Ep 03: Andy Budd on Venture Capital and the Startup Ecosystem

Episode Description

In this episode of the Designers in Business Podcast we explore the world of Venture Capital, startup funding and why designers should consider founding their own businesses with Andy Budd.

Andy demystifies a host of key concepts related to the startup ecosystem:

  • What is Venture Capital?
  • What are funding rounds?
  • How does Venture Capital and Institutional Investment work?
  • How do you approach investors with a business idea?

We also dive into why designers should consider founding their own business ideas, or look to be on-board early in the life of a startup as founding designers. The discussion also covers how equity works, and the potential upsides of having skin-in-the-game at a startup.

About Andy

Andy is a design leader, conference speaker, investor and coach. A designer at heart, Andy believes design has the power to transform companies, teams and customers' lives for the better.

A huge advocate for the design community, Andy is a regular speaker at international conferences like SXSW, Awwwards and The Next Web. He founded and curated the dConstruct, UX London and Leading Design conferences, as well as an online community of over 3,000 design leaders.

He's a founding member of the Adobe Design Circle and has appeared on both the Wired 100 and BIMA 100 lists, as well as winning agency of the year several times.

His recent talk called “Design's Midlife Crisis” is all about the intersection between business and design, so is something I highly recommend you checking out.

If you'd like to reach out to Andy, he can be found on Twitter, LinkedIn, and you can find out more about him at andybudd.com

Episode Transcript

Andy Budd: 0:00

I've kind of come to the realisation that in order to really get design the seat at the table that it deserves, I think it's useful to be there right at the point where the table is being assembled. And hopefully, you're one of the people there with the IKEA instructions, and you're actually able to decipher how to assemble the table. And you're seen as incredibly valuable, right from the start. So my reason for getting into venture was basically to try and embed more of a design culture as early as possible into the company's, you know, at the starting space, so that when the head of design the director design the VP comes in, they're not coming in and trying to convince people to do something never done before. They've actually been brought on board because the founding team really values design, and wants to get the best design possible.

Tom Prior: 0:48

Hi there. I'm Tom, prior curator of designers in business and host of the designers and business podcast. My guest today is Andy Budd, and he's a fellow Brighton resident who I've been aware of since very early in my own design career. Firstly, through the UX agency clearleft company he co founded back in 2005. That same year, he started deconstructs the UK's first digital design conference, talking of conferences, and he's been a speaker at close to 100 events around the world. His most recent talk designs, midlife crisis is all about the intersection between business and design, a highly recommend catching if you haven't already, I'll make sure there's a link in the show notes. And he's also heavily involved in the world of design leadership. He started a Slack community of directors, heads and VPs of design, as well as setting up the popular leading design events in London, New York and San Francisco. A few years ago, he turns clearleft into an employee owned agency, before making his next move into the world of venture capital and startups. In this interview, we discuss what venture capital is, how it compares to other funding models, and what the process of securing VC investment looks like. We'll also cover how taking equity in an early stage company works. And the potential upsides for those willing to jump in startups as founding designers. It's worth mentioning, we touch on the topics of investing and risk, and neither and you're right, our qualified financial advisors. So nothing we cover should be taken as advice on that front. That little disclaimer out of the way, I really hope you enjoy this episode. And a welcome to designers in business. It's a pleasure to have you here.

Andy Budd: 2:22

My pleasure. You know, I'm a huge fan of the newsletter. So you know, kind of classic kind of longtime follower, first time live guest. But yeah, I'm really excited to chat to you about design and business and the startup ecosystem and everything that's sort of contained there in

Tom Prior: 2:38

brilliant, looking forward to getting stuck into the conversation. So think about where we get started, maybe we start by understanding how someone from a design and design leadership background such as yourself, gets into the VC space. So yeah, maybe set the scene a bit about your background before we then sort of dive into the mechanics of startups and funding and how all that stuff works.

