Serial entrepreneur and business angel William Reeve has just joined Paddy Power as its new head of operations. With investments and board positions at successful internet ventures like LOVEFiLM, Secret Escapes and Zoopla, he gives John Kennedy an insight into how he makes his decisions.
You could argue that Paddy Power is one of Europe’s most successful online ventures, building up a substantial online betting empire in the UK and Ireland, mainland Europe and Australia.
You could even argue with almost half of its e-commerce revenues coming from mobile betting, it is possibly making more money out of mobile right now than Facebook. But that’s another day’s argument.
For William Reeve, a keynote speaker at next week’s HBAN All-island Business Angel conference, he’s more interested in certainties than possibilities and this, I suspect, is the magic ingredient in his successful online investments so far.
Reeve shrugs off the angel investor tag and prefers to describe himself as “an entrepreneur who likes to invest in other entrepreneurs.”
He is keen to point out that joining Paddy Power full time rather than guiding a glut of new start-up ventures suits him right now.
Reeve serves as a non-executive director for a range of high-growth businesses that include DealChecker.co.uk, iAnnounce, Graze, True Knowledge and Zoopla.
He co-founded Fletcher Research in 1997 and it became the UK’s leading internet research business before he sold it to Forrester Research in 1999.
Reeve co-founded ScreenSelect in 2003 and this venture grew rapidly and took over a number of other businesses before rebranding as LOVEFiLM in 2006. Backed by Amazon.com, Arts Alliance, Balderton Capital, DFJ Esprit and Index Ventures, LOVEFiLM competes head on with new UK market entrants like Netflix but Reeve believes LOVEFiLM has a much surer footing in the UK market.
An outsider would suspect Reeve has the Midas touch, but if you listen to him dissect his rationale for certain investments and why starting up certain kinds of companies in the US or Europe won’t work, he’s a pragmatist who weighs up every side of the argument.
“I’m a big believer in ‘one degree of freedom’ businesses, these are businesses that work and are innovating on as few dimensions as possible. People who invent the wheel or create a new technology that’s as revolutionary as moving people from carts and horses to petrol engines – that’s too disruptive for me.
“I prefer taking an established idea from one geography to another or applying a business model that works in a whole new industry.”
He says LOVEFiLM and Secret Escapes were clear examples of this approach. “We weren’t trying to invent too many new wheels, and allowed ourselves to focus on succeeding.”
Investing in entrepreneurs
Despite the apparent Midas touch, returning to a full-time role with Paddy Power suits Reeve’s mindset better. “I always tended to feel much happier as a full-time executive. I initially considered my business angel activity as charitable exercises and viewed it as money I was never going to see again, at least not for a while. I was more interested in motivating and supporting the person or the team that were raising money.
“Several years later after considering it more carefully it is apparent now that none of it was money down the drain and actually the investments delivered respectable returns.
“An additional component, I must point out, is that the stuff that works well tends to come from backing people I know well. Secret Escapes came out of a business I was on the board of for two or three years, so it wasn’t always about having empathy for a new individual that just walked in off the street. It’s more to do with the network you build up around you and the experiences you have.
“Having built and run businesses myself I’ve a better feel for what a good entrepreneur looks like and I know the right way to build a good business.
“My experiences have given me the ability to judge people and I have to admit I’m a pretty sceptical and cynical person and if you come to me with an idea or a business plan the first thing I’ll do is try to spot holes in it.
“Some people don’t like that but I judge people by how they respond. If they come back to me a couple of weeks or months later showing me that they have done something about it then I’ll start paying attention.”
Timing may be everything but Reeve is keen to point out that the simple reality is a business model that works is king. “I began my first business in 1997. My original plan had nothing to do with the internet but it was an internet-related research business. I was the first analyst to leave McKinsey and 12 months later nearly all the analysts had left to start dot.coms.
“I think I was on the right side of that cusp and I was up and running before the stampede started and most of the guys got crushed. I was able to see when it was going up and when it was going to crash.
