Today we’ve got one of our popular investor interviews for you. This time, we meet Chris Smith from London-based pre-seed VC firm Playfair.

Along with getting his take on the early-stage startup market in mid-2024, I also asked him how a partner in a VC firm (a particularly demanding role!) handles paternity leave and the trials of being a new parent.

Bur first:

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– Martin

The state of pre-seed VC in 2024, with Playfair’s Chris Smith

Who is Chris Smith?

Chris Smith is managing partner at London-based VC firm Playfair. He has worked in venture capital for around six years.

A law graduate, he initially worked in the private equity and M&A space, but also had an entrepreneurial streak that he explored through a telecoms business he started as a hobby when he was a student.

A secondment in Silicon Valley drew him into angel investing. Among his successful bets from that period was SuperAwesome, which was acquired by Epic Games (and which I also spotted early, years before launching PreSeed Now!).

He eventually left law and moved to the Isle of Man to work for a B2B telecoms company called Plan.com, where he learned a lot about the challenges of scaling a company in both headcount and revenue.

Now at Playfair, he focuses on pre-seed investments. The firm announced its third fund, totalling $70 million, in March last year.

MB = Martin SFP Bryant. CS = Chris Smith

MB: You recently became a father. Paternity leave must be particularly tricky for a senior VC to take, considering you not only have your own workload, but responsibilities to your limited partners, and seats on the boards of startups you’ve invested in.

How does paternity leave work for a partner-level VC?

CS: We've got an equal maternity and paternity policy, so you get six months full pay, six months half pay. The starting point was that I could have taken 12 months off. But as you just alluded to, that doesn't doesn't really work when you're a partner in a firm.

So I took a month off completely, which I'm very glad about, because that month was just a complete blur of crying, nappies, learning, panicking, and recovering. It was kind of crazy.

And now I'm spending about half my time working and about half my time with our little one. So what that means is I can work with the portfolio companies that I've already invested in and others, and also I can work with the team, but I'm not going to do a new investment in the next 12 months.

So that's what I've settled on as a reasonable balance, being a partner in a firm. At some firms, people do take a whole year off. Some firms are like ‘two weeks, and get back to your desk’. So I think we've got a reasonable balance. And I want to set a good example for the rest of the team, who are all much younger than I am, for when or if they choose to have kids.

MB: More broadly, how is life at Playfair these days?

CS: I think the pre-seed stage has actually been relatively unaffected through all the things that have happened in the past five years.

When you think about the pandemic, and you think about the collapse of SVB, and you think about the market falling apart, we've actually just continued as normal, because there are still lots of great founders founding great companies, and we want to invest in them.

So our cadence has been fairly similar throughout throughout the years, and right now, I think we're actually at a really good spot, which is that the pre-seed market is actually really buoyant.

We've made five new investments this year so far. Typically, we target six in the whole year. So we're actually deploying pretty quickly this year in terms of new investments. And then for follow-ons, all our founders who've gone out to raise a Series A this year have been successful at closing that round, which I think speaks to the Series A market being in a much better place than it probably was even a year ago.

I mean, it's tough for founders, if you had this mental model of ‘I need a million of revenue to get a Series A’, you can now make that 1.5 to 2 million. Everything has got incrementally, a little bit harder, but deals are still happening. So now I'm feeling very positive about things, actually. We paused deals during August, but going into September, I'm pretty optimistic, actually.

MB: At Playfair, you position yourselves as a generalist investor, with very few types of startup you don’t invest in. But you must have a thesis, a strategy, for the kind of companies you invest in.

CS: We are definitely a generalist, and we only make, as I mentioned, about six investments a year, because we believe the best way of being aligned with founders, actually, is to give them as much support and attention as they want, and as they need.

In terms of a thesis, I think we are we're generalists because we find it exciting to be able to look at lots of different companies, and because we think it's founders who know where we should be investing. It's not actually us, right? Because the founders are so close to their industry.

So I would say we do have a thesis at an individual investor level, which also flexes a little bit over time. If you look back at, say, 2019, 2020, I was investing quite a lot in digital health, so investments in Vinehealth, which was acquired by Sciensus, and uMed, and a bunch of these companies.

Now, most recently, I've been really obsessed by robotics. I think there's a real opportunity. Software has done a lot, there's still opportunity there, but actually, you've got this huge part of the world where lots of manual tasks are being performed by people. You've got labour shortages, and you've got all these things dynamics going on. I'm now really excited about robotics, so we made two investments in that space.

So yes, we have a thesis. It's kind of individual investor level, and it flexes over time, along with what founders are showing us are exciting places to invest.

MB: That certainly sounds more fun than, say, a rigid focus on AI.

CS: It keeps it fresh. Also, those funds that were raised 18 months or two years ago, to invest in NFTs are probably feeling a little bit hamstrung now. So we like to make sure that if we make a mistake, it's on an individual investment basis, rather than an entire fund thesis.

MB: You mentioned how the early-stage market is promising at the moment.

One thing I hear a lot is that people who traditionally do first cheques are now asking for a lot more progress than they used to. So companies needing to have decent revenue, or have a bit more of product-market fit than they might have needed previously.

