Meet the investor: Jon Lerner, Smedvig Capital

Principal of the high-growth tech VC firm, Lerner discusses his dislike for "Uber for X" analogies, sourcing prospects, and support for "non-unicorns"...

Firm: Smedvig Capital
Name: Jon Lerner

Where are you based?

London, but spend a lot of time travelling to see exciting young businesses across the UK.

What kind of investor are you?

We invest in Series A and Series B rounds (£2-£15m) for high-growth technology and technology-enabled businesses in the UK and the Nordics.

What kind of deals do you finance?

We invest in businesses that have proven traction and unit economics – normally this means they have more that £1m run rate revenue.

Almost all the businesses we back are unprofitable, but have clear route to profitability. We seek businesses that can have leadership potential within their niche.

What kind of person do you invest in?

We seek to back entrepreneurs with a demonstrated track record of growing a business and deep-rooted sector experience. We want to back people who have a clear strategic vision of where they are going but also have the flexibility to be open to discussion, debate and changes.

Most importantly I want to back people with whom I make a connection and with whom I think the journey will be an enjoyable one. Five to seven years is a long time to work closely with people for, and there will be tough moments in any investment, even the most successful, having strong level of mutual respect is critical.

How do you source prospects?

The London early-stage investing landscape has changed out of all recognition over the last decade. There is now a very well established earlier stage venture capital (VC) investor network we can follow on from, as well as the more traditional routes of networking with angels, entrepreneurs and non-execs.

On top of this, whilst the majority of deals aren’t brokered, there are also some great corporate finance boutiques.

What is your ideal investment?

The ideal investment has an early lead in an interesting market niche, with customers who are strong advocates of the proposition. This position would be somehow defensible (technology, network effects etc.) and we are big fans of sticky recurring revenue. It would have a team of experienced entrepreneurs who had already “been there, done that”, and it would have demonstrated positive unit economics.

Finally the market size would be large enough for everyone to make a great return after we have invested say £10m. To be clear it would be very rare to find all of this in one place but you did ask for the “ideal”…

What are your USPs?

We have a single, internal, source of funds which gives us a lot of advantages. We are not driven by fund timings, so can be very long term in our thinking, we also have deep pockets and continue to fund investments across multiple rounds when that makes sense.

We are very focused on keeping a relatively small portfolio of high quality assets, and dedicating significant internal resource to each of them to assist management teams. We have worked on projects as diverse as pricing to market entry strategy and pretty much everything in-between.

What are the hot sectors?

Not being sector experts we tend to evaluate each investment on its merits rather than investing thematically. However as you get to know sectors you see more and more opportunity; automotive and legal services are two sectors in particular that we have seen a lot in.

We have also seen a lot of what I call “non-unicorns”. Very strong businesses with smaller market sizes that for still make very attractive investment returns.

Three things a company should be able to offer an investor?

  1. A clear view of why the proposition is attractive to customers, and will remain so.
  2. A detailed understanding of what the underlying economics of the business are.
  3. A strategic plan of how the business will expand, and what organisation is required to support this.

What is the cardinal sin when looking for investment?

My least favoured pitch deck lines are “we’re the Uber for X” or “the Airbnb for Y”, especially as the analogies are often incorrect.

Beyond that the two biggest red flags for me are not being 100% open and honest through the process (or even worse not understanding their own numbers) and missing forecasts in the brief time before close!

What continuing involvement do you like in an investment?

We always take a board seat or two, and by preference would have a very close involvement with the business going forwards. We support team wherever we can, both on an informal mentor level and putting significant analytical resource against specific projects either because the team don’t have the bandwidth or it’s not something they have done before.

What has been your best performing investment to date?

There are lots of different ways of looking at this, and there are some very exciting companies in the current portfolio such as Trialreach, Profile and Captify which could dramatically change their industries, but in terms of exited returns it’s probably Tusker.

Tusker was an early dot-com investment for Smedvig and plan A didn’t work as well as envisaged. But, we continued to back the core thesis and technology.  After working through the financial crash and slight pivot we exited last year to ECI, which marked the end of working very closely with the team for a decade and a half-I was certainly sad to say goodbye to them.

Comments

(will not be published)