Seize Opportunity, Create Success – The Roadmap to VC

Sue Rees in Conversation with Alexander Leigh

Alex Leigh is a specialist in “deep-tech” venture capital, currently particularly interested in seed funding start-ups in defence, fusion and cyber-security and seeking series A funding opportunities for young businesses focused globally on the climate and the oceans.

Born and educated in South Africa, Alex gained a Bachelor of Engineering degree in Mechatronics from Stellenbosch University. He was involved with high-tech startups in South Africa from the very start of his career. His experience includes robotics, marine propulsion, industrial software, and military equipment.

After gaining his MBA from the University of Cape Town, which included an international exchange programme and the London Business School (via their international exchange programme), Alex moved into private equity buyouts in South Africa before coming to the UK in 2015. He has worked on numerous operational improvement private equity projects for well-known UK brands, including a transformation role at a FTSE250 organisation.

Since mid-2018, Alex has focused solely on tech venture capital. He has completed more than 25 transactions, held many Board roles, and led 4 successful exits.

He currently holds Investment Director positions for Future Planet Capital and for the UK Innovation and Science Seed Fund.

Alex is also passionate about entrepreneurship and sharing ideas and best practices. As well as mentoring, serving on panels, and supporting networking events, he blogs, vlogs and podcasts @TheTippyTopBlog (thetippytop.com)

I wanted to learn more about Alex’s interest in deep-tech and environmental investment and his passion for supporting and educating entrepreneurs and investors.

Sue Rees: Alex, it’s lovely to speak to you again. As with all my guests, I love to find out about the back story of people’s journeys into business and investing. How does a South African engineer find himself as a venture capitalist and entrepreneurial advisor here in the UK?

Alex Leigh: Thanks, Sue. It’s a pleasure to chat once again. So, as you say, I’m from South Africa. I was born in Johannesburg, I grew up in Durban and went to Cape Town to study engineering and got my first couple of jobs. But then all the roads led me back to Jo’burg as – simply – that’s where all the economic activity and money is!

SR: But it seems like you didn’t want to pursue a career in engineering.

AL: Working with a couple of startups gave me insight into how business and finance work, which fascinated me. I decided I needed to pivot away from engineering into that world, so an MBA seemed to be the perfect route. I’m not going to pretend that an MBA makes you an expert at anything, but it gives you the tools to reinvent yourself in the way I needed to.

I decided to do a full-time one-year MBA at Cape Town. I liked that I would be fully immersed and be able to go through all the personal discovery and leadership training and refine my group working skills. It was ranked the best MBA course in Africa and best value for money MBA in the FT list of top 100 MBAs globally, a good early demonstration of my investment acumen! Through that, I had an opportunity to go to London Business School on a further 5-month exchange programme. There were only 2 spots available to the whole class, and I managed to secure one.

That was a really valuable experience. It gave me great insight into the juxtaposition between an emerging and a developed market and exposed me to the strengths and differences between 2 top-tier MBA courses. It also allowed me to specialise my MBA in entrepreneurship and finance.

During that time, I discovered this magical thing called “private equity”, which hit all the right buttons for me. It completely cemented in my mind that this was the route I wanted to take. I wanted to be in boardrooms, building strategies and talking about financials and routes to market. I wanted to get involved in all of that stuff!

SR: What was it that made this seem so exciting? Was there a family background in business, for example?

AL: I have always loved designing and making things, hence an engineering degree. But after that, I was looking for something that would get me more involved in the business side of engineering. I hadn’t been exposed to the world of investing and venture capital, but even as a child, I was interested in how you could set up something from scratch and grow it. It fascinated me how you could take ideas and make money.

I won’t bore you with the full range of my childhood businesses, but one I remember fondly was making a tower of matchboxes all glued together. I took it to the market, and in exchange for money, you got to pick one of the matchboxes and push open the drawer to reveal if you had won anything – could be a bit of money, another go, the “big” prize of a cuddly toy, or whatever. I remember people went mad for the idea and threw money at me. So much so that, in the end, I employed a couple of people to set up and run it. I remember thinking how amazing it was to walk around the market knowing that something I had built was paying a couple of people some pocket money. They were happy, and it was fun for many customers who were happy to pay for that pleasure. And there I was, taking the profits, and I was happy!

In my first job after graduating, working for a high-tech marine propulsion startup, I noticed a knack for seeing where things could be done more efficiently, where systems could be improved, where money could be saved or where waste could be cut. So I think the combination of these things made me realise that’s where my genuine interest and passion lay.

SR: So, what’s been your financial career journey up to now?

AL: I realised pretty quickly into my degree that I wasn’t really like the other people and that career engineering wasn’t going to be for me. But I’m a finisher, so rather than quit, I went on to complete that. And I knew that some skills I would be learning, such as problem-solving, would be useful in any career.