Andy Budd: 3:01

Basically, my background is I come from an agency background, I spent my life trying to sell the value of design to clients, often they'll believe in the value of design enough to kind of sign off a big project. But then when you're actually delivering the work, there's often a lot of kind of debate and discussion and pushback. So that's an experience I had from the agency point of view. One of the things I'm doing now, as well as the VC stuff is acting as a coach to design leaders, so heads directors and VPs of product design. And one of the big challenges they have is kind of similar to the challenge I had at clearleft, which is trying to raise the profile of design. A lot of these leaders come into large organisations, they really believe that design can have a massive opportunity to unlock value, both user value and business value. But they struggle to make the case. And I come to the realisation that one of the reasons I think they've struggled to make the case is because the culture has already been set. You know, maybe design was bought in a little bit later on, you know, the original team will probably engineers, founders, business people, they get an MVP out, they raise some money, they get some customers, they get some more money, and then maybe they bring in designers. So designers are often a little bit late to the game. And as a result, they're already starting on a bit of a back foot. So and so with this comes a belief that well, if you want to get designers in the founding team, well, one way is to be a founding designer, to join an early stage startup to be number three, number four, hire part of the founding team, and you bait designing from the start. Even better, I think is to get more designers starting their own businesses, because it's all very well I was kind of moaning about oh, our business, you know, partners, you know, executive team don't believe in design, all the way around that is to own the table to build the table to be responsible for the table. Like if you get to design the table, then you get to decide who sits around it and you're gonna take the primary seat. So the reason for getting in To the venture spaces are trying to encourage more companies to consider design and encourage more designers consider the business side of design starting their businesses. So if you're a designer and you're wanting to start a business, then this is where things like venture capital starts to crop up. Now, the problem most people have, particularly designers have if they want to start a business is, if the business is going to be any good, you probably need to leave your current job, and you need to dedicate time to it, you might be able to kind of bootstrap it in the early stages, you might be able to, you know, do consulting three days a week, and then work the other two. Or if you're young, and maybe you don't have any dependents, you might be able to do evenings and weekends, on your passion project while earning a wage. But unless you happen to be independently wealthy, unless you happen to have a partner that's willing to support you through their funding, you might need to go out and get enough money in order to spend that initial six months or a year, building your business. And you might also need additional money for hiring a designer, hiring an engineer hiring a sales team, you probably need a bit of money for server costs for your Amazon cloud services, you know, you might need marketing, all this kind of stuff. So unless you are in a position to bootstrap and bootstrapping generally means using your own resources, to really, really quickly deliver revenue, and then grow based on the revenue. But that's tough. You know, some businesses if you're selling jewellery, you can go to a market, you sell five, you know, items or jewellery, it allows you to buy 10 more you sell those 10, it allows you to buy 20, more. bootstrapping is often an easier thing to do. In a physical environment where you can start delivering value really quickly, quite often, it might take you a year to get the product to a point where you can launch it. And it might take you another year to convince enough people to start paying for the product that you can cover all the costs. In the startup world, people call that being default alive. The idea is being like when you start a business and you're VC funded, you're kind of default dead, because you're not actually making any money. And it's only at the point that you reach breakeven, that you're kind of default alive that if you didn't raise any more money in the future, you still have enough money coming in to pay all the bills. So the key to fundraising or finance is assuming you don't have a big trust fund or you've got friends that can give you a tonne of money, or your parents or what have you, or you can work for free for a year is how do you get the money that will last you the year or two years you need or more three or four, until you can get your business to the point that it's breaking even and paying everyone's wages. In the olden days, you might put together a business plan and go to your local friendly bank or building society. And you'd pitch your idea and you'd have this 20 page business plan with cash flow forecasts, and then that and your friendly banker would go That's a brilliant idea. Here's the money. The challenge is that most bankers are incredibly risk averse, you know, so they're looking, first of all, for a really low risk business, that is got a 95% chance of success. And also, if you fail, the banks don't want to lose. So the banks might give you a loan, but they say, Hey, look, you know, we really believe in you, here's a loan, but you've got to pay it back over these two years. And if you don't pay it back, we'll take your house, that isn't much fun. That's hugely risky. The risk is all on your side, none of the risk is on the funder side. And worst case scenario, you'll lose your house and so many, many people are worried about going into entrepreneurship and getting a loan because of risk to high incomes, this class of investment called venture capital. And venture capital is very much about investing in very high risk businesses. The model of venture capital is assuming like, hey, if we invest in 50 businesses, over a three year period, we reckon that 4045 of them won't actually survive. But the five or 10, that do, they're not only survive, but they're thrive, and their pay for the losses that we made in the other 40. And actually, hopefully, they return three