SPEAKER_00 0:03

Hello and welcome to the Future Ventures Scaling McClarity podcast. Today I'm super excited to have uh Robin Smith from Karinium Capital. He's the managing partner of Carinium Capital, an operated led investment platform. Um, investment firm. His focus is on acquiring and building mission critical software and tech enable businesses across the United Kingdom. With over two decades of experience leading and scaling B2B software companies from early stage growth through to 200 million in revenue, he's now taking a different approach to ownership, long-term, hands-on, and deeply aligned with founders. At Corinium, Robin works directly with business owners, navigating succession, offering an alternative to traditional private equity. One built on continuity, operational leadership, and patient capital. Welcome to the stage, Robin. Hey Maxim, thank you very much for having me on. My pleasure. Um super excited to talk to you because um you are you're focusing on on the future. And so um, I mean, at the moment, the B2B SaaS market is in such a volatility and software overall, um, is especially with the rollout of uh of the LLM models and new features, new apps, building of the super apps. So I'm super excited to talk to you and just kind of get your perspective on where the future is headed. So why don't we start a little bit with uh who is Robin Smith? What do you like to do in your spare time? How did you come into venture?

SPEAKER_01 1:46

Yeah, sure thing. So um uh I'm uh a husband uh and father of an 11-year-old and a four-year-old, so they definitely keep me on my toes. Good uh in my free time, I try and get onto the golf course uh a fair amount of time. So um I'm a 21 handicapper, uh, so definitely have the eyes on the masters over the next couple of days. Um and also a very keen cricketer. So um uh those are the my kind of two principal hobbies. Um I'm a big uh cricket spectator as well, so I play cricket, but also watch cricket, uh member of um the Oval uh in London, so uh get to go and watch a good amount of cricket there. And from a work point of view, um yeah, I'm very much a kind of transitionary point in in my career. So I've worked in enterprise software for for 20 years um across a pretty much every single kind of ownership model. So um I've done bootstrapped, I've done venture, I've done private equity, and I've done public. Um a majority of those 20 years, 15 or so in go-to-market roles. So um I started straight out of university as a sales rep and carried a bag and had a number um and sold enterprise software for 15 years across a range of verticals. Um and then um more recently was chief operating officer of a private equity-owned Portco. Um we were just over a thousand people, and was responsible for doing a pretty um fast-paced and large roll-up of um our competitors. Um responsible for leading about um over 200 million uh euros worth of acquisitions in a kind of 18-month period, um, which was uh a heck of a learning experience. Um gave me a lot of exposure to um structure, process, advisors, um, a network of folk in Europe um that you know were able to cist around all that kind of stuff. And um I left that business um uh just under a year ago and decided that I really wanted to go back to much smaller businesses um and fell into the uh discipline market um uh community of folk um who are involved in entrepreneurship through acquisition. Um prior to this time last year had never heard of a search fund. Um looked at structuring a transaction as a search transaction, was strongly advised by a load of my friends not to go down that path because the transaction I was looking at was very competitive. Um, and that then introduced me to a number of low mid-market P firms, family offices, and independent sponsors. Um, big, big kind of change in in career. I'm in my mid-40s. Uh I was gonna say early, but probably mid is closer to the mark. Um, and really was excited about the opportunity of of looking to acquire and then run a business with patient capital.

SPEAKER_02 5:09

Yeah.

SPEAKER_01 5:10

Um that acquisition didn't go to plan, and and I think um what there's a really fall apart, Robin. So I absolutely we'll go through that. I think um just a kind of a note really to your listeners that I think everyone is obsessed with success and giving the image and you know prestige of you know always winning. And and the reality is, particularly in MA, like transactions are really difficult and a load of them don't go to plan. Yeah, and particularly if they're competitive, they're always winners and losers, and I was one of the losers. Um, so definitely a kind of message to to your audience is you know, let's let's embrace failure and let's talk about not only the stuff that does work, but let's be candid on the stuff that doesn't work because you can only learn from mistakes, right? You you can learn a bit from success, but I think learning from mistakes is so much more important. So, anyway, that's that's me on my high horse a bit. But um it was a fascinating journey and isn't isn't closed yet. So um I got to know uh the founder of a bootstrap SaaS business, vertical SaaS business. Um, it was doing between uh five and ten million sterling of ARR, good metrics, um successful business, was founded about 20 years ago. Um, and it in terms of thesis, it was squarely in the sweet spot of what I was looking to do. So the founder was um heading towards retirement, starting to think about retirement. Um he had, you know, founded the business 20 years ago and had a great run, um, and had got to a point where he was starting to think kind of what what was next. And he was quite keen initially not to sell to private equity. Um and initially was focused on trade sale. Um, and I said, look, I I'm a very different option. Um, I'm not looking to buy this purely as a kind of transaction that I'll flip in you know X years' time. Um and I'm not I'm not a kind of traditional GP in so much as I'll be stepping back and bringing in a leadership team. I want to run this business and I want to grow this business with you involved or with you stepping back, you know, up to you. And I can give you the the flexibility on what that that transaction looks like. Yeah. Um and we went into that process. So he he had um uh dedicated investment bank on sell side. I appointed a um dedicated mid-market advisor on buy side for me, um, had caps all structured uh across a number of um family office investors. Um but being candid wasn't at a point where I could get to the clearing price that Saleside were looking for from his side. Um, we were a few turns of revenue kind of disconnected on valuation, and this was at the back end of last year. So before the market dislocated um earlier this year, um, so I didn't make it through round one bids, and that was that was really tough. So, you know, I invested a majority of last year in a single transaction. I knew that that was really high risk, um, and had some really good counsel from friends who said, you know, the chances for you succeeding here in a competitive sell side-led process are, you know, you've got to be really realistic. Um, and it it sadly didn't go to plan. Um, but the founder and I are still um, you know, uh uh friends and chatting, and he's getting towards the end of that process now. Um, so uh it was I I learned so much. It it was effectively like doing a uh condensed MBA at the midpoint in my career. Um, and I think a lot of people in a similar situation would have kind of licked their wounds and looked at going back to employment. But if anything, it's actually galvanized my desire for this path. Um, but starting in 2026, looking at things for a slightly different lens and heading in a different direction, and happy to kind of go into that.

