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May 2, 2024 • 19 mins

Richard Anton, General Partner at Oxx, discussed the past, present and future of B2B SaaS investing. Richard shared insights about the evolution of the sector during the past 2 decades and explained why he believes Europe will strongly grow its share of global B2B SaaS investing despite the traditional Silicon Valley hegemony.

Richard delved into topics such as the rise of generative AI, the emergence of Product-Led Growth (PLG), and the importance of organisational health in a tech venture's success. Richard emphasized the importance of solid product-market fit, diverse and balanced teams, and the capacity to build and defend a company's moat. He also shared his investment philosophy which prioritizes growth-oriented, category-defining companies with proven "founder-market fit".

For more Oxx insights check out https://www.oxx.vc/ & for advice on hiring exceptional leadership talent for B2B Saas & AI ventures head over to https://alpinasearch.com/

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Episode Transcript

Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
The Startup to Scale-Up Game Plan is brought to you by Alpina Search,
Europe's premier talent search firm dedicated to helping technology startups
and scale-ups recruit high-impact executives.
Now over to your host, Gary Rieman.
So, Richard Anton is a co-founder and general partner at the leading European

(00:25):
B2B SaaS VC, Ox Capital. talk.
Rich has been investing in technology ventures for over two decades.
He's got deep expertise in scaling and internationalizing B2B SaaS ventures.
Indeed, Rich has been investing in SaaS since before it was even called SaaS,
which is intriguing, and I want to delve into that later.

(00:47):
Rich is also personally committed to improving diversity, equality,
and inclusion inclusion in the VC industry and holds the role of diversity champion at Ox.
So Richard, welcome to the Startup to Scale Up game plan. Thank you. Pleasure to be here.
Absolutely. Richard, your bio
makes a reference to you investing in SaaS before it was even called SaaS.

(01:11):
So how did you get into SaaS investing? When and why did it become its own defined
market niche or market sector?
And what terminology was around in the good old days to define or describe this area of the market?
That's a great question. Thank you, Gary.
So I started investing in software in the mid-90s, actually,

(01:35):
when I came out of business school.
And I was investing at that time in enterprise software. I was excited about that.
That then was mostly on-premise or deployed in data centers that were owned
by the enterprise customer.
And then around the early noughties, it would probably be around 2000,
2001, the term ASP, application service provider, came in. And that was pre-SaaS.

(02:00):
SaaS then became a big thing when cloud services appeared and it was possible
to host an elastic and well-provisioned cloud services provided by Amazon and
now Microsoft and Google and others as well.
And that was later in the noughties. Can you share some insights into the current
landscape for B2B SaaS startup in Europe?

(02:23):
What are the key trends you're seeing in terms of innovation and growth?
Sure. Well, I suppose there are two things that have happened over recent years.
One is the bubble in SaaS, which created enormous valuations and enormous inflows
of funds into the sector.
And that was really driven by an expectation that the acceleration of digitization

(02:49):
that happened during the COVID period, plus the zero interest rate policy period,
ZERP, which made financial investments be very strongly growth-oriented.
So that drew capital to growth.
So you had those two things, which drove an enormous bubble.
And then when that unwound about two years ago,

(03:12):
you had a really severe correction and
it's only it's only really in the past six
or so months that the sector's kind
of normalized and rebalanced that's one trend that's gone on the other trend
that's happened is of course the rise of generative ai with chat gpt appearing
right at the end of 2022 during that during that correction period and so many

(03:36):
generative ai startups so much generative of AI innovation,
it's a platform shift that's causing a big expansion of markets.
So you've got these two trends that are happening at the same time globally.
So you're seeing most of the exciting businesses in B2B SaaS also being a play on AI at the same time?

(03:58):
In all cases, using AI. And in all cases, you have to think about whether the
advent of generative AI helps or hinders the company in its strategic position.
I'll say another thing as well that's a big trend in Europe,
which is that Europe is much more distributed than it was.
So we've had the rise of the remote worker and digital nomads,

(04:21):
meaning that companies that are remote or
remote first or have a physical office
but a very but a very distributed has also come
to the fore and that means that we're seeing innovation really right across
the continent startups emerging from all sorts of places and i'm keen to get
a better understanding of how you evaluate the startups that you're investing

(04:44):
in so what role does market validation play in your investment decisions?
And how do you evaluate market demand and competitive positioning for these
early stage businesses?
So at Ox, we invest at the scale up or early growth stage.
And the way we define that is that companies need to have found their product

(05:06):
market fit and actually they need to have nailed their product market fit.
So we look for lots of evidence that that's the case, that there's a kind of
a product that meets the need of an ideal customer profile and a segment that those ICPs fit into.
And we do that by assessing the product in use.
So we need to see a number of cohorts of customers that have been through multiple

(05:33):
renewal cycles and have renewed so that we can assess upsell,
downsell, and retention.
So those money talks, right? So that's really telling us whether there's product market fit.
So that's for an initial product market. And we do a lot of assessment of whether that market will grow.