After completing my degree and picking up a few jobs as a design engineer, I knew that it wasn’t for me – I didn’t really like having to put dirty overalls on now and again. Quite frankly, there was nowhere fancy to go for lunch in the industrial estates and heavy engineering sites I had to work in!

In parallel, I had set up and run a couple of businesses – a software development agency and an e-commerce operation. Now these were really side hustles and would never set the world alight. Still, they gave me a lot of exposure to key aspects of entrepreneurship like marketing, management accounts, improving systems, hiring and firing, and so on. 

That was really the trigger to scrape together some money for the MBA. That was tough as I didn’t have enough savings and no clear path afterwards. So I needed to hit some credit cards hard and borrow from friends (some that I luckily only met during the MBA!) and family. The 5 months of living in London with no salary was probably the hardest part! I vividly recall the day I had £1 in my Barclays account.

Even once I had the certificate, it was still difficult to transition from engineering to business. I had a few interviews in London once I’d completed it, and people would say, “You’re an engineer. Why are you sitting here?” People couldn’t really make sense of that pivot I was doing.

So, I returned to South Africa, where I was more familiar with the business landscape. The plan was to leverage that local knowledge to get the first steps into finance and then return to London once the transition had been made and try my luck again.

I sat down with a list of every private equity company in South Africa (about one hundred or so) and sent all of them a personalised cover letter and CV. The rejections began to mount until I got to the letter P on my list and had a response from Pan African Private Equity saying, “Your timing is excellent. We have a vacancy; come and see us”, and I was able to convince them to take me on.

They worked in the primary sectors – manufacturing, food, and so on – and later-stage buyout PE deals, but it was a great training ground for me. In particular, it gave me a solid understanding of the exit process of deals which stands you in good stead for any investment. I was there for two years and built up a good track record.

It was then that everything started to line up – the South African economy was beginning to show signs of slowing, I’d been with my now-wife long enough that we could sort out visas for the UK without too much of an administrational nightmare. I’m a British passport holder, but she wasn’t, so we had to prove our relationship was “real”!

We came over, and I landed a role in operational improvement private equity. The person who employed me was also an engineer, so he “got” me. He wanted someone who had worked in that kind of business and understood them but could go in with knowledge of finance and operations and turn things around.

SR: Throughout your career, you’ve worked in so many different areas and a large variety of businesses either starting up, looking for investment or who need to improve and turn around. And you’ve worked really hard to get where you are. Where do you think that drive to succeed comes from?

AL: It’s a good question. I think coming from South Africa, there’s a strange mix of being in both a first- and third-world country at the same time. There’s a very real fear of being poor. Engineering, law, medicine or accountancy are the “go-to” degrees for many people because there’s a feeling of “I’ll always be ok”. That’s probably at a detriment to the arts and humanities, to be honest.

The other thing is that there is a very entrepreneurial culture there. Even if you are working a day job, someone in your friends and family network usually does something business-related.

I have always wanted to do something remarkable, make a difference, and help others. That’s a big motivator to push for success. Coming from a place where there aren’t so many safety nets for individuals as in the UK, I’m also aware that I’ve had many opportunities and privileges that might not be available to others. That’s why I’m driven to give some of that back via my mentoring, blogs and podcasts. Being able to show people that there may be a better or easier way of doing something, or providing a template to work to, or just the benefit of experience having been there and done that, and give some encouragement. That’s very motivating to me.

SR: You talked about your podcast and blog – The Tippy Top. Where did that name come from?

AL: Ha! I have to give my wife and best friend the credit for that. It’s a quote from a movie, and it’s about getting up the mountain and sipping some champagne as you admire the view “from the tippy top”. So it’s about being aspirational, but also it’s a little cheeky as well. That’s my personality – I can be very corporate, sit exams, and make all the serious decisions. But I like to break free from that now and again; that’s who I am. So it fits really well, I think.

SR: We first met when you were a Senior Investor for the Development Bank of Wales. You currently hold Investment Director posts with Future Planet Capital and the UK Innovation and Science Seed Fund. How are you finding these markets at the moment?

AL: Good companies are still raising investment. In a previously buoyant market, some entrepreneurs may have been luckier than they deserved to be in winning early funding – and good luck to them! But in this market, there will be a struggle for those companies to raise follow-up funding.

Look, there’s a limit to how many good ideas there are and how many companies can implement those successfully, so we’re in an interesting position. Some VC companies are even struggling to raise money to reinvest, even if they want to. So we do see some “zombie” startups and some “zombie” VC firms, given the current state of the market.

All that said, there is a lot of money about. It’s probably biased towards older, more mature companies and to lower risk. There will be LP investors happy with getting a 1.01x return at the moment simply because they will get the tax relief. So if you’re getting a 40% return and the company you’ve invested in washes its face, then fine. But they don’t want to take the risk of a potential 10x return.