times the value of the fund, which is kind of generally what your VCs are looking for. Your VCs will go and raise money, they'll create a fund, let's say the VCs have gone out and raise 50 million to invest in startups, the people that they raise money from will one 150 back, maybe 200. And so your job is to invest in enough companies so that the really, really good ones successful ones thrive, and they thrive, returning you 20 3040 times your initial stake and that pays off all your debts, it pays all of the other investments and leave some money over for the for the people that you've raised your money from. And what you typically find is when it comes to startup investing, there are different points at which you get invested in and there's different points of different names, and the different names generally come with different level was an investment. So the very first round of money you might get is often called precede. Sometimes it used to be called maybe a friends and family round or an angel round. That friends and family round, as the name suggests, is money coming from people, you know, I didn't know about you, Tom, but I didn't grew up with a family that had any spare cash. So I think the friends and family round languages disappeared, and people don't talk about that now. But sometimes you might do a little angel round, you know, just to kickstart the the amount of money, you might take 50 100k, or that might give you enough time to run for six months to get the idea off the ground, you then have pre seed, and that's usually where the first institutional investors come in, by institutional investors, I mean, professional investors, not friends, not family, not angels, but some kind of fund. And they'll look at, you know, dozens and dozens of startups, you know, hundreds of 1000s of startups maybe, and they'll decide to invest in half a dozen, a dozen, 20 year, whatever their, their kind of their investing kind of cadences. And they might say, for precede round, we might give you 250k 500k, something in those kind of levels. But rather than this being alone, the VCs aren't expecting you to pay this money back over the course of three or five or 10 years, and they're not going to let you put your house up and risk your house, what they say is like, we're going to take the risk, like we're gonna give you this money, but in return, you're basically selling us a part of your business. And you typically find that for each round of fundraising you do, you might be expected to sell effectively, something between 10 and 20% of your business. So, as a VC, I give you half a million pounds, I get 10 or 20% of your business, and then you go about delivering the thing. And then maybe in a year at month time, you start running out of money. So you do your next fundraise, which would be called seed. So seed is the one after precede. And then maybe 18 months later, you do a Series A, and then a series B and A Series C. And there's no kind of real limit the number of series you do. But the goal ultimately is that at some stage, the founder, but also the VCs and investors will get their money back. If they're not getting their money back by getting you to pay them back at interest rates every month. How do they do that? Well, basically, there's two ways that VCs can make their money. You either sell your company on the private market to another company, let's say, Google comes along and says, Hey, Tom, I love your idea here, we're going to, you know, buy your business for a billion dollars. So they buy the business, they give you the money, the VC fund gets 20% of that. And then they distribute that to their LPs limited partners or people that funded them. The other way is you go okay, well, we don't have a private buyer. But we will launch on the stock market. People regularly call this an IPO, an initial public offering. So you're launching the stock market, and you'll sell shares. And people like you, you know, we'll go buy those shares. I like what Google are doing Facebook, we're doing Airbnb and doing, I buy those shares. And then that money comes to the owners of the business, which will be a collection of faeces. So typically, at each stage of this fundraising journey, there's a level of expectation about what you will need to get to in order to unlock the next level of funding, and it changes between VC firms and startups. But the goal is to kind of keep proving the model, keep proving that this business can grow to the point where it has an exit, and that exit will then deliver the returns, everyone's agreed. The downside of this is that VC funds, therefore encourage two things. First of all, they require those startups to be very successful to pay for all of the companies aren't successful. So there's a pressure for them to be big. This is why you see these kind of discussions around like high valuations, unicorn startups, companies that are worth a billion dollars or more. The VC companies in order to make their returns and not lose money, they need the one or two or three of their portfolio companies to get those large level returns. And so there's a pressure to kind of grow really quickly. And then also there's a pressure to sell. So if you told me like, hey, I want to I want to build a lovely, sustainable business that does 5 million pounds in revenue a year makes me 1,000,002 pounds of profit. That's a wonderful business for you. And then you want to do it forever. I never want to sell this business. I want to just make profit and Have a lovely life. That's a brilliant business for a founder. But it's a terrible business for a VC because they're never going to make much money off of it. And if you're never planning to sell, they're never going to get the return realised. And so people talk about VC scale businesses, there are certain kinds of businesses that are VC scale that would attract that level of investment. The downside is there's a massive gap between In a VC scale business at a thing that the banks would invest in. So I think a lot of the challenges a lot of people have when they're starting a business, is that like they are forced into this VC scale business, because they can't get the funding from a bank. But they might not want to be this big, massive business. And so in some ways, in order to get to get the funding, it forces you down a route, that might not always be the right route for you. But sadly, there's very few other opportunities for funding out there. So there's a kind of interesting kind of challenging space at the moment.

