RIG Engagement Manager, Ffion Rolph, sat down and interviewed Founder and Managing Partner, Shields Russell, over a series of face-to-face meetings. Here, Shields shares his thoughts on RIG’s history, its evolution, and its future.
FR: Is it fair to say that RIG’s market focus has evolved significantly in the last few years?
SR: I think that ‘evolved’ is the key word. We have certainly increased our focus on energy, natural resources, and major industry. This was deliberate and we now have some portfolio companies with terrific technologies in this area.
FR: But you didn’t just stumble into these areas?
SR: No. In part, it has been a decade long evolutionary process of reflecting on where we have had most success and greatest impact.
FR: I assume that the emphasis around IP rich technologies emerged out of this process?
SR: Very much so. There are several sources of competitive advantage that are defensible to varying degrees: brand, business momentum and market dominance, business model, and intellectual property (IP). We strongly bias IP for the simple reason that proprietary technology is the most defensible advantage a company can possess. It reduces, if not eliminates, the threat of replication. Unburdened by the threat of commoditisation, it less susceptible to pricing pressure. In a B2B context, it is an asset that can be exploited exclusively by the ‘creating company’ or through that company granting rights to other organisations.
I would say that while we are attracted to IP rich technologies for these reasons, I am conscious that the technology must be decisively better than what it replaces. It must do a much better job. You can make money though delivering marginal improvement but you can make a whole lot more if your product is in a different class.
FR: What other factors have informed the current focus?
SR: In my case at least, getting older has also played its part. It’s the big, global, long run challenges that most engage me. These challenges have really important social and environmental dimensions. They really matter. And, of course, addressing massive challenges can offer huge economic opportunity.
I am never oblivious to the mission and political aspects of these challenges. My second job was as a teacher in Botswana. I earned about the same in a month as I had in a half a day in my first business in New York but the mission was more important. More meaningful. For me, commercialising a technology that directly contributes to sustainability is simply more motivating than building a sales operation for a B2B SaaS application that delivers greater efficiencies. Mission driven challenges have a great ‘why’ and I love that.
FR: The largest group of companies in RIG’s portfolio is focused on energy challenges. What has driven that particular angle?
SR: Energy is such a critical space as it lies at the heart of the climate change challenge. I cannot see any other way of tackling the acute energy challenges the world faces other than through adopting new, more efficient technologies. You cannot dispute the need but that is not the same as saying that new energy technologies can just turn up and the world will be their oyster. I think that is where a lot of the first wave of cleantech companies were wrong-footed. There was a lot of vision and a lot of big numbers but finding that market that could give the company traction often proved a bridge too far.
FR: So market discovery is a critical element of the process?
SR: That is the essence of the challenge and perhaps no less challenging than creating the technology in the first place. Finding high momentum applications and engineering adoption is a huge, often quite complex, challenge and that is where we can play a pathfinding or scouting role. In terms of building a market, innovators need to think small to get big. They need to identify and then offer a superior solution to a specific energy challenge. That is very much what we do. It is where we fit.
FR: Is it accurate to say that RIG’s more focused approach also reflects a broader trend in the venture space?
SR: Yes, that is a good observation. When I was first involved in what you might call the ‘start-up’ scene, entrepreneurial ventures where generally lumped together. Many start-up events reflected this. Now, of course, you have events for different tribes – those involved in FinTech, EdTech, or CleanTech for example. Many VC firms used to have partners focusing on investments in a several fields and, of course, many still do. But now you see much more focus which makes a lot of sense. I imagine that several VCs all with a focus on a single area, let’s say consumer internet, makes for a much better conversation and investment decision than a group of VCs each with a different specialisms. I think it is a reasonable assumption to say that the most successful Series A investors are the ones with the most focus and the most evolved investment theses. So in our way we are very much aligned to this trend.
That said, as a firm focused on innovative technologies, I think we must remain open to possibilities that lie outside our declared areas of focus. Those areas of interest we call our ‘column’. That ‘column’ is permeable with purposely ill-defined parameters. It is in many ways a tool that drives our internal discussion. What’s in? What’s out? What’s happening out there? What’s emerging? What are the grand challenge that engage us? We have to remain alive to the non-linear developments and the emergence of new challenges that cannot be addressed simply by improving on the thinking and technology that can rise to them in the first place.