SPEAKER_00 9:36

Yeah, and and and I wouldn't mind if you can double-click on on this and kind of like what what were the lessons learned in this case? Uh, if it's like is it like if it's a competitive situation and you do the risk assessment, you assess that your chance of success is lower, you you back out of it and focus on kind of tell me what did you learn from it?

SPEAKER_01 9:58

That low mid-market and mid-market private equity firms are very good at doing this, and there is a high degree of cynicism still amongst um sell side advisors when it comes to independent sponsors. So I think if if you kind of think about where the market's been at for the last probably not not even 10, 20 years, the very established and well-trodden path in MA is for founder-built businesses, they get to a certain point and they either take growth capital um or they do a majority via transaction to P. And P firms are exceptionally good at the execution of those, end-to-end, from origination through close and growth. But the market has changed materially in the last couple of years, and there is a significant amount of pressure on blind pools and blind funds. Um, there's a lot of LP skepticism around those funds, particularly where they're cross-vertical and not specialist, which is a lot of them. Um, and the sell-side advisory market in a lot of cases hasn't adapted to the ability to execute the independent sponsors bring, but also the different nature and shape that an independent sponsor can have through a transaction with a seller. And my point to the seller was a transaction with me is going to be far more collaborative, where I'm not dictating terms, we're negotiating it has to be right for me, but it has to be right for you as well. And you'll hear that from private equity. But when you began this process, you know, a year ago, you didn't want to sell to private equity because of preconceptions. And and some of those preconceptions are right and some of them are wrong. But yes, private equity does have a label or a set of labels, and a lot of those are right. Um, and and this seller was you know hesitant about going down that path.

SPEAKER_00 12:44

Um, so yeah, so if we can just double-click on this, Robin, I mean, but if if I think about from a values in principle perspective, it it seemed that like you were better aligned with the vision of the founder. The founder wanted to make sure that the private equity company doesn't come in and gut the company and then sell it for scrap, so we're just gonna do a flip. Um, you are very much aligned with the vision of the founder. You provide them more optionality in terms of how he stays on or how he leaves and when he leaves. And so I did it all come down to money, uh, is it all matter of valuation?

SPEAKER_01 13:15

It it came down to two things. It came down to sell-side perceived risk of an independent sponsor, and and it's a valid risk, right? Because a blind pool is committed capital, cash in bank, and they can evidence a balance sheet in a process, and the cash is there. Um, I was I had commitments from LPs, but it wasn't cleared capital. So, in a competitive process, you know, that there's degrees of risk, right? And when I first looked at it through the eyes of a search fund, um I liked the structure of a search fund, and the CEO liked the idea because it's highly entrepreneurial and he's an entrepreneur or trap, but sellside hated it because you know, every single one of your LPs is an equity gap risk, right? So I I get it. And my some friends of mine in the industry kind of aggressively counseled not to go down that path. Um, so I ended up effectively at a halfway house with a smaller group of LPs that were uh family office and kind of small institutional shaped. Um but you know, could I did I have the deliverability that a closed-end fund had? No. So um that was the first part. And the second part was valuation. So I did a bottom up and top-down valuation of the business at um a conservative but reasonable valuation. Um and sell side round one clearing price was two turns of revenue above that. And I would have struggled to have got there. Now what's gonna happen and what will that deal clear at, given it was software? We will find out. But my strong expectation is that it will either have retraded or be in the process of retrading at the moment to probably less than where I was at.

SPEAKER_02 15:24

Yeah.

SPEAKER_01 15:25

And and that's a really tough thing for founders and and CEOs. And I was chatting to someone uh in a different vertical yesterday, and I said, now is a really rubbish time to try and sell a software company because you don't want to be the CEO and seller of a business that is the first to go through IC in in this new world. And I don't think we have an established we probably do in in larger businesses. I don't think we've established revised clearing prices in Lear Mid Market. And as a seller, you don't want to be that person. Um so um and and the I've spent most of this year looking at the capabilities that AI bring to businesses as a whole, not just software businesses.

SPEAKER_02 16:16

Yeah.

SPEAKER_01 16:16

And it's made me fundamentally rethink my thesis on acquisitions, and that's possibly a good segue to go into what's next.

