In conversation with Dr Mike Lynch and Suranga Chandratillake, Partner at Balderton Capital

Having known each other for nearly 20 years, engineers and entrepreneurs Dr Lynch and Suranga Chandratillake, Partner at Balderton Capital and former founder and CEO of Blinkx, discuss what’s changed in the UK technology ecosystem, how it compares to our Silicon Valley counterparts and why outsiders often make the best entrepreneurs.

With careers in technology spanning two decades, Mike and Suranga also touch on the regulation needed to make the UK the technology leader of Europe and how we can truly maximise on our incredible science base to propel Britain into a tech-driven era.

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With a career in technology spanning 20 years, multiple continents and roles including CTO of Autonomy, CEO of Blinx and General Partner at Balderton Capital, Suranga Chandratillake has a unique perspective on the evolution of the European and Silicon Valley Tech ecosystems. In this episode of Invoke Insights, Dr Mike Lynch sits down with Suranga to speak about the uniqueness of the British tech ecosystem and the regulatory changes needed to propel the UK into a new tech driven era.

Mike: Suranga, thanks for taking the time today. I'm trying to work out when I first met you, do you know when that was?

Suranga: Yeah, that was coming up to 20, years ago, in 2001. In the summer of 2001 and actually the most embarrassing thing about that is, which you almost certainly won't remember, I actually walked into you. I didn't know who you were, you'd been out of the office for a few weeks and I was a new employee at Autonomy. And I was sort of not paying attention walking through the big doors at the front of the office and straight into this man who I'd never seen before. I ignored him completely and only later found out, much to my disappointment, that it was the CEO and I thought at that point that my career there was going to be quite short, luckily it lasted a bit longer.

Mike: Well luckily you were quite a good engineer as I recall.

Suranga: You overlooked my manners thanks to my engineering, I guess.

Mike: You’ve gone on to do amazing things being one of the best engineers I’ve ever known and one of the nicest guys in tech which is an award you don’t get very often. And then CEO of the public companies like Blinx, and now a fully paid up member of the venture capital elite at Balderton, so you’ve certainly make the most of those last 20 years.

Suranga: Well, I certainly feel like I was very fortunate in many ways to, you know, to have the hobbies, interests and skills that I had at exactly the right time. The last 20 years have been an incredible period for our industry, and if you could be any good at it and if you were there at the beginning, you were going to do well in the end, so it's been it's been an amazing journey.

Mike: Now, what do you think of the changes we've seen from those days in technology and start-ups and things like that in the UK to where we are now. What changed and why is it changed what matters in those changes?

Suranga: Yeah, I actually think the biggest change in the UK is the sort of cultural attitude around what start-ups are, and even the concept of being an entrepreneur. You know, I think that it really wasn't something - like you I was at Cambridge and you know if you graduated from Cambridge with a with a with a great degree, you know, the last thing you did was sort of turn around to your friends and say, I'm going to go and start a company, and if you did people would sort of assume something had gone terribly wrong and that you were you're having to make excuses. Everybody went to the city or they joined a law firm or they went into academia or something like that and that was still true 20 years ago when I graduated, even though at that point, you know, we had the whole phenomenon of Silicon Valley going on a few 1000 miles away, even though you know companies like Google and Yahoo and eBay existed.

And I think that was quite disappointing at the time and it was, you know, it was difficult to find interesting companies that were trying to do something different. This is one of the reasons I joined Autonomy at that very very early stage of my career because it was an outlier. And it was a lot of fun and we learned by being there.

I think that's changed completely right I think today if you went and talked to the same graduating class of computer scientists or engineers from Cambridge, you know, a significant number of them would have already done a start-up and many of them will be thinking about doing one if not now and certainly in the near future. And that cultural shift and the acceptance of the idea is massive.

Mike: You know, it's almost inconceivable now, what it was like back then, you know, the idea that you would run a start-up. The irony was that people went into banking because they thought that was secure and they’d have jobs for life. What do you think actually led to that, with the benefit of hindsight? What was it that caused the change?