(05:55):
We talk to customers, we talk to peers in the sector, experts in the sector, and prospects.
So there's a lot of assessment to understand the growth. And then the other
thing that we look for is the company has to have some category-defining potential
so that if things go well,
there's going to be an opportunity to build a really substantial business down

(06:21):
the line by defining a category and taking a leadership position in it.
And it's not just defining a category, is it? It's also defending.
So do you have some process where you try to ascertain whether they have a strong
moat that will protect them as the business scales? We do.
We do look at moat. But the defensibility tends to come from multiple sources

(06:45):
because almost all code can be caught up with.
So we look at whether there's some data defensibility so that you can get a
firewall. That's a really interesting thing in the world of generative AI.
So that companies are becoming go-to for their space or their application,

(07:10):
and the product gets better and better by aggregating more data,
which ends up being proprietary to the company.
So that's one great example of a moat. Other ones would be providing the best
whole product, including the services around that. that others would be positioning
the ecosystem. There's lots of different things.

(07:32):
And we focused a lot on the market, the product market fit.
What about the importance of founder market fit? What qualities do you look
for in the teams you invest in?
That's also a great question. And it's a great expression, founder market fit.
And it's one that we use all the time as we think about these things.
So we're looking for founders who really understand the problem that they're

(07:57):
addressing and the customer group that they're addressing. So they really need
to have that deep understanding.
They also need appropriate experience, normally tech experience,
to be able to address that.
And then there are personality characteristics. They need to be smart, hardworking.
They need to be very, very motivated. They need to be resilient, all of these aspects.

(08:21):
They also need to be a talent magnet they need to
attract talent and they need to be able to retain talent by looking
after people getting them motivated and
by developing them when you're assessing whether they're
talent magnets how do you actually do that in a practical sense how do you look
at whether they truly have the ability to attract and retain exceptional staff

(08:44):
well at the stage at which we're investing companies would normally have at
least 30 or employees Employees more like 50 to 100 is more normal.
So we can ask them. We can see the behavior of employees and look at retention
slash attrition of employees.
And we talk to them and we understand how they feel about the founder. It comes across.

(09:10):
So you actually dig in, speak to the teams, interview them as well as the founders?
We do. Okay. I'd love to hear more about your most recent investment,
even if it's perhaps still under the radar.
What was your thesis for investing in that company?
It is not yet publicly announced, but it's a cybersecurity company that comes

(09:32):
from Europe that has product-led growth that go to market.
So its product is able to be used free of charge by people.
And then when users are good, the company will upsell them to paid-for versions.
And the product itself uses AI

(09:54):
to filter in an intelligent way alerts from systems and external to company
systems so that it's providing a lot of signal and very little noise in the
input that it gives to companies,
security operations centers or SOCs.

(10:15):
Now, POG, when companies get it right, is really impactful for growing rapidly their revenues.
So have you got a track record previously in investing in companies with a POG modality? Yes, we do.
There's a company called Gravity that we first invested in in 2022.

(10:37):
It's next generation API management.
It's API management for event-based architectures, which is a big generational
shift in API management.
And they also have a product-led growth notion, which is going very well.
So a large community that uses the products and contributes then gravity upsells

(10:57):
them to pay for enterprise licenses.
Okay, so you're past masters in supporting PLG Ventures.
That's good to hear. I'm also curious to understand how you support and add
value to the startups in your portfolio beyond providing them with capital.
So what resources and expertise do you bring to the table to help them succeed?

(11:21):
So we believe in the approach of a toolkit rather than a playbook.
So we will kind of dip into the toolkit for different things according to different
needs rather than creating a sort of straight jacket playbook of how to do things.
Because we're minority investors and we're partnering entrepreneurs.
We're partnering them or backing them in high emotional intelligence ways.

(11:43):
So we're not telling them what to do.
We're not the archetypal sharp-elbowed financiers. So what we do is at the beginning
of each investment lifecycle, we prepare a consulting report of the findings
that we've had during due diligence.
We demand that the companies listen. We don't demand that they do anything with
them, with our findings, recommendations.