SPEAKER_00 16:24

But before we jump in there, I and I'm um I definitely want to go there because we've seen this across all the companies that we work with. Um, on valuation, because this has been a major topic of discussion between us and clients, right? We're capital advisory from moving into the investment bank space. Um a very frequent topic of conversation is how do we get to humility in the valuation? Every founder believes that their company is worth gazillions of dollars, and we'd we'd we'd love to be able to achieve as high valuations as possible. But the reason that we are running if the valuation is not fair and reasonable, is that the person on the other side doesn't take you seriously because you're like, Well, what is this based on? Is it based on revenues? Is it based on eBay? Is it supported by benchmarks? It's like latest transactions, and so um talk to me a little bit about how do you get founders to be humble about the valuation? Because you said the the sales side uh or the private equity company had two turns higher uh based on revenue valuation. So how do you bridge the gap between what's what's realistic?

SPEAKER_01 17:40

Yeah, I I think it's comp sets, and one of the challenges that one of the challenges that private markets have is the opacity of data, right? Like um and a lot of its work of um so so that is a challenge, but I think in fairness, that's where and and I'll be really candid. I I appointed a buy-side advisor um because the sell side advisor was pretty heavyweight, and I wanted to make sure that I was toe-to-toe. What I didn't realize was all the colour that that buy-side advisor would bring and colour around competitive transactions, market, uh LP and GP behavior and interest. It was it I didn't expect it and I was blown away by it. Um and uh I would definitely advise anyone looking at a um, you know, and this was a eight-figure transaction, anyone looking at kind of eight-figure transaction the from the buy side, appointing dedicated advisors, not just legal and finance and QA, but actually, you know, folk that are gonna run the transaction, super important. Um, and the leader of that for me has just been made up to a partner at the firm he works for, thoroughly well deserved, and you know, you could see it. So super valuable people. The the other part of it is culture. So I did a a mini process where I spoke to probably six or seven advisors, but buy side is tough, right? Because it's a hundred percent contingency, and a number of tech specialist firms didn't like the look of it because it was competitive, which makes complete sense. Um, a couple of them culturally were not the right fit for me. Yes, they were very that's the way of describing it, probably pointy, like quite aggressive. Um and just weren't the right fit for the culture that I was trying to put into the deal. Um, and then you know, who I ended up working with, the the culture was the single biggest part of why um I decided to work with them. So that that's super important. So yeah, I I think those two areas kind of the the comp set is really important, but actually the advisory side of things really helps triangulate valuation. So what was really validating for me is that I did bottom up, top down, as did a number of other folk that were looking at um the IM, and we all basically triangulated to within half a turn of revenue. Um with exception of the P firm. With the exception of three outliers, One Trade and Two P. Um and there were some market drivers on why one of those P firms was um was a fair bit higher than where I and other bidders were at.

SPEAKER_00 21:01

And and and why is that? I mean, obviously, if you have multiple buyers coming up to a similar evaluation, yeah, then you have three firms that are exceptional. What what what assumptions in the or in the evaluations kind of drove that differentiation?

SPEAKER_01 21:18

So one of them had significant adjacencies um that really made a difference, um, and you know, adjacencies that could lead to synergies, both horrible words, but you know, yeah, they were gonna be able to do that. Um both of them had meaningful conviction because of those adjacencies on the vertical, so they knew it cold. Um and uh also being frank, one of them was significantly underdeployed, um, like really underdeployed.

SPEAKER_00 21:51

Um and that was a deployed capital to make sure they start to generate returns. Got it, got it, got it. So situational for them, okay. Interesting. Um, it I mean it's uh always interesting to see how a deal unfolds, and and the search space has absolutely expand exploded in popularity. Like we get all the time inquiries. Can you help us find this from? Can you get it like in some cases people were looking for boring businesses? Like um, one of our clients bought a metal shed fabrication company, right? Like, like I would have never thought about it, but it's industrial, it's stable, it's always you need farms, need it, businesses need it.

SPEAKER_01 22:33

Um and and you're probably looking at you know, I don't know, three to five times e-bit valuation rather than a five plus times revenue valuation, which is where software is at. And don't get me wrong, I've worked in software for 20 years, and you know, it's a it's a career and a profession, an industry that's done me good, and I thoroughly enjoyed it. But every every person I speak to outside of software when we talk about valuations, it's just like this is so disconnected from every other thing. And my response had always been recurring revenue, recurring revenue, blah, blah, blah, you know, like banging the drum that everyone does. And I remember speaking to, he's gonna be an advisor of a new business that I'm building at the moment, which we can come on to. I was changed to him like a couple of years ago, and I said he's um he runs a 200-person engineering team in a private equity and software company. And I said, Um, you know, what is gonna dislocate these valuations? Um, and neither of us kind of called it right. COVID initially did, but then no one saw how meaningfully disruptive Anthropic's uh cowork release from I mean it was like two months ago, if that was going to be um you you'll probably have the numbers on first hand than I did. It was, you know, it's like it was you know, hundreds of billions of market caps had evaporated. And I I, like a load of other people in the industry, I'm sure, have had a load of conversations about it. But and and until until January, February this year, I was cynical about the impact that um frontier model companies were going to have on the software industry. And I thought that a lot of the rhetoric coming out of tech dedicated P firms around agentich AI was massively overblown. And that changed when I ran evaluation through co-work for a much smaller tactical acquisition I was looking at doing. And the modeling was like nothing I'd ever seen. And I pinged it over to one of my um sort of mentors stroke LPs, and I said, Hey, this stuff is insane. Like, you know, this is insane. So he then put a model through um Claude and um for a transaction that was a bit bigger, and that was his wake-up call. He said, like, what this has done is a week of work, it's done it in two hours. I then had to spend four hours tweaking, but this is a game changer. And it's that and that was analysis work, so you know that's directly impacting um uh junior entry-level roles. It's significant. Yeah, I've I've got some work experience students working for me at the moment, and I'm giving them flawed subscriptions and saying, you know, you have an opportunity to grow up with this stuff into a job. Um, you know, this stuff is you know really worth you getting your head around.