Tom Prior: 15:33

Interesting. I'm really glad we've touched on this point, in particular, actually just saying I was gonna ask you about later in our conversation, because there is this impression that in the VC space, there's this kind of growth at all costs mindset that can feel a little off putting, particularly maybe two people in design, who doesn't don't feel like it, they can align with that ethos. But it does sound like there's this massive gap in scale when it comes to funding options between sort of bootstrapping at one end, and big VC backed businesses at the other. Are you seeing anything emerge in that middle space that maybe feels like a good compromise between these two approaches,

Andy Budd: 16:09

to some extent, I recognise the sort of feeling or the vibe that you express that designers often feel uncomfortable about kind of growth, and that sort of scaling side of things. But ironically, I would also say, there's nothing necessarily ethical about artificially holding back a product that could improve many, many more people's lives, but you choose not to do it, I'd say small can be something that's a labour of love, that can be high quality. And actually, you're not trying to get it into the hands of as many people as possible. In fact, you could argue that like high quality design is quite the opposite of of good, unethical, because often it's, it's out of reach often is exclusive, often, it's really expensive, like, I want to build the world's best, most delightful email system, and I'm going to charge a lot of money for it. And I'm going to limit access, because I want to have an ethical, small business well, actually, is that good design, surely is better designed to put this amazing, positive, much better design system into the hands of many, as many people as possible. And actually, maybe it's your own ego, or your own fear that is preventing you from doing something that has a much, much, much bigger impact. And that's not always true. But I think it is worth kind of saying that, like a lot of people equate small with good and ethical. And that's not necessarily true. There are lots of lovely small businesses that struggle to stay levelling small businesses because they can't get the funding, there are increasing ways to get money based on your income. So I mean, a classic thing that some people do less data p but more agencies and traditional businesses called invoice factoring, where basically, a bank or a company will look at how much you've invoiced and go, Okay, well, you've, you've invoiced half a million pounds, you're probably not going to get paid for two or three months, but we know you've got money in the bank will give you a loan for that amount. So what that can do is that can help you realise the the money that you've got outstanding but isn't in the bank, you can get it sooner. And maybe if you get it two or three months sooner, that will allow you to hire that designer, so you know that engineer sooner or pay for that Google Ads sooner. And if that Google ads then drives more revenue, then the thing becomes cyclic. An extension of that is we're now seeing a number of platforms that will actually use AI to look at your growth of your product to go like we see that you've got, you know, you've got 10 million in annual recurring revenue, you haven't even invoice it yet, because you're invoicing monthly. But we looking at you're doing a deep an analytics of your finances, we really believe that you're gonna you're going to earn this 10 million pounds. So we will give you a loan and we might give you a loan of 5 million pounds. And we'll give you a loan at 5% interest rates. And so what you're doing is you're kind of effectively rather than getting the money that you have already earned but haven't been paid for two months. Maybe you're saying oh, you know, we'll get next year's worth of money. And we'll invest it now. And then the year after you'll get the year after that money and invest it now. And so that can be a way of getting more liquidity. Liquidity is basically a fancy finance term for cash in the bank. But it only is dependent on you having the customers already, you just haven't invoiced them yet. So that is still bootstrapping. It's a way of bootstrapping a little bit quicker. That is kind of a common way for Sass companies software as a service companies that they're growing. And then numbers are growing, but I haven't quite got round to invoicing everybody yet because on a monthly basis, so I think there are ways of doing it. But realistically, if you're very high risk, and you've got you know like a one One in 50 chance of making it, you have to, you know, have a 50 times exit for it to be worthwhile. So I guess the challenge is like, who are the people that are investing in high risk companies that don't mind that risk, but there's not that many people because they want to make a return, the only way to do that really, is to have a much, much lower risk business. And if you've got a much lower risk business, then you might find some local business angels, you know, you might find, they want to put sort of 2030 grand into your company. But rather than expecting an exit, they might ask you for, you know, kind of your revenue, that's often not a very, very good deal for these businesses, you end up selling much, much more, for much, much less, I struggle to see, in the current setup, a way that can successfully finance high risk businesses, that doesn't involve the multiples that are required across the board.

Tom Prior: 21:01

Okay, so let's say given this as the sort of mainstream funding landscape we are working with at the moment, let's say I'm a designer with maybe a higher risk business idea. And I do feel like venture capitalist something worth exploring. How do you recommend a designer sort of starts that process of looking into options in the VC space? How do they reach out to VCs? What does that process look like? And what some of those first steps you'd recommend people take,

