Having successfully spearheaded the launch and growth of VC firm Albion Ventures, the founder reveals how investing in startups is all about people
Given VC firm Albion Ventures has successfully invested in startups like Black Swan and Dysis Medical as well as Booking.com, it may be surprising to hear that its founding partner and director initially didn’t consider venture capitalism as a career. Instead Patrick Reeve spent his formative years at uni studying French and Spanish. “I honestly just wanted to have a good time,” he says. “But by the time I’d finished my degree I realised that getting a job wouldn’t be a bad idea and qualified as an accountant partly by choice, partly by way of self-punishment.” It was in this new role that he audited a VC firm and had his first taste of what the future might hold. “It was so interesting and intriguing to find out what it would take to become a venture capitalist,” he says.
And a few years later he would get the chance to experience it first-hand. The opportunity came when his employer, Close Brothers, the merchant banking group, asked him to set up its new project: the venture-capital trust that would eventually evolve into Albion Ventures. “I was like ‘yippee’,” Reeve laughs. “We raised our first £24m fund in 1996 and my brief was to make it as low-risk as possible.” And staying true to orders, he invested in safe businesses like hotels and care homes. But over the years and little by little, Reeve and his team were allowed to make bolder and bolder investments until the trust became one of the early investors in Active Hotels, the online hotel-reservation company that would go on to become Booking.com, the travel-fare aggregator website.
However, while Reeve says that this deal made Albion Ventures over £10.4m – ten times its original investment – when Active Hotels was acquired by Priceline in 2004, he wasn’t entirely happy with the deal. “We sold out too early,” he says. Even though he could see the business’s potential, the trepidation of the startups’ other early investors made staying in impossible. “They were desperate to get out,” says Reeve. “It made us think a lot about who we co-invest with, if our timescales are the same. It also made us realise the importance of reducing the risk of management teams leaving too early. That’s why we’ve started to give them some money earlier in their journey so that they wouldn’t be so desperate to pay off their mortgages and stay in for a few more years longer.”
In 2009, Reeve and his co-founders bought the VC firm from Close Brothers and renamed it Albion Ventures. Since the rebrand the firm has continued to invest in startups that pique the team’s interest and that it believes will grow and change the world in some way. So even though Albion Ventures tends to invest in scaleups, the firm is on constant lookout for exciting opportunities, no matter the size. “Our ideal companies turn over a least £1m but if we find something really exciting then we could put a smaller amount in at an early stage,” Reeve says.
However, an exciting idea isn’t enough for the Reeve and his partners to open their pocketbooks: entrepreneurs must also be able to present a plan of how to realise their exhilarating vision. “Founders need to have a clear sense of direction of where they want to go and why they need to raise money,” he says. “A lot of people love the idea of raising money but what’s the idea if they aren’t going to use it?” Another reason for Reeve to be careful is that the firm may end up losing a lot of money if they invest in a startup where the founder doesn’t have a plan.
But for Reeve, the biggest deciding factor when he’s contemplating whether or not to invest in a startup is neither the intellectual prowess of the founding teams nor their future plans. “I have to like them and they have to like me,” he says. “In a partnership you need to be able to have proper grownup conversations. If you start clashing with each other the partnership will fragment.” That’s why Albion Ventures always takes a special interest in getting to know the founding team through a three-month process, during which the startup team undergoes psychometric tests, interviews and reference checks. “It’s our job to judge people,” says Reeve. “If we do it well then we’ll be good VCs; if we do it poorly then we’re rubbish ones.”
And given the success of Albion Ventures, it certainly seems that Reeve has become an expert judge of character.