SPEAKER_00 25:54

Um I mean we have uh we have 20x subscriptions to cloud, multiple, and we we celebrate when we hit the wall, meaning that when we have capped out and we have to wait for it to reset, because that means that we're making full use of it.

SPEAKER_01 26:10

So so it's funny you say that. So I've had a 5x subscription for six weeks, and um I'm actually using it to build quite a bit of software at the moment, and there's um a recool tool called Opcode, uh, open source tool that you can stick in front of your subscription, and it tells you your real world token use. And to give you an idea, I was my 5x, uh, I'll send you a link after, or we can drop it in the comments when it goes up on LinkedIn. Um, my 90 pound a month 5x subscription. Um I used like $1,200 worth of real world tokens last month. Um, so the anthropic subsidies are huge and and are coming down at the moment. I've just moved to a 20x subscription because I'm my entire view on software has changed in three months. And my personal view with what I'm building next, um, a roll-up called stayed, and we can talk about that in a minute. Yeah, but my personal view is that the future of software is highly commoditized in in terms of any user interface into a database, any CRUD application. Yeah, it's kind of like, well, they they really don't have material value anymore, certainly commercially. Um, so I've just built uh we've we've got new tax legislation coming in the UK called Making Tax Digital. Um some of the biggest kind of um tax change that's that's hit self-employed people for uh a number of years. And effectively we're moving from having to report to uh our tax authority uh every 12 months to every three months, depending on revenue clips. And it's meaningful, it's painful regulation. Okay, yeah, and I've built a tool that for a very specific vertical for um short-term rental property owners um that basically does that. Um and I'm gonna open source it, I'm gonna make it available to people for free. Um and my my kind of thesis around software is effectively that there is no meaningful intrinsic value in software like that anymore. Full stop.

SPEAKER_00 28:30

So let me let me double click on it. So I I mean I'm a business person and and I code like crazy now. Now I I was talking to uh a friend of mine, he's like, no, no, what you're doing is is is is vibe code. I'm like, not quite, because I'm not using Rapplit or Cursor, I'm in Visual Studio writing code, I have GitHub account, I have a branch, but like I wanted to kind of double-click on on this. If I I completely agree, the software space is being disrupted, even in our company, we're constantly building software and systems for clients and for ourselves internally. What are the modes that exist for software company? Is it data, is it distribution? Kind of like like because I mean it's one-off applications. I I get it, I completely agree. If somebody tells me SAP is going to disappear, I don't believe them. Um, but kind of like what are the only modes left in the software space?

SPEAKER_01 29:29

Yeah, so I mean, with with the example I've given you, so you know people want to making tax digital spreadsheet, there's a full macro driven one free to download, or will be. I'm still just going through QA. And I want to get an accountant to validate it all to make sure that um it we're we're kind of good from a calc's point of view. Um, my SaaS tool, free. Um, no value to that. If people want support, I'm working at a commercial model because support is my time. I'm working at a commercial model to make that work and I've got some ideas. But to to your question, I think we are we're at the point where software has value where it does work. And if a if a human user has to input data into it, it has a bit of value, but I don't think it has really meaningful value. So in my mind, that software is free. And then we're going to build a fully automated tool that through MCP, it's possibly getting a bit technical for some of your users. So through some new integration software, um, will effectively pull revenue data automatically from the source of revenue. So the user's not having to key it in, the tool goes and gets it. Um, they automatically throw their receipts at the tool and they get OCR scanned. That's not that complex, but the tool will also categorize the spend against the tax coding that has value. Um, will then bundle that up and automatically send that to the tax authority. So that that has intrinsic value. Like that's that's me as a consumer of that technology stepping away from the keyboard and having to key stuff in, the old world and moves to the agentic world where the technology is doing work for me. So my and I spent a lot of time thinking about the principles of this business for a number of reasons, largely to do with the potential impact to automation of work. Um, but my software views are interface, database, not much value. When the technology starts doing the work for you, and you're now competing not for a technology spend, but for a human labor spend for your time, yeah, that's where value is created. So my philosophy on software is if I'm doing stuff that saves time genuinely, it has value, I'll charge for it. If I'm not, it's free. Um so that's my philosophy. And and I think I'm in a I'm in a quite envious position, and I've chosen it very deliberately, where I have no technical debt because there is no business before me. The the huge challenge, and and why all these valuations are recreating at such a rate and pace, is for a couple of reasons. Firstly, these businesses have colossal technical debt. Yeah, like colossal debt.

SPEAKER_00 32:29

Um so for them to refactor is a major endeavor versus starting fresh with a doing slave.

