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Role Rundown: A Conversation with Michael Lavner, Technology Growth Investor at Balderton Capital
by
Kaja Paramothayan
, 7th April 2022
10 min read
Insights
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Balderton Capital is a venture capital (VC) firm that invests in European technology startups, across both early and growth stages. Having raised $4.5 billion since its founding, it has supported and worked with hundreds of companies including Revolut, GoCardless and Sophia Genetics.

Jump to the following questions:

Can you explain a bit about your background and your journey into your current role?

I started my career at L.E.K. Consulting, a PE-focused consulting firm. During my time at L.E.K. I worked on a number of due diligence projects, on both the sell-side and the buy-side. This sparked an interest in private equity and, after close to three years working in consulting, I started to think about exit opportunities. The market was very active back then, so around the time I was looking to move I was coincidentally headhunted for a couple of PE roles.

I ended up joining the French team at Permira, which was originally a large-cap PE fund - when I joined they had recently raised a growth fund. I spent three years there, starting off deploying capital from the large-cap fund, and then focusing most of my time on the growth fund. I mainly worked on late-stage growth (series D onwards) and discovered a real passion for that investment stage.

However, the more deals I saw in the late growth stage, the more curious and envious I became of earlier investors in companies. Not only did they get the chance to see the company evolve, and the entrepreneurs mature, but they also contemplated a different risk/reward profile - much closer to VC.

To explain - late-stage growth has a similar return profile to PE, i.e. 2-3x base case, but with a higher upside scenario (typically 4x in PE, above 5x in growth). However, in early growth you’re looking at higher returns, with a 4-5x base case and shooting for the moon, or what we call ‘home runs on the upside’. The big difference is that in VC you try to limit the false negatives (i.e. missing the next unicorn), while in early growth you try to limit false positives (i.e. investing in companies that eventually stop performing strongly). This is why you often see the returns of VCs being driven by a few big winners - for instance, Balderton is an early investor in Revolut.

That thrill of being able to spot and help grow the next big winner is what appealed to me. I also strongly believe that the next tech giants are going to emerge from Europe, which is Balderton’s “raison d’etre” - so it was a perfect match.

Why did you choose to move away from consulting?

In consulting your ability to learn is somewhat dependent on your level. For example, when you’re an analyst you’ll learn a lot up to a ceiling, at which point you’ll start to plateau until you’re promoted and can continue learning. I had reached a point in my consulting career where I was starting to plateau, so I was already reevaluating where my interests lied and what skills I wanted to develop in future.

At the same time, I was growing frustrated that in consulting I was only able to see one part of the equation in any given project. For example, I was working on a due diligence project in an incredibly active market, with a leader in that market - yet, the fund ended up not completing the deal, and we did not initially know why. Ultimately, the fund had information regarding the market and the company that we in consulting weren’t privy to. This was quite frustrating, so I decided that I wanted to be the principal of the action and therefore wanted to see everything and be involved from end to end.

Compensation was a factor: not in terms of immediate cash comp (base and bonuses), but regarding long term comp. In PE or VC you have carried interests, which means you have skin in the game and are incentivised to push great returns. In consulting, I was missing that long-term component.

Can you provide an overview of what your role entails? What does a typical week look like now in VC?

In a nutshell, my role entails: originating/sourcing, triaging, and due diligence. A typical week is a bit of everything!

1) Originating: Identifying high potential markets and looking for companies that seem to have what it takes. We have a saying in the industry, ‘a rising tide lifts all boats’ - so if a market is growing very fast, all the leading companies in that market will be growing too. So we need to find markets that will be growing quickly.

2) Triaging: Once we’ve found those rapidly growing markets, we need to triage all the players in that market to sort the good from the average. This involves talking to the founders, earlier-stage investors and potential users to understand how they approach solving problems in their industry.

3) Analytical work / due diligence: After finding a company we want to spend more time with, we conduct due diligence. Then in the best scenario, we submit a term sheet. That analytical work often involves the typical components of market analysis and financial modelling, but where we spend the most time is (a) analysing the products inside-out and talking to users, (b) chatting with management to evaluate what sort of partnership we could form and (c) making sure the unit economics stack up.

On any given week we never just work on one company, we’re always working on some at each stage of the pipeline - which is also quite different from PE and consulting.

What are the biggest differences between working in consulting, PE and VC?

In consulting, you essentially divide your time in three: gathering intel (mostly on markets and the competitive landscape), synthesising that information into models, and presenting via a deck. You work on short term projects, with a clear scope and defined objectives.