“We began raising money for LOVEFiLM in the aftermath of the dot.com bust, the internet winter, and there was not much foliage left alive and the green shoots hadn’t started to emerge. But the thing that enabled us to succeed was we had a proper business model that made money. And when the bottom fell out of the market, we survived. It was a real business with real customers, delivering good value for money and made money while doing so.”
I ask him what he thinks about Facebook’s acquisition of Instagram, a photo-sharing app, for US$1bn earlier this year. “I’ve always been sceptical about widget-based businesses. Facebook spent US$1bn on a company with no clear business model – what about the other 99 widgets that do the same thing? One swallow does not make a summer.
“I’m not saying Instagram isn’t worth it, but that would be too speculative and risky for me. I wouldn’t be keen on fighting my way through a crowded pack of mobile app businesses to convince customers to release cash.”
The next big bet
The cash-generative nature of Paddy Power’s online business and the sheer genius of people being able to place bets anywhere, anytime from the device in their pockets clearly entrances Reeve.
“That betting and gaming space as a whole is a very focused business model. It is full of sizeable, scaled businesses and which were start-ups once but I find the dynamic interesting. You can debate the cause and the effect, but not much venture capital money went into that sector largely because of sectoral concerns – the American investors didn’t want to invest, for example – and so these online gaming entities became an industry that had to make money on its own. I always admire business models that make money from the start.”
If anything, it is the technical challenges facing businesses like Paddy Power as much as the business model that has Reeve transfixed. “Do you know that the Grand National is the single hardest thing for the online payments industry to support? It’s very peaky. These guys have to deal with scaling challenges that ordinary online retailers can’t conceive of. Remember, because of the nature of the business, if the punter can’t get what they want then and there, they’re gone.
“What I find fascinating about the whole thing I that on one hand they are dealing with ultra-secure financial information and at the same time trying to deliver a fun experience for the punters. That’s a combination I haven’t seen anywhere else. It’s intellectually rewarding trying to solve these issues in a consumer context – putting smiles on millions of consumers’ faces while trying to run one of the biggest e-commerce platforms in Europe.”
Reeve has a point, Paddy Power is growing at a rate of 20pc a year and brings in several billion euros in turnover. “I think for us being able to give people the way to make a bet quickly and easily via the device in their pocket is transformative.
“You can see mobile heading north of 50pc of usage for all betting layers and that really speaks for how wonderful it is for punters to be able to bet on the move.”
Returning to the start-up scene, Reeve warns potential start-ups to be wary of trying to be the next Instagram. “The US has something the rest of us don’t have, except maybe for the Chinese, and that is a large domestic market. A French company may try to be the next Instagram or whatever but then a Californian firm can come along, build a profitable business with millions of users and blow them out of the water.
“The only way to fight back is to make sure the market you are developing can go global as quickly as possible. The problem in Europe is you need at least 15 different languages. That said, Skype showed remarkably early growth because it was receptive to a lot of new Europeans who had emigrated and wanted to stay in touch with home, as well as Americans who were travelling and wanted to call home affordably.
“Zoopla worked for geographic reasons because it relied on local knowledge of estate agents, for example, in the UK, something that a Californian company couldn’t copy and do overnight.
“My advice to entrepreneurs is this – if you try to build the next Facebook or Instagram, the Californians will beat you. Assume that the best guy in that space is in California and the way to compete isn’t just about the best technology, but about assembling a network with different assets and strengths that the Californians can’t emulate.
“Focus on advantages that provide you with defences against global competition – then you have a chance.
“With LOVEFiLM, we didn’t have the scaling capabilities that Netflix has, but we focused on developing a strong local brand, forging relationships with suppliers to build up a better content library combining DVDs and streaming.
“Therefore it was easier to defend a business model that wasn’t easy to attack,” Reeve says.
The HBAN All-island Business Angel Conference takes place on 3 October at The Gibson Hotel, Dublin.