SPEAKER_01 32:36

And and again, for the non-technical people watching this, technical debt is effectively the software was written in an old school or legacy uh way, and it takes effort to bring it up to a modern standard, but you don't really get any incremental gain other than more modern technology. So it's a really hard investment for um a business to justify because you can argue it kind of makes your bottom line a bit leaner, but that's tenuous, and it doesn't ever really increase your top line unless you introduce new stuff. So a lot of companies are in that position. Um, secondly, most of them are recurring revenue businesses where most of their revenue comes from their existing customers, and you have to continue to serve those customers because they're keeping the lights on. And you have finite resource. You know, let's say you've got 20 engineers, and until AI came along, those 20 engineers were split. I don't know, like 15 working through feature function bug fixes for legacy customers, and five of them working on new stuff to get new customers. Yep, you've now got this kind of AI wrecking ball, and it is it is that similar, right? Slamming through your business with your investors breathing down your throat on what your plan is, your customers not really caring about AI, being frank. Like, you know, if you look at the consumer applications and how hard um Google in particular trying to drive people to use their AI capabilities in um workspace, it's kind of like, well, I don't want to, right? Like I'm my AR AI workbench is somewhere else. Don't force it on me. So there's a whole load of um pain running through these software businesses at the moment where they're trying to look ahead of the curve to work out where to get to and where the puck's going, but they're still having to keep the lights on in their existing business. And the I think we're at a really early point of this as well. I think the the cost of tokens, so the consumption unit of the AI models, is only really starting to become clear kind of now. Opcode's a great example of you know what is the real cost. Let's assume that the subsidies from anthropic and open AI disappear tonight. What's the real cost of rebuilding this stuff? Well, now it does have a cost. Um businesses are also having to adapt to that.

SPEAKER_00 34:59

And if you look at stats, that like in terms of AI, majority, majority of the like these kind of like one or two percent at the top that they're driving majority of the use, and they're getting a lot to your point. You're paying you're paying a hundred quid, but you're getting 1200 worth of value, versus majority of the people are paying maybe 20 bucks subscription, but they're not using it, they're using it kind of as a as a chat prompt rather than as a tool that does things for you.

SPEAKER_01 35:25

Yeah, and and I mean, computationally, and I see this in my own account, I'm sure you see the same. When I'm bouncing around ideas and thoughts on business models, my token consumption is like it doesn't move the dial. When I'm writing software, debugging it, testing it, when that code base becomes you know 20,000, 30,000 lines and I'm having to find problems in it, then the token cost is huge. So all the smart ideas um in all the incubators at the moment are going to be around spend management of tokens because you know we had it with FinOps, um, where you know people were exposed to their compute cost um with AWS and Azure, and people built financial guardrails to manage that. Token management is the the big investment area at the moment where a lot of startups are spending a lot of time.

SPEAKER_00 36:20

What are some of the things that you do? I mean, like, for example, like I always compact when I'm at a 50-60%. Um I I try to manage kind of like what MCPs are connected when I'm doing specific work. I try to plan out my work as much as possible before I go into execution. What are some of the things that you're doing to manage token use?

SPEAKER_01 36:37

I I would love to say that I was doing it efficiently, but I'd be lying to you. Like emphatically, I'd be lying to you. Um, so for context, um I've got a computer science degree, joint honest with business, and I got uh a first, like a very strong mark in the business side of things, and I, you know, quite possibly got quite a lot of external assistance writing all my software at university from other people. So, you know, am I a software developer? No. Um, am I dangerous? Yes. Do I understand kind of what design good design patterns look like? Yes. Is a lot of what I'm building going on GitHub? Yes.

SPEAKER_00 37:11

Yeah.

SPEAKER_01 37:12

Um is my token consumption um efficient? No. Um, I think, but it's that's a learning experience that I think is really important. And and going back to my point on the challenge legacy businesses have, I have the luxury of no legacy business, a plan that requires me to build software and a lot of I don't have a lot of time, but I do. I'm not having to do legacy work. Um, so you know, I'm working quite possibly the hardest I've worked in my career, but also with the biggest smile I have on my face. Um, building stuff. But again, if you're an existing employee in a business with um commitments and responsibilities pre this AI revolution, um that's a really hard place to be because the business isn't going to be able to give you the time to work all that stuff out. So um so I have the luxury of time, kind of, um, but I have the luxury of being able to make mistakes.

SPEAKER_00 38:13

Yeah.

SPEAKER_01 38:14

Because I also don't have, I have, I mean, I'm at five figures of ARR in my new business, and we'll talk about that in a minute. Um so I have paying customers for some of the stuff I'm doing, but I'm not having to worry about a hundred customer customer base, um, and therefore can you know really push frontiers on some of the new stuff I'm working on without much risk.

SPEAKER_00 38:36

Yeah, yeah. Awesome. Well, that's probably a good transition. Let's talk about state, short-term rentals. What are you doing through the shrapnel space? I gotta get a rollout.