(12:06):
But we look for them to take ownership and the best entrepreneurs grab these
things and drive them forward in their businesses.
And then post-investment, there'll be those things, areas where we tend to focus
will be go-to-market fit.
You'll see on our website a go-to-market fit toolkit, which I'd recommend everybody

(12:27):
to have a look at. That community, a product available to the community,
a resource available to the community that we have would do a lot in team development.
So that's, as I alluded to earlier from speaking to the team,
that's one of the things that we look at very carefully in due diligence and
will be active in identifying who to hire, when to hire them,

(12:51):
where to look for them and so on with the companies.
Similarly, with the boards, we believe in board development,
particularly balanced boards that include founders, management, and investors,
and critically, independents, who have, by being on the board,
some real skin in the game and connectivity to bring to companies.
We get involved in strategic development, which is corporate activity,

(13:13):
so acquisitions where that makes sense in the business strategy,
so a number of different areas.
And what's most exciting and energizing you about the opportunities for European B2B SaaS startups?
How do you envision the landscape evolving in the next few years beyond,
obviously, more and more AI?

(13:35):
I think it's going to be Europe's turn to come to the fore.
Historically, if you go back a few decades, Silicon Valley's really been the
kind of global dominant place.
You've had that massive power in that cluster.
And now that the world is much more distributed, Europe no longer has the disadvantage

(13:55):
of not having a Silicon Valley.
Another thing that's changed is that public equity markets for IPOs have largely
been supplanted by financial purchasers,
private equity purchasers of really the largest companies.
And that's a much more international space.

(14:16):
It's not a financing situation as in the IPO market where the US had very,
very clear advantage over everywhere else in the world because of NASDAQ and
New York Stock Exchange as well.
And all of the research that was there and the deep pool of stock purchases,
none of which we have in Europe, but we do have private equity players in Europe,

(14:41):
plus the US ones that we're looking internationally.
So again, the playing field is no longer tilted in favor of Silicon Valley and the U.S.
So we can expect plane loads of Silicon Valley VCs to relocate to Europe and
enjoy the lifestyle here over the next few years?
I think we can. Some have already relocated to Miami. That was a big COVID thing.

(15:03):
Miami halfway here. Okay.
We've all heard about the infamous elevator pitch. So if you were stuck in an
elevator with a B2B SaaS founder for an hour,
what's the one One question you'd ask him to decide if his company was investment
worthy or at least worthy of further consideration.

(15:25):
For an hour or for a minute, the elevator pitch? Yeah, well,
let's assume he's got more than a minute to respond.
Let's say you're with him for a minute, you ask him your question,
then he's got, say, up to five or ten minutes to respond.
Okay. I'd ask then what it is that the company's doing and why they're special

(15:45):
for it. Why is there, as you rightly described it earlier, found a market fit?
And then how is this going to create a large opportunity?
What's the vision for building out a category?
Great. And sticking with pitches, can you recall, and I hope you don't mind

(16:07):
me putting you on the spot with these questions, I know you haven't been able to prep for these.
Can you recall a particularly quirky or unconventional
pitch from a founder that caught your attention
what was it about that pitch that stood out but
besides the fact that perhaps they dressed up as a unicorn i really give things

(16:27):
like that short shrift so i just don't take things like that seriously i really
like founders with drive energy motivation vision and all of that,
but silly gimmicks turn me off big time.
So I wipe those from my memory.
I'm curious to understand how you're staying ahead of the curve.

(16:48):
Tech is evolving so rapidly.
We've already discussed AI in general terms.
How are you staying on top of all of this, identifying emerging trends or disruptive
innovations in your space?
As I say, Ox is investing at the scale-up early growth stage.
So the companies that we invest in are a few years after first revenue.

(17:10):
So they've really got market traction. action so
we can see from the market whether they're real we're not
investing at the pre-seed or seed stage where we
need a really visionary view views
on where the tech is going that's sort of one thing to say that said we make
sure that we keep up with tech trends for and a number of members of the team

(17:34):
of the ox team are doing different things in ai machine learning tools playing
around with agents and so on.
And then we read a lot and we meet entrepreneurs a lot.
So we hear a lot from them. So we have plenty of those such points out there
to pick up information and then we share it as a group.

(17:56):
And what are three great books you've read over the last few years that help
shape your vision of the future or your understanding of what's going on in
markets and possibly where to invest or who to invest?
My favorite book is not about tech, really, and I reread it very often.
It's about the organization of tech companies. It's called The Advantage by

(18:20):
a guy called Pat Lencioni.
And the thesis is that organizational health trumps strategy every day of the
week, because organizational health will get the best people in the right seats on the bus,
and they'll be able then to figure out the strategy.
It's a whole approach to doing that. So that for me would be the start of that one.

(18:44):
Yeah, Lencioni's books come up so often on this podcast.
So many people in the world are v-syntaxing to admire his ideas.
Cool. Well, Richard, thanks so much for joining me on today's show.
Looking forward to hearing more about your new POG investment once that comes into the public domain.

(19:04):
I wish you and the team a super rest of 2024.
Thank you very much, Gary. You too.
This episode of the Startup to Scale Up Game Plan was brought to you by Alpina Search.
Head over to www.alpinasearch.com for advice on scaling your technology startup

(19:25):
and recruiting high-impact senior talent.
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