Is that something you're seeing, is that something you look for? What are your thoughts on that?

CS: I think with the exuberance of 2021 gone, people generally aren't raising on just a deck and some credentials. Investors need to see a little bit more than that. But I don't think it's necessarily the case, if you're getting a first cheque, that you need to have revenue.

I was just looking at the investments we've made in our Fund 3 so far. Maybe one of them had some revenue, maybe two, out of about 10.

So revenue is definitely not a prerequisite. But we're looking for the best people in the world to solve the problem that they're attacking.

People will say, ‘well, I need money to do that’. But not necessarily. Some of the most impressive founders I've taken a first pitch with have said, ‘look, this is the problem. I've spoken to 150 people within my ICP [Ideal Customer Profile], and this is the feedback I've got… and this is what I’ve built, and this is what I've done. I've done a mock up, or I've done something in a low-code/no-code solution to show you how the flow would work’. That's the kind of stuff we're looking for.

I think the days of saying ‘here's a deck with an idea, give me some money’ have gone, and that's healthy. But I don't think you necessarily need to have decent amounts of revenue coming in.

And the other problem as a founder is that early revenue can actually be used against you, because if that early revenue doesn't grow quickly enough, or that early revenue is ultimately not from your ICP, then investors might say ‘this doesn't like a venture case, or you're not disciplined enough when it comes to going after your ICP’.

So yeah, revenue is not that important, but just validating the problem that you're going to solve as much as you can that is important.

MB: And obviously, there are many companies that simply wouldn't be able to get revenue before they got their first investment. If you start going down that road too far, then what happens to deep tech?

CS: That's the whole point of venture, right? I think if you can generate meaningful levels of revenue without raising external capital, keep doing it.

Bootstrapping increasingly should be a thing for founders where it makes sense [more on that here!]. I always say to founders that the reason to raise venture is because it's the only way you can get to the outcome you want, and that outcome is going to be really meaningful, so it's worth taking dilution and not owning 100% to your company.

And very few companies actually fit that profile. But when they do, of course, venture can be a really significant accelerant.

I think the only thing to note is that if you bootstrap, it's not necessarily a permanent decision, provided you are growing or showing the sort of growth rates that make sense for venture. So you could perfectly happily bootstrap, and then you could go and raise a Series A provided you've been growing fast enough.

If you bootstrap and you're just not growing at venture pace, that's when it's becomes a more permanent decision that actually you're building a company that's likely to be a little bit smaller and not suitable for venture.

MB: You’re a generalist investor. But if there are people reading this interview and they're thinking ‘should I reach out to Playfair?’ What kinds of startups are you looking for?

CS: There's a list on our website in the FAQ section, with a list of what we don't invest in. That includes things like lending businesses, martech and adtech, things like that.

What I love at the moment: I mentioned robotics; I'm still a big believer in verticalised B2B SaaS, I think there is enormous opportunity there; I still really like digital health and industrial automation as well.

And I'll add agtech actually, because I've wanted to invest in agriculture technology since I was an angel. It's probably a failure of my own that I haven't, but I think there's enormous opportunity in feeding the world. And I just haven't quite found it yet, but those would be, I think, the key areas that I look at.

MB: And finally, is there anything else that you’d like to get off your chest?

CS: The one thing that founders need to understand, I think, about the venture landscape, is that before it was a bit of an alphabet game. You would raise your pre-seed, your seed, your A, B, C, D, E, F, and then you'd IPO or you'd sell.

That's broken, or at least it doesn't happen in the same way that it used to, because there just isn't the risk appetite, particularly at Series B plus. It's less likely you can go in that really sequential way.

So I think founders need to be very mindful of having a plan-B at every stage. It used to be you got your Series A and you were somehow in a zone of safety. That's just not the case anymore.

So I always encourage founders to be very mindful of ‘what is the Series B?’ Do we need to do a RIF [reduction in force]? It's really uncomfortable and really painful, but do we need to do it? Or do we need to think about different ways of growing, different alternatives for funding the business, and keep a really good dialogue with your current investors, because ultimately how they feel about your next round is going to have a massive impact. If they suddenly say we don't want to do it, it's going to be really hard to raise externally.

I think when you're raising your pre-seed fund, it's so important to understand whether that fund’s going to support you in the next round and the round after that, or not. And there are plenty of funds that will do the first cheque, and that's it, because they're basically building an index fund of lots and lots of startups across the UK or across Europe. But it's not much used to you as a founder if you need more money to get to your milestones, you need for a Series A.

And so the way we built Fund 3, and the reason Fund 3 is twice the size of fund two, is we're doing the same number of investments, but we want the capital to be able to lead Seed+ rounds, and these rounds to get to Series A.

We've done it twice in the second fund, with both AeroCloud and Continuum Industries, we did an internal Seed+ and they've now gone on and raised really good Series A round. We're doing it again with one of the companies Fund 3. It's just so important.

So understand, as a founder, where the commitment from your investor is going to end, and have a really good plan-B,

Back next week

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