PE is more financially driven than consulting, but aside from that you have to synthesise lots of information. You have to synchronise all the due diligence workflows (financial, commercial, legal, tax etc.), and connect the dots between your own analysis and these diligence workflows. It’s even more analytical than consulting - from financial modelling, to reviewing market models developed by consultants, to the leveraged buyout (LBO) and the valuation work. You’ll also be talking to management, gaining information, and using that information to challenge consultants to get the best possible work done.

VC is somewhere in between the two. There is a lack of clear scope and less defined objectives compared to consulting, and the topics are much closer to PE than consulting due to all the modelling (market, financial, valuation etc.). However, there are almost no third-party advisors, so most of the information will come from your own analysis. You have to do almost every financial task you’d do in a PE fund, but you also have to do the product analysis, the management rating, the product roadmap, and other tasks that you’d partially outsource in a PE firm. In consulting, you’d hardly see those parts of the equation at all. But in VC, it’s important to have that holistic view of a company in detail and to validate that the unit economics make sense.

Aside from workstreams, consulting at its core is mostly a desk job. You work towards clear objectives during the week and your weekends are somewhat protected. PE is a desk job too, it just involves a lot more meetings. There is also more flexibility in PE than in consulting because you are the one synchronising how the diligence shapes over time, meaning you are in control of how you spend your time. If you want to take a seven-hour break on a Thursday and work on a Sunday, you’re free to do it as long as you’re meeting deadlines and shaping things in the right way.

However, VC - and to some extent, early-stage growth - aren’t desk positions. You will never spot a company with potential by staying at your desk and looking at previous deals. You need to be speaking with major players in the market, meeting with founders and developing your brand. Of course, you will spend time at your desk on analytical tasks and looking at unit economics - but most of your time will be face-to-face at conventions, events, and company headquarters, so you can see what’s actually happening on the ground (Covid permitting!).

What’s the best career advice you’ve received?

Working in the buy-side is about flow, in more ways than one. Of course, because you’re managing the flow of information from various third-party advisors in your own workstream. But also in a more literal way. Think about swimming up a river - either you go up against the flow, which takes a lot of effort to swim just a little further, or you can stick your head out of the water, go to the side of the river, and just walk up! That’s the best advice I’ve ever received - stick your head out of the water, look into what’s urgent, and what’s important, and go from there.

What’s the best advice you can give to someone looking to excel in a PE / VC role?

We are all competitive by nature, but it’s important to remember that in PE / VC, you aren’t evaluated against other people. You need to meet certain criteria to be promoted, but it’s all about what you can do as an individual. It’s vital to think about these three layers:

1) What deals do you bring to the firm that they otherwise wouldn’t have accessed?
2) What thought processes / pieces of information do you bring to the firm? (i.e. what do you bring internally aside from deals?)
3) What do you bring externally that adds to the brand of the firm?

What’s the toughest interview question you’ve ever had to answer?

The toughest questions are usually the ones that look simplest on the surface, as you are in danger of underestimating them. For example, you might be asked about trends in the VC world, where you might fall into the trap of only looking at one part of the equation - e.g. only talking about the companies, rather than articulating a deep understanding of the industry and market. It’s important not to give a superficial answer to any question you might be asked. 

What resource (book, podcast, video etc) has helped you grow in your role/career?

‘Private Equity Secrets Revealed: From The Coalface’, by Peter Cartier, gives some great insights into the brain of someone actually working in the industry. The YouTube channel ‘Mergers & Inquisitions / Breaking Into Wall Street’ was also very useful for me when preparing for interviews.

Are there any transferrable skills from consulting that have helped you be successful in PE / VC?

In consulting you will have done a lot of market investigation, so your brain will be trained to spot the merits and challenges of any given market pretty quickly. This will be a huge advantage if you can do it at scale to spot fast-growing markets. Both people skills (to judge the founders) and analytical skills will be important here. But ultimately, a lot of successful investments come down to two things: timing and luck… so you’ll also need resilience and patience to succeed.

What helped you navigate the Covid-19 pandemic in your role?

Having a great WFH set-up definitely helped, with two screens and a comfortable chair! But the number one thing that helped was having the right support system. My (now) fiancée helped me keep a healthy work-life balance which in turn meant I didn’t burn out. That could have easily happened given what an unprecedented time it was. Even now things are starting to go back to normal, it’s important to remember to take care of yourself - your career is a marathon, not a sprint. 

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