Andy Budd: 21:29

I think the first thing is to understand what investors are looking for, I think there's a fixation or a belief that investors are looking for, like a brilliant idea. And obviously, like a brilliant idea was helpful. But you know, Google wasn't the first search engine, Airbnb wasn't the first place that let strangers crash on your sofa, Uber wasn't necessarily the first service that allowed you to rent a taxi via smartphone app. So just because like you've got a genius idea doesn't necessarily mean that you'll be able to deliver it. So really, what people are looking for are a team that they can believe, will be able to deliver a business and deliver at this scale. And so you know, ideally, if you're a founder, you want to start by building a really, really credible team. So having an engineer that has built products of scale, before, having a co founder, who has maybe had some experience running a business, or maybe has worked in a startup and seen that kind of process grow, you want to be certain as an investor that this team can hire. So it's useful to you know, have some people in your team that have worked in engineering or design before, or sales, or whatever it is, and you know, the how to hire those people, you know, just saying, I'll stick a job ad out and people will come isn't enough, like, you want to get the best people possible. You want some track record, they've actually delivered stuff in the past, you know, like, Hey, I've got a crazy idea. I want to do Spotify for cats. Well, that's great. Like, can you demonstrate that you in the past have built something that you've got to market, like maybe in your current past company, or some other way to prove that you've got the ability to deliver that. And if you haven't, the idea doesn't matter. If you can't deliver the thing, and if you're not a credible team. So I think building a team, finding co founders is a big part of the journey. And it's one that often people start too late. I mean, a lot of people, single co founder, have a good idea. But when they're put in front of VCs, VCs will ask them a bunch of probing questions around their ability to deliver, how they're going to go to market, how they're going to sell, how they're going to know what a good looks like when they hire designers, engineers, and don't have credible answers for that. The other thing you probably want to have is a demonstrate why you're the right person to solve this problem. Like if you're doing Spotify for cats, are you an avid cat lover? Have you produced a best selling CD of cat sleep music? Or are you just some crazy cat person that just thinks it's a brilliant idea, like if you can demonstrate that you are embedded in this in this community? And you understand like, you know, hey, you know, actually, my family run the biggest sort of cat, high street retailer. So I know how to, you know, get cat related products and merchandise, you know, like, what your kind of USP is what your unfair advantages. So making sure that you can answer some of these questions as to why not only why this idea, but why now and why you once you've done that, you want to put a bit of a deck together and your deck is kind of the calling card that kind of explains what your business is, what you're about why you all of these kind of things, answer these questions. And then what you need to do is you need to get your deck in the hands of VCs. The big mistake I find a lot of designers do is they look at their LinkedIn and go, Oh, I know two people that are VCs, I go and talk to them. And they'll start fundraising and they'll have one conversation, and the person didn't like it. They'll have another conversation. The person didn't like it and then they'll give up So I spoke to two VCs, neither of them liked it, like, well, I'm based at sea count, they will get like 500, probably more, we probably get to the 5000. Rather, people send us their decks a year, we might look at 500, we might invest in 50. So the reality is, it's a numbers game, you need to invest, you need to find a whole bunch of investors, you need to pitch to a large number of them with the expectation that 95% of them won't be interested. But 5% of them will, you know, that investor, that actually, their parents when a Cat Sanctuary, that investor that's got five cats at home and really, really wants to have a lovely music player for their cat while they're out to, to keep the cats calm and entertained, you'll find that person that believes in your vision, and they'll go Yeah, I'm all into this, like, I'm gonna, here's, here's a check, I'm gonna right now. And so what you need to do is you need to do your sales pipeline, you need to read up on all the VC firms, there's about 200 VC funds in in London, there are many more around the UK, and then many, many more in Europe, do your homework, look at their websites, look at what they've invested in, are these the kind of company that will invest in an engineering problem, if they've done a lot of investment in heavy tech, they're probably not going to be interested in your cat idea, like, but maybe they've invested a lot in music, and they've got connections in the music industry. Maybe they were the first investors in pets.com. You know, so you find a bunch of investors that you think are going to align with what you're doing. And then you kind of create a little bit of a list, you know, like, who am I going to speak to first who I'm gonna speak to second, you probably want to have a list of about 50 people you're going to connect with? And then you need to kind of figure out how am I going to connect with them? Ideally, you want to have an in, you want to be connected with them on LinkedIn, or one of your friends has worked with them. And you go, okay, like, you know, look, John, look, you know, reefer, I know that you're connected to this person here. Can you make me a little introduction? Maybe, if you don't do that, if you don't know them directly, but you're friends with somebody that they invested in, that's also great. Like if a a successful startup that VCs invested in, says, Oh, you just speak to my mate. You know, a deal. A deal. Got a really, really great product, you should look at it. So warm intros from people you trust to always better. But again, most of us don't have friends that are VCs. So then what you got to do is you got to do a bit of research, you go, Okay, well, who do I connect with? Maybe you look up on LinkedIn, and you connect people via DM, maybe you you realise that we're looking at that person is very vocal on Twitter, maybe I'll reach out to them on Twitter, maybe you just you know, worst case scenario, all of the VC firms will have an email on their website, and your connect to their email. The downside of that is if everyone else is contacting them via the public email, they're probably going to be inundated. And so you might not stand out, or as if you email someone directly and say, Oh, hey, you know, Hey, Andy, really big fan of what C camp are doing. I really love the music company that you invested in the other month, I've got a music company that you might be interested in, let's chat. And then basically what happens is your lineup a bunch of pictures, you have a chat, they like you, they say, Hey, come in and speak to my buddies, you know, my team. And then you'll have some kind of partner pitch. If you want to talk to those 50 VCs meet, let's say 25 of them are interested, you want to line up three or four pitches a day for two, three week period. And you want to pitch pitch, pitch, pitch, pitch, pitch, pitch, pitch, pitch pitch, every pitch you do gets better. Every pitch, you do the last few a bunch of questions, which you've never heard before, which will improve your pitching. So probably halfway through, you'll actually be doing the best pitches, you know, possible because you'll have all the information and you'll be really, really, you know, you'll know all the questions, you'll know, all the curveballs, you'll have answers to everything and you'll be really flying. Which is also why to some extent, you might not want to pitch your favourite VCs right at the start. Like you might want to do a demo runs, you might want to go and you know, pitch some good VCs but not like your perfect ones. Because you're probably going to be a bit rubbish. They're probably not going to, you know, to sign up. Another problem that I see a lot of people do is they just stretch their their fundraising out, then have a meeting one week, and then nothing then the next week, and then nothing. And then and investing is very much about FOMO fear of missing out. If I speak to you and you say oh, you know I'm doing a raise and I say oh, who else are you talking to? It's like, well, nobody else. Well, what's the risk of me not investing now but waiting. Like if I don't invest now, and I leave it to see what happens. You're not going to give that investment away to somebody else. You're not going to give your shares away to somebody else. So I'll probably hold off. If you tell me actually look I'm holding I'm talking to this amazing VC tomorrow, this amazing VC on Wednesday. These two amazing VCs on Thursday. I'm gonna go crap. Like I quite like these people. By the end of the week, they'll have spoken to all my competitors. And they might, you know, be quicker to get this deal, I better get in there and I better kind of offer them a really good offer now. So that kind of fear of missing out is really important. So you need to make a reason why your investors that you're talking to want to invest now, rather than wait for a month or two, because the real reality is it's in their interest to wait. If I can wait or not invest money now, but invest money two months down the line, that's two months more time of you having built stuff, it's two more months time of you having onboard users is too much evidence, two more months worth of evidence about whether the users are willing to pay for anything or not. So I get more information, the later I can invest. So your job as a founder is to kind of take that away and go no, actually, like, if you leave it, you're out, like we'll come back to you in 18 months time. But in 18 months time, you wouldn't have you know, you'd have missed out on all this great opportunity. So you haven't have a really, really good kind of cadence and velocity. If you're raising over three, four or five, six month period, you're not focusing on your product. You know, you're focusing on raising money. Like if you're spending six months raising money, a six month building your product. Well, that's really bad economics for a start, like you know, as I'm going to invest in you, and you're only spending six months of the year, building your product, I want to invest in teams that are spending 1011 months of the year, building their product, and only a month or two raising. So as a founder, you want to get through that raise as quickly as possible. Because your goal isn't raising money, your goal is building a kick ass product that customers love. So the quicker you can get through that, and get back to back to the important stuff or building your business is the better.