SPEAKER_01 38:45

So um uh the timeline accelerated it. So at the start of the year, I was chatting to um a friend of mine who chairs um private equity-owned um healthcare businesses in Europe. And um he had kind of listened to my journey and story with the transaction I failed to get overline last year. And um, I've owned a uh holiday home in the Cotshold Water Park in the Cotshold Lakes and the Cotsholds for 10 years. I had two for it, but let's really think for 10 years. And um it's always kind of been a side hustle. Um, I was quite late to pensions because I worked for startups for the first 10 years of my career. And um, my wife um is a teacher, house mistress in private boarding schools, was we we don't live anymore. So we bought a holiday home to escape to on the weekends when the family were living in in um boarding house. And um a couple of years ago, I had a few months off and I'd never really looked at that uh financially in detail. And I put some um a lot of thought into revenue management. And roll forward, I went from doing about um 10% gross yield on asset value to 20% uh gross yield on asset value in two years. Um and I was chatting through this with my buddy, and he said, You should go and set up a holy home agency. I was like, hell no, I don't want to do that. Um, but rolling up holy home agencies, that's interesting. So um roll forward, and uh I've just got my advisor agreements out to a proposed chairman who comes from the short-term rental industry. Um, a couple of advisors, one who exited a software business in the short-term rental industry in Europe recently, another who was ex-CTO of one of the agency rollups, um, so just green terms there. Um, and I'm looking to do three things. So, firstly, I'm helping owners with um revenue management um using dynamic pricing, um, and a lot of the tools and tactics I've used to double my gross yield on my property, um other people really aren't looking at. So, offering that as a paid service to people that's very performance-based. So, you know, if I don't deliver, I don't get paid. If I get if I do deliver price uh and occupancy improvement, I get paid.

SPEAKER_00 41:12

Um do you see the software space evolve into exactly what you're describing, where it's not a license, but it's outcome-based pricing? 100%.

SPEAKER_01 41:24

Yeah, and and that's why I've been very conscious with my pricing decisions here. The and I think this rolls through to the agency model as well, it's a bit ethereal, but um, I'm consciously pricing my services for outcomes only, um, with a degree of retainer, because I do have some sunk cost in terms of technology, but it's trivial. But then I really want to move to shared upside. And and I've been wanting to do that for years. And when I was in go-to-market and sales roles, it always amazed me, being frank, that I got the a flat percentage of deal value, regardless of what margin I sold technology at. And you know, the technology was always high enough margin where you know I could get paid, but I was never really incentivized to sell high margin um or outcomes for the business. And it always amazed me. And the the mechanisms in place for that kind of thing were deal desks in software companies where you know you've effectively got a RevOps team telling you what you can price stuff at. Um it's not really kind of outcome uh or you know, it's not real outcome selling. So, yeah, my pricing is very geared around outcomes. Um, and uh the revenue optimization and management um is just a nice way for me to grow the business kind of organically. Um, secondly, I'm looking to build automation workflow for holiday home and short-term rental agencies. So they are hugely um administrative heavy, and there is a meaningful opportunity to automate a lot of the painful work that those people have to do. They're not efficient businesses in the slightest, and that will then free up the employees' time to spend a lot more time with owners and uh guests. Um there is moral hazard there around that technology being used to take jobs away. So I spent a lot of time thinking about founding principles and the ethics of the business. So I want it to be a B Corp. That will be problematic for some potential investors, but that's by design.

SPEAKER_00 43:38

Um, and I mean B Corp is a beautiful designation, means that you're benevolent in your design principles. You're gonna designate some some of the profits towards benevolent. Like, why would this be problematic for an investor? In my mind, this signal, I mean, I one of my early, early clients was benevolent social venture. It's a B Corp. They're several billion dollars in valuations. I I would think that what's good for humanity, it's good for business as well. It's a for-profit corporation.

SPEAKER_01 44:11

Yeah, I I think um so I think in most cases it's fine, but the you do have to make changes to your in the UK, your articles of association which dictate the governance structure of the business. And you effectively move from having to not quite solely but predominantly cater to the interests of your shareholders, which is the kind of bog standard template of a limited company in the UK, to having to consider the impact of the business on not only your investors, but your employees, your customers, and people in the community. Those are all good things, but you have to take there's a but. Well, not a but, but the thing that can lead investors to raise their eyebrows is you must take into account the impact of a transaction or a sale of the business to all of those stakeholders. So effectively, if the transaction is not to the benefit of all of those stakeholders, yeah, that's a problem.

SPEAKER_00 45:19

But to me, that that signals from a design thinking perspective, that drives endurance and longevity for the business because they're considering this all stakeholders rather than just the shareholders.

SPEAKER_01 45:32

100%. But I mean, going back to my example earlier, let's say that, and this is not the plan, but you know, theoretically, I'm a few years in and I need to raise uh dilutive equity, and the market's at a point where I'm a bit constrained, and my only source is a closed-ended blind private equity fund that is moderately deployed, but at the back end of the fund lifecycle. Yeah, I know that I'm gonna have two, three years tops to deliver a return to that investor, and what that means for my business, my employees, my stakeholders, my customers, and my community, that's a problem. Yeah, and you know, it's gonna be a problem for the investor and it's gonna be a problem for me. So it effectively gates the because it has to be declared up front, it effectively gates investors like that. Um and is that a bad thing? No, I'm designing it that way very consciously. Um, but will it be will it be a DD flag for investors for sure?

SPEAKER_02 46:53

Yeah.