Suranga: Yeah look I think that, you know, there was both stick and carrot. Honestly, so that you know the carrot clearly was the success the tech industry has had, and I think at the end of the day, one reason a lot of people went into those jobs was because of the potential for wealth creation, you know, by jobs I mean sort of banking and law and everything else. And I think the realisation that actually technology wasn't just this sort of fairly geeky corner but actually a place where serious wealth was created and where you could really build new things. That's what attracts a lot of people. And then there was the stick, I think especially in 2008, in that era and that period of time where a lot of people who had gone into these industries because they thought they had a job for life realised that actually the whole world's got rockier than they maybe thought. I think some of us sort of for various reasons historical or just got know that the world is ultimately always quite rocky. But there are many people who sort of think it isn't if they do the right things and have the right certificates and join the right places and so on and I think a lot of times people realise they were wrong in that period, and many of them thought well hang on, if it's risky doing this, then why not do something else.

And the final thing which I see a lot with the younger, even younger entrepreneurs that we're working with a lot at the moment is this really deep belief and excitement around the fact that technology lets us scale, you know, ideas and new ways of doing things and for them it's really a passion driven thing. You know we want to change something about the way the world works, and it could be something very niche and very esoteric or it could be something very mainstream. Either way, you know, they look at: how can I do that as a single person with limited capital and the answer is tech. So, all those things I think have driven it, but it's really exciting. I think it's a very healthy thing you know even, even though many of those businesses will fail. It's great that people are trying.

Mike: It's interesting how people who don't have to do what you and I do which is manage entrepreneurial wonderful engineers always assume that they're motivated by money. Some of them are definitely motivated by changing the world, some are motivated by just proving them right, but money actually comes a lot lower down the list than I think people will expect. So, the one thing that you just said there you didn't mention government, did government do anything - you know I can remember back in when I first did a listing in 1998, you couldn't list a company a tech company on the London market because you had to have three years of profitable trading. But there must be some things that have been changed by government that works. Do you think there's anything that actually made a difference?

Suranga: No, there are. I mean, it's unfair for me not to talk about how to not mention them really in some ways, and I think the interesting thing is it's probably, it's a wide variety of things so obviously there's been regulatory changes on the public markets which has made it easier for technology companies to sort of be there. And I think that, as you say, we saw that originally with Autonomy for example here in the UK. But you see it, you know, most recently with one of our portfolio companies The Hut Group which went public last quarter in London. I think there's also, you know, being changes on the employment side which has allowed for people to think about the sort of flexible reality of the way that jobs and professions work in this new high paced world. And I think also there’s been lots of interesting regulation around investing right, if you look at the sort of EIS and SEIS schemes and so on, they've created an opportunity for a whole new vast wave of capital to be invested in, by and large, technology companies that are taking high risk students to build high value endeavours. So, I think there are a lot of governmental changes like that that have helped along the way.

And you know, even more peripheral things like education, I mean the introduction of the computer science curriculum in schools, for example, so really every child who leaves a British school has a basic sense of what it is to programme a computer. And I think you know that empowers people to then go on and build these sorts of companies, not again not all of them will but at least they all have a sense of how it could be done. So, all of these things actually helped. There's obviously a lot more to do as well. But, you know, obviously you and I have both been involved in various governmental bodies and committees and so on to try and keep pushing those boundaries. But, you know, we do have to give them credit for what they have achieved so far.

Mike: But this year, there's obviously rumours of multiple flows going on to the London market. You know you mentioned The Hut Group, but the one thing is that is the route seem to be getting changed, so I know The Hut Group did things in a very different way you know getting some quick open shares and things like that. There's a lot of talk of direct listing, not using the usual sort of traditional investment banking route, and that sort of thing. And of course, we've also got the Lord Hill review into how we fix this issue about what happened those kind of companies in London. Do you think we are about to enter an era where that happens and do you think it is going to be different? Are we going to see things like golden shares and more a of free float, more like the Americans, and if so, will it be successful we get our incredible science base to actually be $10 - $20 billion businesses hosted in London?