Tom Prior: 31:44

Brilliant, I think it's super, super helpful to hear that process broken down like that. And it's a process we've spoken about in the past that you don't see as many designers going through as, say, engineers or those from a sales background. Going back to your analogy earlier, which I really loved about wanting to encourage more designers to build the table rather than work to get a seat at it once it's already assembled. How do we encourage that a bit more because we don't see that many high profile mainstream, particularly tech businesses that have been started by designers, certainly not that many unicorns, Airbnb or size. So it feels like there might be something holding us back as a discipline. Definitely thoughts on what that might be. And any advice for designers looking to break through that maybe build a bit more confidence to push forward with a great business idea.

Andy Budd: 32:39

I think one of the big problems is also one of the things which is great about design, which is that design is intrinsically satisfying its own right. So someone gives us a problem, Oh, that's fun, we're going to fix it. And then someone gives us another problem, or that's fun, we're going to fix it, we can have a career of other people giving us problems, and as fixing those problems. And we really, really enjoy the process. So I think there's a real tendency for designers to work in areas where they just get access to a high volume of of problems. That's often being a freelancer, I know plenty of people who are incredibly talented designers that could you know, that could be really, really, really business people. But get stuck in this hamster wheel of being a freelancer, you know, shipping small little products that are fun to do, but delivering value to other people. It's also safe, it's in a comfort zone, like you know, actually building a business sounds fascinating, like in a lot of designers talk a good talk about kind of understanding the value of business. But when you know, when push comes to shove, it's much safer to stay in our lane. And kind of you know, do design work. Actually, when designers are asked to kind of get you you really believe that the design can advance business. Do you want to step up and take the risk? All? No, actually, that feels a bit awkward. Now, I'm just gonna stay here and moan about how my founders don't understand design. So I think there's a safety and there's a there's a comfort there. I think also, we're very tribal. When we go work in businesses, we like to go and work in businesses that already get designed, and we'd have a big design team. Which means if we're going to go and work somewhere, we're as likely to go and work in a big established businesses, we are a startup, in fact, startups feel a bit scary, a bit fast moving. Um, so there's safety in working in a big slow moving based, but also you're surrounded by other amazing designers. It's like, hey, like I'm a designer, the best way for me to learn is to work with the best designers in the world. So I want to learn in a big team with loads of other designers. The problem is, and that's great, you will advance your career by surrounding yourself by as amazing designers, but it also means you're going to be the 10th 20 or 30 designer in the room, which means you're going to be 100 200 the person in the room, which means you're going to have very little influence There are 999 other people before you that are more influential, why should they listen to you? If they if he is at a startup, you know, 200 person joining, you will have very little equity and a very low ownership. So if the business does well, you know, you're probably not going to make that much money. If you're not gonna make that kind of money, you're probably not going to go off and invest in startups or start your own startup, you'll get another job. And you do it again, and you do another job. Whereas I see a lot of engineers who like, I'm going to be the first engineer through the door. And I'm going to own 20% of this business, desire not to be the first person through the door, the desire to be with a tribe of people, means that it's very rare that the designers get exposed to the early stages of the business, or have any kind of meaningful ownership. So realistically, the other problem is like, if you didn't know anyone that's done this, you're not going to be encouraged to do it. If you're a designer, and you know, you barely know anyone who's a, you know, a VP of design, let alone a CDO. Like you're gonna artificially limit your, your horizons. So I think the people, the designers that do do this and do this, well, often actually, ironically, less experienced designers, you're two or three years into your career, you might have done your first into Deliveroo, a really exciting startup asked you to come and join as their first designer, team or five, you're the fifth hire, you're getting 2% of the business. In a year's time, you ask like hi, your second designer, then your third and your fourth, in three years time, you're now the head of design. And you're now having to manage 20 people and hire two or three directors. Now you're your VP of design, you're running a team of 3040 people. And you've done that over the course of five or six years, I see a lot of designers now who are in their late 20s, who have gone really, really rapidly through being a designer to lead to a head to a director to a VP. Because the speed at which the company they in has forced them to grow at the speed the company is growing. And that is quite uncomfortable for a lot of people. But if you're in the right stage in your career, that can be a real accelerator. By comparison, most designers in large companies have to wait until their boss leaves or dies. And then you step into their shoes, then five years later, somebody else leaves or dies, and you step into their shoes, and it takes you 15 or 20 years to navigate through, before you get to the hallowed ground of being the VP of design. And by the end of that you're exhausted, you're tired, you run down 2030 years to get to a VP, you don't have any energy left in you to get the next the next job with a job after and then you do what I did. And you quit and you become a coach, which is what every ageing VP of design does. They've been a start a coaching business.