SPEAKER_01 46:53

Um, so but I mean, so there's a there's a really interesting business called Dwelly um that dramatically accelerated my plans uh about six weeks ago. Um so for those that don't know, Dwelly was founded by a couple of execs from Get, the um London cab ride hailing service. Um and they're doing a roll-up of Bitalet agencies, so uh tenure residential agencies. What's really interesting about them is their funding structure. So they uh raised venture from General Catalyst and a big chunk. So they raised 70 million across debt and equity um to do a roll up of bite cloud agencies, yeah. And the their thinking is the same as my thinking, so they're effectively looking to and the the description doesn't quite work, but it's it's a really succinct way of thinking about it. They're effectively looking to buy their customers, so they're building a lot of workflow automation and tooling to run by agencies, and the the product is the acquisition of those businesses. So they're not they're not building software to sell software to bite-let agencies, they're looking to buy the agencies. Yeah, and my end goal with State is exactly the same. So I'm looking to be a ethical and partner-oriented acquirer of short-term and holiday home agencies, initially in the UK, year two, year three, Spain. Um, and against those B core principles, um, and following a lot of the succession thoughts that I had with um Crinium last year, you know, there are a number of founders of those businesses who are heading to retirement, and there's no natural succession for them or a home where they want that business to live. Um and I want to become that home. So, yeah, three strands revenue optimization, building a genetic workflow for agencies, but with the end goal being to acquire those businesses.

SPEAKER_00 49:10

So, Robin, if you don't have the deep pockets of general catalyst, how do you plan to win against Dwelly? Like uh like in and I mean, I see your position in it's intentional. Um how would you get an agency owner to sell to you, or maybe equity swap or whatever it is? Kind of walk me through some of your thinking.

SPEAKER_01 49:32

Yeah, so firstly, uh and dwelly is thesis validating, not competitive. Um, so they are 100% focused on um buy to let longer-term residential tenancies. Um investors like that because it's it's not recurring revenue, but it's stable revenue. There are some.

SPEAKER_00 49:53

You might not bring a thing up here, but the revenue is there, yeah.

SPEAKER_01 49:56

Yeah, there's actually a lot of headwind there, but it's probably not for today. But there's a lot of legislative change in the UK that means that actually a number of investors in long-term rental are moving to short-term rental. Um so the revenue is not quite as kind of sticky as a lot of people think it is, but um, they've got a war chest to go and buy a lot of buy-to-elect companies. Yes, they're not going, or I'd be very surprised if they were actively looking at short-term rental because the workflows are completely different. Um, where long-term rental, you know, you get a tenant change at the quickest every six months. Um, and short-term rental, uh, the quickest, I have my guests changing a couple of times a week. So, you know, the workflows are completely different. Um, business models are different as well. Buyteller agencies typically charge between kind of six and 10% of rent value. Um, short-term rental agencies charge up to 30% of a guest state. Yeah. Yeah. So very different businesses. Complimentary, it's thesis validating in terms of buying the customer. Um, and has been hugely, to your next point, hugely validating to the investor conversation. Um, in my discussions with investors, I can say I'm looking to do what Dwelly are doing in an adjacent market. And when someone's dropped, someone like General Catalyst um and a debt provider have dropped 70 million for doing that. Um, thank you very much to General Catalyst. And I can't remember who the debt partner was, but thank you because my life has become infinitesimally easier in terms of explaining what I'm trying to do. Um, and so that that kind of covers uh adjacency and capital to your point on convincing. I think it goes back a bit to what we were talking about at the the start of the podcast on the um the perception around private equity. So there are um this is a trodden path. So there have been three ish, a few more, but three big aggregators of short-term rental businesses in the UK. Um I think without exception, every single one of those was private equity backed. Um one of them, I think, is now exited, or you know, a couple of them have had multiple owners. Um and some of those exits have worked really well for those founders and for the teams.

SPEAKER_00 52:33

Yeah.

SPEAKER_01 52:34

Um, some of them haven't. And getting to know the community of agency owners in the UK, again, there are kind of two choices. They can sell to one of the big aggregators, and there is a cost that comes with that to them and to their team, um, or they can take a different path. And one of the things that's going to be very important around State is a partnership model where, should a founder and owner want to remain in the business and help grow StAIDE as a group, they will absolutely be able to do so, but become part of a partnership that gives them equity upside on the eBitDar arbitrage. And that's something that's not really available to them today. Um, but something I think is really important. And there are some structural things in the short-term rental space that make that very hard for owners to get past. So you hit a couple of clips where operationally your business becomes very difficult to scale. When you're looking after 50 properties, that's a natural kind of tipping point where your life gets very difficult because you by and large then got to start um expanding geographically, and that's operationally very painful. Um, or above 100 properties, um, similar scale, multiple by two. So it's very difficult for those agencies who have aspirations to become something much bigger to scale the business. And the eBIT sort of multiples of these agencies are conservative, and therefore, you know, aspiring uh owners who want to be part of something bigger, their options are quite limited. Um, but also it's more on the technical side of things. Like I'm so certain that how work is done is about to materially change. I really want to drive that innovation without any technical debt or organizational debt that the aggregators before me have had. And you know, the the technical debt that those organizations have is meaningfully non-trivial. Yeah. Um, whereas I'm starting with a fresh slate. So I'm doing a couple of things. I'm I'm helping um uh a couple locally uh grow their agency. So that's giving me exposure to all of their workflows and all the work to be done. Um and I'm starting to have some pretty interesting conversations with some agency owners who are very interested in the idea and you know are quite interested in in becoming part of something much bigger. So um, yeah, the bags under the eyes, I've always had bags under my eyes. They are bigger than they have been historically, but the smile on my face is a lot bigger than it's been as well. So super.