Suranga: Yeah, so I'm not the public markets expert, but I do think that we have to create an environment which allows British companies to consider the UK market equivalently with the way they will consider the US market. I think we have to do it. I mean if we don't, then at the end of the day, we will, as a country benefit from the value these companies create from zero to IPO but then lose a lot of the benefit that comes after that. And there are all kinds of downsides to that right so, you know, from just straightforward GDP and tax base but also employment and also actually just engagement in shaping the future and figuring out what the world looks like in 50 years’ time. So, I think it's imperative that we do this, honestly. You know, it's, it was very sad to see ARM go, you know, another company that was absolutely crucial in forming the way the future world will look. And as you say that led us to just one being in the FTSE 100 - obviously by scale The Hut Group would be in there.

It's great that there are I know of three companies that are talking of listing this year in London I think all of them would probably make the FTSE 100 so that's great that would that would quadruple our base immediately, but we need to do more. We, as a firm, Balderton invest in European companies generally not just British companies, and many of them whether they're German whether they're French or UK, ultimately go public in the US, that's where the majority of our IPOs happen. And it's sad that that's where that's where the, the founders feel that you know they will have flexibility and the freedom, and also the multiples and kind of experienced analyst base to actually appreciate what it is they're doing.

Mike: One of the things that's really special about Suranga is that you started your career in the UK and then he went and lived in Silicon Valley on the west coast in San Francisco and ran businesses there and then you've come back to the UK. And obviously there's a vast amount written about the UK versus us usually by people who have never been in one of the two. But as someone who's actually lived both day to day, what are the differences and advantages of any of being in the UK? And what can we learn from the US?

Suranga: Yeah, I think there are genuinely two big differences. And when I say US I really mean Silicon Valley, right, because obviously I think, you know, the UK - certainly sort of the Golden Triangle Area of London, Cambridge, Oxford compares to most other US areas or ecosystems perfectly well. It's really Silicon Valley that's its own beast. And I think the two big things. The first is, is to do with network and sort of density of network, and the second is to do with to do to commercialization and marketing and narrative and so let's go with the first one first because that's fairly easy.

You know, the reality is Silicon Valley has been there for about 40, almost 50 years and so as a result, there are just a lot of people who are in the technology industry or have been in it at some point in time, who just happened to live in what is actually quite a small physical area. And there's something wonderful about that because it does mean that as a founder, you know, I found that you could walk into a random bar, or you know restaurant anywhere in the city and you would find people who could invest in you, you could find people who could tell you how to run your sales team, you could find people who would build your product for you and so on and so forth. And we do have a bit of that in certain parts of Europe, London is one, Cambridge is another, you know, arguably, you have it in Stockholm and in Berlin and maybe bits of Paris as well, but it isn't anywhere near the same level of density as you get in Silicon Valley, and there is a lot of value in that because you know, these are untrodden paths there, that you know, you have to figure out what direction to take what turns to make, and having people who've done things like this before you that are able to and willing to sort of help you and guide you in that is very powerful. So, I think there's a, there is a really powerful thing that it's difficult to replicate. But the good news is we're catching up on that.