Tom Prior: 37:56

But my journey, so yeah, I think

Andy Budd: 37:59

those are some of the reasons why we're not seeing that people aren't seeing it as part of their culture. They're not seeing their friends go down that route is not aspirational, which is another reason why I wanted to get into into Vc, there is a growing group of about 20 or so designers turned VCs in the US at least heading from the US. Google Ventures, you know, Jake Knapp, Daniel Burka, all these people that bought amazing design into the Google Ventures ecosystem, you've got the designer fund in the US. And you've got increasingly a lot of designers that have worked in big tech companies have made a bit of money that are now being angel investors and VCs, not so much in the UK. So I'm probably not the first UK based design VC, but I'm probably one of the three or four maybe so I'm wanting to make this route. And make the idea of starting a startup investing in startups more viable. Because the more people you see doing this, and more people you see talking about it, the more people go, Oh, that's interesting. You know, it used to be the case that the only route for an entrepreneurial designer was to start an agency. And then you Bumble along for five or six years, and you have two people working for you and three people working for you. And then you know, the pound tanks against the dollar. And you know, then you have to let one person go. And it's a really, really difficult experience like running an agency. But weirdly, all of the energy, all of the enthusiasm, all of the skills you need are exactly the same skills as you need to run a start up. I guess this is kind of what I saw a little bit with clearleft. You know, I spent 10 or 15 years building a moderately successful agency, which is brilliant. I mean, we had an impact on the world. But we were still a 30 person kind of small ish agency in Brighton. I just want to sort of encourage designers to go okay, my only route now isn't start another agency and replicate what clearleft did because it's a really tough time to start agencies. But it's a really good time to start startups. It might not work but you'll get paid you'll get you'll get money, you will have a business experience. You know, this is the other thing, like a lot of people were talking about, like, hey, you know, like maybe I should do an MBA, the best MBA, spending three years starting a business, like you'll learn so much more from building a startup over three years, and you're learning any, any MBA. So if you're a designer, think about doing an MBA, save your 50,000 pounds and go and go and start a business, you get paid to do it.

Tom Prior: 40:25

Interesting. So let's say maybe I'm a designer who's not quite ready to start my own business, maybe I haven't got that killer idea. I'm not ready to go on that funding journey myself. But I am interested in this concept of being super early with a startup who has secured meaningful investment, and has like a healthy runway ahead of them. And I'm going to take that leap. And I'm going to be the first designer through the door. Because I've spotted a promising idea with an exciting team behind it. What does that look like practically when it comes to taking equity in a new business, and having some of that skin in the game as the founding designer,