SPEAKER_00 55:27

You know what? Um I probably work harder now than I have ever worked in my life. I I mean, partly because we have a lot of European customers, I start every every morning at five o'clock, uh, my time. And then just to create as much of an overlap, but I'm like a kid in a candy store because of the velocity with which you can operate. Like I'm very results-oriented, so seeing these outcomes come to fruition like so quickly, it just constantly feeds my energy. And so the other thing that we have a saying within our firm is that if it can be done on a computer, it can be done using AI. Uh, there's just no reason why you can be. So it's just pretty exciting.

SPEAKER_01 56:10

It really is, and that's that's another thing about a couple of people have said to me, Um, uh I was sitting down with sat down with an old colleague a month or so ago and was talking and talking them through the business plan. And they said, the fundamental problem with this business plan is you can't fire enough people. And that person had worked in private equity for a long time.

SPEAKER_00 56:32

Yeah.

SPEAKER_01 56:32

And I I said to them, that's what made me go and write my principles, right? Because I said, well, that's kind of the point. You like, I think, and I've I've got this in the principles of the business. I think we as kind of custodians of businesses have the ability to be part of the solution or part of the problem that AI presents. And I would far rather be part of the solution than part of the problem. And the problems are going to be meaningful. I'm I'm short-term pessimist, medium-term optimist. Um, but I would far rather you know be part of making that cool and meaningful than crappy and a reason why loads people lose their jobs.

SPEAKER_00 57:06

For sure. I mean, we are in the process of launching the future ventures academy, and it's the biggest intent there is no question, AI will displace jobs. But I I I see jobs as a collection of tasks. Some tasks will be are better. So to your point around the financial modeling, now is is cloud co-work perfect in its modeling? Does it make mistakes? Yes, it does make mistakes, it's not perfect, but but it compresses work significantly. So it's kind of like how do we help people like you and I that are AI native, that have adopted it tools? How do we help them become that?

SPEAKER_01 57:45

Yeah, completely agree. And uh a couple of thoughts on that. Um, firstly, um, I live um about half an hour from a town in the UK called Cheltenham, and Cheltenham is where the UK's um equivalent of the NSA is so our um security services um uh GCHQ based in Cheltenham. I've got a number of friends that either work there currently or have worked there before, and there's a vibrant security industry there. Um, so I'm running the first um anthropic meetup there next week. Okay, good um set out a couple of weeks ago. We've got like 60 people coming, it's insane. Um got a few friends speaking. So phosphorine community, I think, is really important, and yeah, phosphorine community for technical and non-technical people. Um and and then uh secondly, um I've very consciously chosen this vertical for a reason. Firstly, I know it because I've got a holiday home and I understand revenue. Um, but secondly, it's about selling something really nice. Like everyone likes going on holiday, and yeah, it it it's it almost comes across as trite, but actually, you know, the the strap line in the business is short stays reimagined. But I can't think of anything better than making someone's holiday better and the businesses that work in that space better. Um, I've worked in some verticals and industries that that are you know, they don't have that fun element and delivering something really cool to people. Um, so I'm doing an event in a couple of weeks at uh, you know, multi-million pound property um with um some folk just getting together to network and chat about their experiences, renting out holiday homes with a private chef and some really cool drinks and uh you know some people in the industry talking. It's just yeah, it's like a nice, it's a nice industry. That's that's the other thing. Everyone in it is you know, nice. Like the the people that run holiday home agencies are fundamentally good and nice people. Um, so that's a good thing as well.

SPEAKER_00 59:46

That's awesome, Robin. I know that we're at time. Anything else that you would like to share? Where can people follow you? How can people learn more about uh state? How do you like data that's like rolled out?

SPEAKER_01 59:58

Yeah, so a couple of channels. So um I'm I'm there's lots of robins, but there's even more Smiths. So I'm Robin Smith on LinkedIn. The company name again is State S-T-A-Y-D, um, website state.uk. Um I'm gonna be sort of more formally launching the business um at the UK's um leading short-term rentals uh trade show in a couple of weeks' time. Um, but yeah, if anyone has any questions or queries, is interested in what I'm doing. If I happen to find someone who's a podcast listener who is interested in selling their UK-based short-term rental agency business, please drop me a line. Um, but even if you're not and just want to chat, you know, it's very much about just getting to know folk. Um and um yeah, the more people I get to chat to, the better. But thank you very much to everyone for for tuning in and listening. And uh, Maxine to you for for getting in touch and and you know suggesting that we we get together on on a podcast. It's I think it's my first one actually. Um it the there must be something in the water because I've been pinged about doing a few more. But thank you very much for reaching out. Um, it's been a really enjoyable conversation.

SPEAKER_00 1:01:10

I absolutely love it. Thank you so much. Uh thank you so much, Robin. Uh it's been a it's been a pleasure. And in in hearing your insights and how you're thinking about the industry, it's definitely um uh well, at least from our perspective, you're dealing with a lot of uh a lot of founders, and we see it's definitely the way the industry has had it. So thank you so much. Thank you.