The other bit which we lack is our understanding of in a very broad sense of the word, how to sell technology to the rest of the world. And, you know, Americans in particular northern Californians are brilliant at this. You know, I think it's a California thing, you know, just as Southern California and Hollywood are brilliant at telling the stories and making movies that you know that enchant every single one of us. Northern Californians are - something in the water in Northern California - are very good at getting people to explain you know how technology will change people's lives. It helps you raise money it helps you with customers, it helps you build amazing products, it helps you sell, helps you market. And it's those people it's that approach and that way of doing things that I think is still behind in the rest of the world. We see this a lot with some of our companies that you know a lot of other things we can absolutely do perfectly well here but that's an area where it really helps if you can find someone who spent time there who’s understood how to do it there and learn to live their craft and so that's the bit that I think we have to close the gap on. And it's frustrating because it's not really a technical skill, it's more to do with the culture and it's more to do with experience and so on but I think, I think we can get there as well. You also asked, what do we do well? I think what we do well is actually engineering and technology and product. I mean at the end of the day, you know, this is not a new phenomenon for centuries Europe has produced amazing technology. And we continue to do so and actually some of the most interesting areas in deep tech right now are happening as much in Europe and the UK as they are anywhere else in the world, whether that's the US whether that's China, whether it's India, so I mean we only need to look at an example.

For me, the two best examples of that are first of all machine learning, you know if you think about where the real centres of machine learning academic excellence are, they're actually all in Europe, and actually most of the Silicon Valley companies that have big investments in machine learning have their biggest teams here in Europe, either in London or Paris generally. And the other big area which we want to see is life sciences right. I mean if you look at the vaccine race, Europe has demonstrated just how strong it is between the AstraZeneca vaccine. the Pfizer vaccine that was really built in Germany. I mean, you know, Europe is at the forefront of all of that. So, we are good at this stuff, what we're not good at is telling the magical story around it to raise the money, and then of course going and selling it and doing all of that bit. Which is frustrating because to me that's almost the easiest bit, we just need to get better at it.

Mike: I remember in the early days of the Cambridge cluster your marketing was considered cheating. If you’re product was that good, why did you need to do marketing? I think that that era has passed now people realise that you have to have a good product and it has to be marketed. Well, let's take you somewhere else, that's one of the things that I have noticed about many of the really great entrepreneurs like yourself, is that there is always a little bit of the outsider about them. You have a Sri Lankan heritage, and perhaps when you first were here and see the world the way that, if you'd always come from this background. Do you think there's anything in that or that this idea that people are slightly outsiders for some reason make our best entrepreneurs, or do you think that's just a historical artefact?

Suranga: No, no, I do believe in it. You know, at Balderton we talk about looking for people with edge, because I think it's quite a difficult thing to define and it can come in different forms. But most of our, if not all of our really successful entrepreneurs have some kind of edge, they have some difference about them. Sometimes it's real, they are genuinely an outsider. And sometimes it's perceived. And it's really to do with, you know, some kind of self-esteem issue that they have deep inside and it's biting them. And either way, it sort of pushes them in a way, and to a level that I think a lot of other people just, would just give up. And I remember talking about this with you, many years ago, probably, I don't know 10 or 15 years ago now. And you said something along the lines of, you know, if I had to choose between someone who's incredibly smart, and someone who was just, you know, ambitious enough to run through wars, you know, I would always pick the latter. Obviously, if I can get both in the same person, I'd pick that person but if I can only get one of the other I'd pick the second. And I think there's a lot of truth in that, you know, of course book smarts matter and, you know, of course, having people who can really think about complex ideas and particularly technology that’s important, it’s crucial. But, but actually the most important thing is this ambition and this energy. It's a very restless thing right I mean, most of the people who are like this, who are at the top of their game have absolutely no need in any rational sense to keep doing what they're doing, and yet they do, and that's to do with something inside that's much deeper than any kind of rational calculation about money or anything. It goes back to what you said before it's not money that drives people you know it's something much deeper than that.

Mike: It’s interesting, the way I look at teams I always look for, you know, if you’ve got that very smart engineer, then you've also got the very smart ambitious person. One of the things that often amazed me about people that do start-ups around themselves and people that are exactly like them. Nearly always great teams are a strange bunch of misfits, rather like any sort of superhero comic that you can pick up - the group always have different skills and it's pretty powerful.

