Joining us now is Hussein Kanji. Hussein is the founding partner in Hoxton Ventures our young London high performing venture capital firm and who's saying welcome. It's fantastic to have you with us today. >> It's great to be here. >> You're on record is embracing the path to freedom and to self sufficiency for entrepreneurs, why? >> Well, the best way to control your own destiny is to be free of capital requirements or capital financing needs, which means that if you near the profitability you're get to control your own destiny. People should be lining up to give you money versus you having to look for money. It's always a much better way to be, but it's hard, it's very difficult for a company to got to that kind of scale. >> Yeah, so, if you can get to where you have customer traction. If you can get a young venturer to where there's traction, how materially, does that change the terms of which they can raise money from people like you? >> I think generally the more attraction you see in a the more condensed fashion, the easier it is to raise money. So it's one thing if you're, say, a software, as a service business and you're raising your first round of capital. Your first kind of institutional round of capital. The average benchmark is about a million of recurring revenue on an annualized basis, about 100,000 a month. >> If you can do that in the course, if you can get to the million in very short amount of time and get to 4, 5, 10 million AAR before you actually ever need to raise any capital. You end up with a queue of investors, because you're outperforming by a wide margin the market and everyone understands what the market is. And so anytime you out-perform the market and you can do it in a condensed period of time, >> You're in good shape. >> Yeah, it sends a signal, you're special. >> Yeah. >> And we're all looking for the special thing, >> Yeah. >> As it turned out to be unicorns. >> [LAUGH] so you sit in the heart of the entrepreneurial ecosystem in London. As you look at the concepts of businesses that are raising capital here, what kind of businesses do you see doing this process that you've described. Bootstrapping in the early days, getting money from customers, and then raising capital from institutions later. >> It's very, very, very varied. We've seen companies that are doing antique businesses. That's very popular right now, mostly because London has a lot of creative agencies, a lot of adverting here, and so you can sell technology into them. You don't actually need tons of capital to be able to build a product in those cases, you can find sectors. Harder to raise institutional capital mostly because those companies don't turn out to become the billion dollar companies of tomorrow. They turn to be acquisitions for other folks so they scale, but they scale up to a finite amount. So it's easy to get started hard to scale. We see a lot of software as a service businesses or companies that are selling enterprise software to folks. Again, in the old days it used to take 5 or 10 million in capital to be able to build a product. Today because of the Cloud, it's much cheaper. So those companies if they work they can actually motor and so we see a bunch of those. We see consumer business in London as well. Those I think, easy again to build product, really hard to scale because you have to fund your customer acquisition. And so once you start getting customers, unless you're one of these viral, very organically driven things, like a Facebook or a Dubsmash, that's one of the things that's scaled in Europe. You generally tend to need to put a lot of money behind customer acquisition, which means you kind of need an investor from day one. >> So, getting to scale, you argue requires money in those kinds of businesses, how about getting started? Can you get them started at some level without, outside Monty. >> Yeah, getting started in easy, getting started in enterprise software easy, getting started in consumer also very, very easy. Mobile development tools they're pretty widespread at this point. >> And they don't cost very much. >> They don't cost very much. Even putting together a small team of two or three people won't cost you that much money. The down side of consumer business is they don't generate revenue till they hit scale usually. So you've got to finance that loss for a while but the loss can be very minimal and to be fair it could be pure developer. It could be you and one other person, and the next thing you know you have something like an Instagram that starts taking off. The viral ones are very easy to do without any funding whatsoever and again those are the companies, the WhatsApp, the Instagrams, the Snap Chats, that had a queue of investors lining up because it's never getting traction without spending anything. The other ones tend to need money to come in through the door. You build the next generation travel site, very easy to build these days but you're going to have to go spend money on advertising to get people to to walk through the door. It's no different than say a retail business in that sense. You gotta spend money on advertising. >> Right, so Hussein, can we talk about an example there? >> Yeah, so one of my companies that I ended up investing in personally was a company called Yieldify. It was a super easy business, all they do is have a shopping cart abandonment tools. Something like 70% of the people that are shopping for products online don't bother checking out. >> 70%. >> It's really high, it might even be close to 80%. It's a very, very, very high number and the best in class guys, the Amazons of the world, know how to get you over the finish line and actually get you to check out. The average retailer online suffers from this. >> Doesn't know. >> They just don't have that DNA or technology inside. Amazon's very good about guiding you through the process. So these guys, young guys, at that point they're in their twenties, built software, and in fact he outsourced some of the development to Cairo so it was very low-cost. And built something, and then figured out a sales engine to get the retailers to start adopting this. They got to about 10,000 pounds a month when I was looking at them, come entirely bootstrapped. It was just them plus their developers, but they were generating enough money to be able to hire the and plus one developer and then after a certain amount of development, they came in plus one sales. By the end of the next year, they are doing about $800,000 a month in revenue entirely bootstrap. >> Still bootstrap and customer funded? >> Yeah entirely customer funded. 135 employees I think, no it might have been about 80 employees at that point and then they kept going and this is one that got to 800k a month, this is almost, almost 10 million ARR business. Skipped all the venture guys in Europe cause they didn't, the venture guy's in Europe would pay premium for them. Went straight to New York and actually the way found the New York guy's, they didn't actually pitched they got to New York, they started doing really well signing up retailers, so word of mouth spread and eventually. >> They got found. >> And they got found by multiple folks, at which point they call me and say, maybe we should run a proper process and talk to some more folks. So, they got found by 2 or 3 people and they talked to about 10 people and they raised an 11 million dollar round from Google and Soft Bank. And a pretty high number. But up until that point, minus a little bit of money that had been raised from some angels. And most of the angel money was not for the money, it was for the advice and the help. So it's myself and another fellow Robin Klein who was a partner at that point at index and that was his own fund. And they didn't raise very much from either of the two of us, but they wanted us there for [INAUDIBLE]. >> They wanted you on board. >> Exactly, exactly. >> Yeah. >> So and now I think is on track to do 2 million a month in revenue, another six months later. So phenomenal growth, I think now about 200 people. >> Fantastic story. >> Yeah. >> Yeah, what about SAS business? You have quite a number of them in your portfolio. >> Yeah, so the nice thing about the SAS business is, they can do this. So Yieldify is an example of a SAS business. I think the hard part about SAS is that you have to crack sales. So sales don't come automatically even if you're an online business. You've gotta do content marketing, you've gotta do direct sales, you've gotta do indirect sales. You've gotta build the machine and I think most entrepreneurs spend a lot of time building the software and it's. >> And not building the customer base. >> Exactly. And I think the customers will come. To be fair, most customers should come. But you've got to build a sales engine that's going to attract and you've got to do it in a low cost way that'll allow you to grow organically. It can be done. It's not as well understood in Europe as it is in the US on how to do it. because most sales guys here are order takers. Most sales guys in the US can actually build a book a business. Care if you're working for a large technology company, you tend to walk in the door and they've kind of already heard of you, and you're there to pick up the check and pick up the order, not to build a book entirely from scratch. So, our training here is a little bit different. We've found the best guys are really young kids another one of their companies which is also single digit millions a month in revenue. We invested nearly 100 k in under a month. They hire these kids, they train them up. >> Let them go >> Let them go, if the software is really good, the software will sell. You do need the person to knock on the door, be aggressive and hustle. But this offer will sell itself so there is truth to that to selling itself and you need the machine more than anything else. And that's hard. I mean that's the hard part about SAS business. >> Well, nobody said being an entrepreneur is easy, right? >> And if you do it well, you can do very well. So, that's the upside. >> What about subscription businesses, where people keep sending a check, other than SAS.
