were looking for deals.”

The concept evolved from her observations of the UK’s entrepreneurial scene, where home-grown success stories often lacked the contacts and partners to help them expand abroad, without taking on hefty additional fixed costs. When American-born Meyer stepped off the plane in Paris at 21, she knew no one. By the time she left, she had been to business school and formed her own network of contacts across Europe. Going international at a young age gave her a global mindset that has shaped all her subsequent endeavours.

“I was raising money for Brent [Hoberman] and Martha [Lane Fox] with Lastminute, or with Julian and Marc [Worth] for WGSN at New Media Investors, and I saw that these businesses were looking to expand internationally, but lacked the partners in other geographies,” Meyer recalls. “With First Tuesday, I saw the people network we were developing as being an essential part of helping companies find the partners they needed.”

The investor

It might be raising its first fund, but Meyer looks horrified when I refer to Ariadne as “more than just a VC firm”. “We’re not really a VC firm at all,” she says. Its investment strategy certainly sets it apart from most VCs.

For a start, Ariadne makes a beeline for early stage firms. While this approach carries the prospect of mammoth returns if the business takes off, it also means that things can get a bit messy. “We put that first £500,000 to £1m into a company to take the product to market. We work a lot on shaping the ‘go to market’ strategy.”

Backing a pre-revenue start-up is not for the fainthearted, and Meyer believes that only successful entrepreneurs themselves should try this at home. “We’re happy to work with a company in a kind of high-risk, sometimes very unstructured way,” she says. “We call it our bear hug. We wrap around a company and provide them with a lot of support to accelerate the business, and to work through some of the tricky issues in the early stages.”

Having a successful sale under her belt helped her develop the business model – Ariadne’s valued advisory services are given in return for equity. This will sometimes include providing capital through Ariadne’s 53 investor members, or other investors, but often it involves striking partnership deals, assisting with marketing, staffing or negotiation – something the firm is particularly good at.

Ariadne has closed a number of investment deals on behalf of its clients since December, and while Meyer admits that five ended up with lower valuations than hoped for, there have been some notable exceptions. When we meet, she had just received a phone call informing her that one of her companies had been given a term sheet much faster than expected, and the valuation was spot on.

“But it’s not all about getting the highest valuation possible,” she stresses. “Ariadne will always try to find a middle ground that works for both management and shareholders.”

The friend

Ariadne’s model involves working closely with the entrepreneur. “We’re right there with them,” says Meyer, something she has proven in her defence of SpinVox. She is fiercely protective of Domecq, whom she frequently name checks as one of Ariadne’s triumphs and a leading light of the UK tech scene. Meyer wrote an impassioned blog shortly after the story broke, accusing the ‘hack pack’ of ‘outrageous’ claims. “We owe our entrepreneurs to be rooting for them when they go global, not pissing at them from outside the tent,” she said.

Meyer then found herself at the centre of a sub-debate, as the protagonist of a TechCrunch blog, which questioned her defensive stance and argued that the emergence of a culture where entrepreneurship really is supported depends on the press raising these difficult questions. When I catch up with her over the phone a few days later, she is unapologetic. “You can’t only be there for companies when it’s all going well,” she says. “When the shit’s hitting the fan, you’ve got to be there too. The press is so important to the market that we live in, but I think the criticism has been personal,  without reviewing the facts, and unbalanced.”

Perhaps Meyer was filling a void, a notable silence from the SpinVox camp and shortage of others willing to put their necks on the line to support the founders. Either she truly believes in the firm or has resolved to go down with the ship if needs be in her battle to maintain confidence in the business. Either way, if I were Domecq, I’d be reassured to have someone with her credentials offering unfaltering allegiance.

“She is an extraordinary leader,” says Meyer. “I’ve seen so many failures over the past 10 years in the mobile application space. These guys have successfully sold into some of the world’s most important mobile carriers. You can’t pull the wool over Telefonica’s eyes. They don’t deploy globally unless they have a carrier-grade solution.”

But it’s a precarious time to lose the confidence of investors over financial concerns, or customers over privacy fears. Unaudited SpinVox accounts for 2008, reportedly seen by The Sunday Times, show a pre-tax loss of £49m, on revenues of £10m. Although a number of deals with major carriers have been secured since then, the firm’s request for an emergency £15m from shareholders last month has added to media speculation over its stability.

An anonymous dossier has been circulated to shareholders, containing accusations of financial mismanagement, and investors in the latest round are said to have insisted on greater powers.

When a business as highly leveraged as SpinVox has gone for a risky, albeit necessary, land-grab strategy (with the likes of IBM and Google increasingly sniffing around the voice-to-text space) and has yet to hit profitability, maintaining trust is vital. With pertinent questions still unanswered, and the response to the media seeming at best uncoordinated and at worst conflicting, Meyer has got her work cut out. But if she is concerned, she’s giving nothing away, and insists the press don’t know the full story.

“Frankly, I think [Domecq] is extraordinary in what she has done and I think time will tell,” she says.

The entrepreneur

Ariadne sees about 80 companies on a monthly basis, but has 24 on its books. While the firm likes to go in early, it does what it can to mitigate risk. Take a look at the people behind Ariadne’s portfolio – Christina Domecq, Alastair Lukies of mobile banking provider Monitise, BeatThatQuote.com’s John Paleomylites – and you’ll see a pattern emerging. They’re all serial entrepreneurs, and this is no coincidence. “You learn a lot with your first company. We’re not taking first-time entrepreneur risk, when there are just so many mistakes,” Meyer says.