Now that you’re at Balderton, which obviously has a great record as a VC, how do you avoid the effects of the committee, though? You could argue that perhaps the danger of a committee is that you're always going to end up with the average, sensible decision and yet, making money as a VC is often about spotting the thing that isn't sensible sometimes. Or actually, is it the power of the committee that stops people going off on crazy ideas? How do you balance that between going for the unorthodox and the unconventional and the un-obvious glimpses vs. proper rigorous analysis?

Suranga: Yeah, no, definitely. I mean, so we spent a lot of time obsessing over this because I think, I mean, ultimately, we make about eight, maybe, maybe nine or 10 new investments a year. And that's it right if we make the right nine or 10 investments then we do well if we do that we don't. And so, we let our own investors down so it's you know it's the most important thing we do, and so we've analysed it to death and we've thought about it a lot. We've talked about it a lot. We've also looked at the way lots of different people have tried to do this.

So first of all, to sort of clarify, we absolutely think we have to back your balls and the misfits, and the unusual ideas. Because that's, that's how you, you know, it's only by taking risks on things like that that that I think you can deliver the sort of, you know, returns and successes that venture capital is all about. Our job is absolutely not to sort of back the obvious thing that's going to do okay and be solidly well, there's nothing wrong with those things but there are other people for that. I personally wouldn't do the job if that was not what it was about. It wouldn't you know keep my attention. So, the way that we do it is that we, on the one hand, we do have a committee so we have, you know, a number of partners, all of whom have an equal voice and vote. And so, whenever we meet a company we actually try and get as many of them to meet that company, one on one if we can. And then we also have sort of group meetings where we can have the whole, the whole of our team meet the whole of their team and so on. So, there's a lot of communication in that sense it's very collaborative. But then in the end of it all, it comes down to a vote. And so one of the partners has to lead that process and say, I want to invest in this company. And I think we should take it to a vote. And at that point, we all have a vote and we will have an equal vote but interestingly, we have a very complex voting sort of rule system which means that you do have to have some number of other absolutely unabashed fans, a bit like yourself, but you do not need to have all of them. And in fact, the level of negativity that someone else expresses does not impact the sort of positivity of someone who's a supporter, so in other words we often make investments which are very divisive within the team, you know, you will have half the team really love the company and the idea and the entrepreneur and think it's an amazing opportunity, and the other half really dislike it and have a number of issues with it but it's the business or the market or the person.

And actually we found that those very controversial ones tend to be the better ones where everybody is sort of, you know, broadly positive. That tends to lead to mediocre outcomes. And actually ones where you know where everybody except one person is negative tends to be a bad idea to, although that's the interesting question group I think that we do analyse that group sometimes but that's how we do it. We try to, you know, I guess benefit from different points of view and so everyone listens to what the detractors think and say, and you can use their arguments to sort of question yourself, but at the end of the day you just need to convince one or two others. If you do then it doesn’t matter is the detractors are very detracting, you can still get the investment done.

Mike: So it's a really interesting question because when I started with Invoke, I ended up with a group of 20 or so people involved in those decisions, all of whom have done amazing things. And I remember that the first few things that came through, you know immediately, someone would point out why it wouldn't work because of that. And some else would say it won’t work because of that, and of course because they knew too much, they knew all the problems you would see. Because the young entrepreneur, has a massive benefit of a certain degree of naivety they don't see all the problems. Otherwise, perhaps he would have started. And I remember having to sit them down and say, so let's just look at the fact that we've just rejected the last 10 seconds that come through the door. Right, let's imagine we walked in 20 years ago, would we have invested in us? Very quickly, we came to the conclusion that there's no way on earth we would have invested in us. Suddenly realised that you do have to have a little bit of suspension of disbelief you can over-analyse and I think the thing you just said that was most interesting there was the idea of rating the positive but de-rating the negative because I think that's what it's all about. You can easily stamp on a seedling it's trivial.