But there is still money out there for good companies. How do you show that you’re good? Manage your debt and cash flow, allow more time for fundraising, and focus on your business more than on investors.

SR: What other advice would you give entrepreneurs thinking of starting a new business before they go to the market?

AL: Prepare, prepare, prepare. The more preparation you do, the faster the fundraising will be and the higher the valuation you can command. It will also mean fewer distractions. It’s all good for the business anyway, and it’s all stuff you are going to need down the line. Just get it done now. Don’t just play to investors' needs; prepare your business and financial plans. Have a concise and crystal clear pitch deck ready.

Speak to your spouse or partner before you embark on this journey. It won’t be easy, and you need their support if you are going to succeed.

Check your timing. If you’ve got plans for a house move, a new baby, or some other significant life event, perhaps this isn't the right time to start a new business. Don’t overestimate your capacity to deal with everything this will involve.

SR: Regarding your specific areas of investment interest, what are some areas to watch now?

AL: AI has certainly blown up in the last few months! But the aspect that particularly interests me is the cyber-security angle. AI systems can be very easy to hack. It’s machine learning from a dataset, so if you can reverse-engineer the system, you can discover what’s in the dataset. So securing these systems against attack is something that will be important.

There are also broader aspects of the importance of cyber-security as it applies to defence. Current geopolitical events have sharpened everyone’s focus on the use of the internet as an offensive tool and the ways we need to counter that.

Climate change is a huge global talking point. At the moment, if you have a strong business proposition in climate, then you will get funded. It’s the biggest commercial opportunity of our time and intrinsically linked to our continued existence, so that’s a fascinating area given those two aspects.

Robotics is another one – cars, planes, autonomous vehicles, and even packing groceries. This is hugely exciting because robotics can save lives, save carbon, increase safety, and make things more efficient. There’s a big crossover between robotics and the other areas I mentioned.

SR: You mentioned investment being out there for “good companies”. How important is the leadership team to your assessment of a potential investment?

AL: If you’re at pre-seed or seed level, we’re used to incomplete management teams – that’s just the reality. So that’s not always comfortable, but getting the right team is so vital. In early-stage businesses, there is often nothing much else in place but the team, so their passion and dream is the only thing that will drive it forward.

I deal with many deep-tech companies, and of course, you need PhDs and experienced engineers, but you also need really strong commercial people and someone who will look after the finances. There are a lot of very clever scientists and engineers out there, but it’s highly unlikely that they will have these other skill sets.

VCs always invest in teams. You can’t do it alone, and you shouldn’t expect your spouse to be the one who is your shoulder to cry on because it’s bad for your marriage and bad for your business. You need a co-founder.  I’ve invested in single-founder businesses, and it was bad for them and me – you end up being their personal therapist and everything! I can offer some support regarding the business, but it’s not the same as having a partner at the coal face. That’s a key takeaway for me.

SR: Is there a skills gap you see more often than others when looking at investment opportunities?

AL: I would say that there’s almost always a gap in the financial skills. How do most startups fail? They run out of money. Now there are plenty of reasons why you might run out of money, but it’s so helpful to have someone on board who can tell you well in advance that you’re going to run out so you can do something about it!

Speaking to customers is another one. That’s more of a confidence or style thing quite often, but you certainly need someone onboard who can speak to customers and to whom customers can relate.

The other one is not so much a skills issue as a time one. I see plenty of people spending lots of time trying to recruit people. Do you really have the bandwidth to trawl through CVs and interviews, or could you outsource to someone who really understands your business and what it is you’re looking for in building your team? If you’ve got a PhD in cyber security, I think spending your time on that specialism will be a better use of your time than reading CVs or writing job ads.

SR: You receive a lot of pitches, presentations and funding documents. Is there any key information you would like to see as a potential investor that founders tend to omit or gloss over that would help them to impress you?

AL: Sure. A lot of presentations miss out on a board slide. That’s an easy way to add credibility to the organisation – this person on my board could have picked any business in the sector, but they picked mine!

The “exit” slide is often either not there or poorly done. I want to see a founder telling me who they might exit to and what they will be buying. What is the value-creation plan to arrive at whatever that is – customers, widgets, revenue stream, whatever.

The “value proposition” is rarely well done by early-stage businesses.  I want to know why customers will buy your products. What’s the big pain you are going to solve? Are you better, cheaper, faster, or stronger? What’s the urgency to buy? Remember, in a crowded market, your idea has got to be 10x better than everything else to get noticed; 2x better just isn’t enough.

If you get that bit right and everything else wrong, you can still be ok – we can work to get the rest in place. But if everything else looks good, but there’s no strong value proposition, then I haven’t really got anything I can invest in – no matter how good the team is.