That might sound harsh, but she is the first to admit to hers. She says she got the corporate structure of First Tuesday seriously wrong, hence she describes the subsequent sale as a big win, but also a big mistake. “We were early,” she says. “Could First Tuesday have transcended the dot-com boom and bust, and come out the other side as a business rather than just a networking event? I’m convinced it could if I had been running it.”

In Meyer’s mind, the people who created the real value in First Tuesday – the City leaders across Europe (not the co-founders) – were not compensated in the exit. “I told them at the start: ‘If anyone makes money, we all make money together,’ and they trusted me,” she says. “I was not able to deliver on that because I didn’t anticipate that my co-founders would not agree with what seemed to be a very fair proposition, as the sale happened unexpectedly. With First Tuesday, I had put the seed capital in, but then I made my co-founders equal shareholders to me, despite the fact that they had put no money in and were in San Francisco while I was here.”

Still, Meyer’s 22.5% stake and a £33m exit would have softened the blow, and enabled her to seed-fund Ariadne. This time, rather than co-founders, she brought on investor members, comprising internet entrepreneurs and private equity figures. She must prefer it this way. “You’ve spotted that control freak in me,” she smiles, before adding that this is absolutely the case. “It’s not fun to be in business with people who don’t share the same vision. But I’m very happy with where we are with Ariadne.”

The Dragon

She’s conscious of the criticisms that have been levelled at Dragons’ Den, that it gives a distorted view of entrepreneurship and angel investing, but believes she is helping to reinvent it into something more relevant. For a start, she refused to be rude to entrepreneurs, and was surprised when the BBC was happy with this.

Something else that’s changing is the pitchers’ propositions themselves. Musician Warren Cole was one of three deals Meyer has made in the Den. “He’s building an album right now, we’re bringing a manager to the table, and basically we’re launching an artist,” explains Meyer, who already has several investments in the “music ecosystem”, including Slicethepie.

What she looks for in any investment is someone who can sell a vision, get others to follow, and be able to execute that vision in a commercially viable way. Her own vision was of entrepreneurs backing entrepreneurs. Just as Ariadne’s namesake guided Theseus through the labyrinth in Greek mythology, so Meyer is channelling her experience into new businesses to help them transcend the start-up stage. She spotted the potential of this approach early on, and was able to get investors to buy into it.

For her, this requires a certain mentality. “The first characteristic I would use to describe Alastair Lukies, Christina Domecq or Niklas Zennstrom is that they know how to close. They can get people to follow them, whether it’s investors, customers or partners. That’s sales ability, but also killer instinct. Good entrepreneurs expect success in their life. They believe in their market vision, and as a result of that belief, they make it happen.”

Ecosystem economics

Many of Ariadne’s companies revolve around what founder Julie Meyer calls “ecosystem economics” – more collaborative models that are made possible by the lowering cost of technology. “We were early advisers to Skype. That’s where the real consumerisation of technology started to happen,” she says.

“These days, technology is so simple to use. Consumerisation in every quadrant means you have a lower cost of entry to set up companies. You can also provide services to early adopters through the ‘freemium’ model, and across the board we’re seeing that effect. The companies that are winning today understand their role in the ecosystem. New ecosystems are being built where there’s been a dominant player who does not want to relinquish control of the economics.”

Here are some of Ariadne’s examples, along with Meyer’s comments:

Bview

Users can find offers from local businesses. “Brad Liebmann is creating a clearing house as opposed to a destination site, helping you save money if you want to spend locally.”

Monitise

A free mobile banking service designed to work on any bank or mobile network. “It works for the banks, the operators and the consumers.”

Gnu Trade

A gaming environment to learn financial trading, or trade for real. “You have educational gaming and financial trading converging because of the low cost of technology.”

Slicethepie

Enables fans to invest in unsigned artists to give both parties a better deal. “They’re doing at a micro level what the record labels do.”

In her own words
On being your own boss

I’m always fascinated when people talk about job security or risk, because the biggest risk I’ve always felt is working for someone else. I think that would freak me out the most, if I wasn’t in control.

On Christina Domecq

She’s a tough cookie, has got her head on straight and hasn’t done anything wrong. Some of the coverage of her has been absolutely nasty. What she has done is a breakthrough. No other woman has led a business like this anywhere in Europe, in the technology world, and I think there are some people that are seeing whether they can make sure that no woman ever leads a business like this.

On business school in Paris

In the States, people who go to business school take themselves really seriously. And if Americans take themselves really seriously, and American women as a sub-set take themselves way too seriously, the people that go to business school are off the chart.

On corporate structures

I’ve seen all manner of mistakes. People typically found businesses with friends. One person will put the money in, and they don’t even think to ask the other people to put capital in, so you have inequalities. I’m a big believer in positive architectures for firms, and I’ve seen very good businesses fail to make money for the founding shareholders because the architecture is wrong.

On being an early stage investor

There are a lot of so-called early stage venture capital firms that really want the entrepreneur to prove the validation and have about £1m of revenue before they’ll get involved. A lot of the risk is taken out of a business by the time it has £1m of revenue in it. We go in much earlier, to help set the DNA of the company.

On Dragons’ Den

I gave it a 50:50 chance that the BBC would want to work with me, because I said I’m not going to be rude, I’m going to be the way I am.

On what she looks for in an entrepreneur

What they’re able to do in those very early days in terms of getting momentum in the market – that’s what we’re assessing. The rest is secret.

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