Andy Budd: 41:06

in the US, it's really common for engineers, and increasingly designers to trade away some of their salary in return for equity. In fact, that's the whole point. The whole point is your startup, you don't have a lot of money. But you do have this thing called equity shares in the business which you can give away. And at the moment, you can give them away because they're not worth an awful lot. But there's a possibility that in a year, 510 years, I might be worth a hell of a lot. If I give up 20k in salary, now, that feels like a lot, but there's a chance that that could actually turn into 500,000 pounds in five years time. And risking 20k For one in 10 chance of earning 500k is a pretty good deal. Of course, you've got to be financially stable enough to be able to not take that 20k. And also, you've got to be convinced enough that you're going to be able to turn that 20k into 500k. But a lot of people do it. I think previously, like three or four years ago, a lot of designers in the UK, a lot of people in the UK thought that sort of equity was sort of just imaginary play money. So you know, if I was working in a big bank, and I was getting 100k 80k, as a designer, and I went to a start up, I'd want 80k. In fact, I'd want 90k Because whenever you move jobs, you want to get extra money. And when they say well, actually, we can pay you 70k and half a percent in equity. They go no, no, no, no, what I want the full amount of money. And I'm happy to not do the equity, or I want the equity as well, which is problematic. What I'm really trying to encourage people to realise is when they go and take a job, don't just look at the headline, figure of the salary, look at the whole package. If you get free bikes or like a bike to work scheme, do you get you know, extra holiday time? Do you get health insurance, look at the whole package. And the equity is a part of that. And what you often find that you often find a lot of startups nowadays will give you an offer, they'll say, hey, look, where are you? At the moment? Do you want to have more cash and equity? And think hard about that decision? Like think hard about hey, look, you know, what will I do with extra 10k is a fancy car a nice holiday now worth the potential for a new house in three or four years time, or 10 years time. And if it is, that's you know, that's a very, very sensible decision. And no one's gonna have a good view of that maybe you got a family, maybe you got kids. But if you have the ability to kind of sacrifice some salary return for an investment in a company you believe in, there's a chance of a real positive return. And to some extent, I think like, if we really believe that design is transfer meatery, then shouldn't we be putting some of that risk, shouldn't be saying Hold on, like they're hiring me, I'm a bloody good designer, you know, I'm employee number of six, or seven, or eight or 10, or 20, or 50, I'm a really good catch. And actually, like, I believe that I can make a difference to this business. And if I can make a difference to their business, I want more than just like the cash, they're going to give me I want to have a stake in the positive outcome. And that's what being a business person is being a business person isn't just kind of taking a salary, you know, and calling it a day. It's about, you know, a smart deployment of capital and skills in order to get a you know, a much bigger return. So, I think we need to start thinking like business people in our own financial decisions, if we ever want to also like, you know, be seen as sort of realistic, sensible business partners for the businesses we work in.

Tom Prior: 44:34

Totally agree. I think that's a really important mindset shift. That a lot of us in design needs to explore a bit more. You're a venture partner at seed camp. They're a European VC firm that invests a lot in UK based founders. Are you starting to see the tide turning as far as designer founders, you see more designers, maybe reaching out to you for advice and coaching and investment and wondering to connect them with with VCs,

Andy Budd: 45:02

I think that the UK has typically lagged sort of four or five years behind the US, or at least the West Coast of the US. In the last four or five years, we've seen a lot more successful startups, we've seen companies like Monzo, we've seen companies like Deliveroo. And a lot of the early design leaders from those companies have gone on to do other things. For instance, Hugo for Monzo, who was the head of design there for many years, has gone on to start pack flee a kind of a, a new sort of city based delivery kind of service, nothing to do with design, apart from the fact that it beautifully designed because because he goes running it. We're seeing people like Stuart, who was head of design at Deliveroo, starting his new little stealth project, like I'm seeing lots of senior design leaders that have been in tech companies have experienced what it's like being encouraged to go off and do their own thing. And so yes, I'm seeing that really exciting. I'm also seeing a lot more designers noodling around with their own product ideas, I think, you know, the pandemic was a challenging time for many people. But a lot of people found that they had evenings and weekends back because they were not travelling, they were not commuting, and they had ideas they were noodling around with. I've seen quite a few people, sadly, have been made redundant, but they've used that time or they've used the the money they got from being furloughed during the pandemic to kind of go and spend time building their own ideas out. So I'm seeing more and more designers reach out to me through Twitter, through email through LinkedIn saying, Hey, Andy, like, you know, I know you're interested in design, I've got an idea I'm working on, I'm sick of seeing you want to take a look, let's chat. I don't think that would have happened 3456 years ago, I think the ecosystem is definitely more mature. And if that's where we are now, I think in three or four or five years time, we're going to see a lot more of that happening. I think we're gonna see a lot more designer, founders, designer, co founders, founding designers. So yeah, I'm feeling very positive about that.

Tom Prior: 46:58

Nice. encouraging to hear that you're feeling positive about the future as far as designer founder businesses go. So yeah, Andy, thanks so much, again, for taking the time today to share knowledge and experience in this space. If anyone wants to reach out to you. Maybe they have a great business idea. They're exploring and they'd like some advice about raising capital, or their interest in your design, leadership coaching, how can they find out a bit more about you and get in touch?

Andy Budd: 47:25

Well, sure. No, I'm very present on Twitter. So I've just Andy Budd on Twitter. So feel free to follow me in the me if you want to chat or LinkedIn, or my websites Andybudd.com. But yeah, you know, I'm always looking for passionate founders, I you know, whether they're designers or they're just, you know, they're just people building products that really care about design. So if you're kind of in that stage, if you're kind of got your idea to the point that you're looking to start to raise some money you want maybe to someone to look over your funding deck, you maybe want a friend, the VC that you can kind of connect to Yeah, please do drop me a line and I'd love to chat something.

Tom Prior: 48:02

Fantastic. Thanks again, Andy. It was really, really great talking to you today.

Andy Budd: 48:06

Lovely to talk to you too.

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John Carter

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