Suranga: One of the other things we do is when we summarise a potential investment, it's very easy to write a long long list of everything that can go wrong. And inevitably everybody does that because I think most people who do these sorts of jobs are highly analytical and therefore think you know think through every possible permutation of these things. What we also force everyone to do is write a paragraph on what, how big this could be if everything actually went well. So, you know, just dream for a second just disengage from all the things that you can and probably will go wrong. But just think if it actually all worked and the stars aligned and the person figured it out, how big is this idea and how big is this opportunity? And it's a really really good paragraph to read at the very end of reading about the company because it sort of reminds you that there is something I think is really important you know that's the spark that leads to the really giant leaps forward. And so, you've got to make sure you don't snuff that out with all of the analysis and all of the clever debate.

Mike: Right. So, last question but it's a big one. So, the phone rings and you've got a phone call from the Prime Minister. He says, Suranga, I've got this amazing science base in the UK, I've got a nation which has this incredible history of going out there and doing things. Now that we've left the European Union, we can do what we like and I want the UK to be the tech leader of Europe, perhaps even the world one day. And you could do what you like, what policy changes do you want to put in place to make this happen - what would you do?

Suranga: Oh, that is a big question, and a difficult one to have it with no prep. I mean look, I think, slightly boringly the answer is more than one thing. You know that there's no single silver bullet here. So, I would absolutely analyse what is going on right now, just analyse the stock markets and think about how we can make the UK market the premier market for technology companies. You know, we're very in the UK to have one of the only stock markets that really matters on a global scale. But it will only continue to matter if we can find an industry that is super relevant to the last couple of decades, the main industry has been relevant to has been, you know, mining and minerals and energy and that's great, but I think that if I was going to pin my flag to any ship it would be technology, so why not make, you know, the FTSE the tech centre in the same way that NASDAQ has been historically. NASDAQ has all kinds of challenges as people know and so there’s no reason why we couldn't re-engineer the FTSE or the LSE more accurately to become the technology stock market of choice, not just for British companies but actually for companies from all over the world and certainly all over Europe.

The second thing I would do is really think about all of the policies we can put into place to ensure that long term investment can continue unabated so I think some of the stuff that has been around taxation, to allow for angel investing has been very powerful but we need to do more of that kind of thing. You know too much of the way investors look at technology companies today is far too short term. And as you and I both know technology takes time to really develop. And I think there's just too much of a culture of sort of quick flips here because it's just too easy to do that and there isn't enough taxation incentive to not do that. So, I think there's a lot of work to do in that area.

The third thing I do is one regulation of the technology itself. I think there's so many interesting things going on, particularly crossover technology right now, that if you do it in the smart way, you can actually deregulate and allow people to experiment in this country in a way that they will struggle to experiment in certainly mainland Europe and even the US. So whether it's life sciences research, whether it's things like drones or robotics, there's all kinds of interesting areas in self driving cars, etc. that we could be the forefront of. And if we did that, again, I think, you know, talent and money is so fluid these days that I think it would flow here.

And then the final thing I do is education. Because at the end of the day, it doesn't work if you haven't got people who want to go forward with these ideas. I don't mean just trading up technicians who can work like drones for large tech companies that are owned in Silicon Valley. I mean, you know, teaching people entrepreneurialism and giving them the confidence to tell stories, to market, to sell and to build their own thing. And I think we can do all of that, I don't think I think these things are crazily outside the envelope of the possible. But obviously, it takes time, it takes money, it takes guts.

Mike: Well, I must say that all makes sense to me. I think the regulatory one is somewhat overlooked. In an age where we’re about to have autonomous vehicles and personalised medicine, forward looking in the regulatory environment could make a big different. Anyway, sadly we are out of time it's been an absolute pleasure as always, and you know I look forward to watching the next set of things you do because, you know, each phase of your career always seems to lead to something rather wonderful to watch so thank you very much for taking the time to talk to me today.

Suranga: Thank you, Mike.