1Mby1M Virtual Accelerator Investor Forum: With Hussein Kanji of Hoxton Ventures (Part 6)

Sramana Mitra: India is getting back into the more fundamentals-driven model which I thought was always going to be the case. There was just a period where people got sidetracked. I think India is going to be more like Europe going forward. It’s only here in Silicon Valley that we see some appetite for funding a lot of red ink.

Hussein Kanji: The biggest challenge on the European side is people only focus on the economics and making the businesses very sustainable. Sometimes that comes with a trade-off for growth. It gets harder to turn into a big business. You become a very good business but a small business. There’s a bit of both. You need to have a very solid business but you also know when to step on the gas sometimes. People here don’t do the stepping on the gas nearly as much as they would in other places where the money encourages that.

Sramana Mitra: You’re not seeing much American money flowing to the European later-stage deals?

Hussein Kanji: Almost 60% of the European transactions of over $20 million are from American funds.

Sramana Mitra: That’s what I would expect.

Hussein Kanji: If you’re sitting in Europe, it’s hard to convince a top-tier American investor to invest in you especially if you’re a younger company.

Sramana Mitra: Definitely.

Hussein Kanji: Most of the companies here are American-financed.

Sramana Mitra: I’m talking to a lot of investors. One of the questions I ask is that we are in 2018. Lots of stuff have already been built. Nowadays, there aren’t so many wide open opportunities out there to build these very large companies, but there are many niche opportunities.

Some of these businesses need to be built with small amounts of capital – $1 million and sold for $10 million. Maybe some even smaller – $250,000 and sell for $5 million. What I feel is that building a channel is very expensive. Let’s say you have a cyber security company.

Establishing a channel for a new cyber security company is very difficult. It is a lot easier to go to market through one of the existing channels of a Palo Alto Network that already has invested in that. These kinds of deals where you have built something and got your validation and exit into a larger company, do you have appetite for these kinds of investments?

Hussein Kanji: No, we’re very focused on this new product or new category. Our feeling is that when you’re in an existing category, even if you’re 40% better than the market, you’re lost in the noise. It’s just very hard. It’s very expensive to establish yourself whereas in a new market, the incumbents are sometimes asleep. If that new market grows exponentially and becomes a big market, you can ride that curve up.

I hear a lot about the world running out of ideas and new markets. People said that in the mid-2000’s. Then mobile and social come out. You start to hear it today as well, because those categories are now fully fleshed out. Then there’s a bunch of stuff happening on the crypto world. There’s a bunch of stuff happening in the autonomous driving world. I’m not convinced that new markets or new categories are dead.

The hardest part is to ask us what these new markets and categories are going to be. We’re really good at pattern detection and figuring out when they happen. We’re not so good at figuring out what they’re going to be. In honesty if we can figure them out, we’d probably go build that business ourselves. I have the trust that the entrepreneurs who come and pitch us will find these things. I’m pretty convinced, at a high level, that these things continue to exist.

Sramana Mitra: Very good. Any parting comments for entrepreneurs who may be interested in working with you?

Hussein Kanji: We’re very approachable. I’m available on Twitter. I check LinkedIn. We don’t think there’s enough innovation in Europe or enough financing in Europe. Anyone working on something that looks like a new category in Europe, we’re all ears.

Sramana Mitra: Thank you very much.

This segment is part 6 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Hussein Kanji of Hoxton Ventures
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