For example, we are working on a fascinating and important cyber-security project. It does not lie within ‘our column’ but we are totally committed. It ticks the interest box of one of our partners and that is always an important factor for me. You get the best from an individual when their ‘desire’ coincides with ‘opportunity’. So our focus will always in a sense be negotiated. We are that type of firm. We attract people to come and work for because of what we do and the areas we work in. Equally, we are influenced by how their interests develop. What interests people drives their development and when we work on things that interest us that gives us passion. There is nothing harder than doing a job that commands zero interest. It is like the class you hated at school.
FR: Does a more focused RIG mean the firm is becoming more specialised?
SR: We have made some choices that undoubtedly makes us not only a more focused outfit but also a more specialist one. Our future is very much centred on building out market practices where we can combine specialist knowledge and relationship capital with our more generalist ‘how-to’ knowledge. That combination packs a powerful punch. It is an approach that enables to us to codify our knowledge and utilise our contact network much more effectively. In terms of how we allocate our time, engineering licensing deals, building out networks of distribution partners, finding solution partners, or executing high value – and by value I don’t just mean revenue here – direct sales, consumes most of our time. Over the last ten years we have done a lot of business building. We will do a lot less of this type of work going forward.
FR: Why put the brakes on what is a valuable activity?
SR: We have accumulated a great deal of business building expertise over the last decade. This widened the scope of our operations to the extent that we had specific experience vested in individuals rather in a shared company-based capability. But the big question for me now is where we best apply this expertise. Helping a company find some product-market fit and achieve some early traction is without question valuable. It is the first staging post on the way to building a valuable business. Building organisational capabilities to take advantage of this is also undoubtedly valuable. There are lots of managers that are well qualified to grow an organisation. The know-how and experience required to build a revenue-generative organisational capability from its early evangelist stage to something that is more repeatable and scalable is fairly hard-to-come-by competence. As it often the case, companies with the beginnings of organisational capability believe that hiring a manager from a larger company in their space will help them navigate this stage. They are nearly always wrong. They have hired that individual too early. Building something from scratch is not what they do.
But for us the problem with this type of work has been one of value perception. Clients place a different order of value on securing first revenues and consequently we have the opportunity to make a healthy return on our efforts here. The same cannot be said for business building work which is time consuming and less glamourous. It is ‘airline’ work – it takes a lot of planning and organisation, creates a lot of value but is rarely profitable. But while we will do less of this type for clients, we shall look to apply this expertise in building more of our own ventures.
FR: Where does starting new ventures fit into the picture?
SR: I am agnostic as to whether we are working for companies that are client partners in the traditional sense or companies that we co-founded and part own. What is certain is that in the next five years we will increase the number of companies in our portfolio that we have co-founded and are significant shareholders in. To date, we have been opportunistic. Going forward, we will be much more systematic and objective driven about it. We have learnt from the ventures that we have started not least from our failures. Where we can make things happen is on the commercial side, in mitigating market risk, in introducing the customer into the product development process, and in establishing distribution channels as early as possible in the commercialisation process. In contrast, our natural co-founders are the product-centric CEO or technologist with a prototype operating in our areas of interest.
FR: What has prevented RIG from starting more ventures?
SR: The lazy answer would be time. I think we have huge potential as an entrepreneurial platform but in truth we have been reactive rather than working out a more systematic and proactive approach to identifying opportunity. One key element of this is resolving the funding challenge. If you are starting from scratch with each venture, then securing seed funding can be a drawn out process and take an ordinate amount of time. One of our goals in the next 12 months is to develop ‘a bench of investors’ that can fund not only new ventures but can take advantage of opportunities within our client base. I am interested in creating a tight knit group that become intimate with and confident in the work we do, that share our approach and values, and are interested in markets and technologies we are engaged with. We have started talking to some HNWIs and we shall also look to some family offices. I am most interested in investors that will place value on social and environmental benefits alongside financial return.
FR: What is RIG offering this investor group??
SR: What we will offer our investor bench has a few dimensions. If we take opportunities within our client portfolio then I think we can offer fantastic dealflow with our involvement acting as a form of due diligence. We know our best clients inside-out and we know the size and nature of their market opportunity. There are two scenarios we will bring opportunities to the table. The first is essentially ‘follow-on’ investment opportunities where the investment is made on the back of substantial market traction and the where the business model has been defined. The second scenario is less straightforward and is best characterised as addressing a short term funding need. Even those companies that are well established and firmly on the path to success are not immune from a variety of problems that can result in funding challenges. Few if any emerging companies can get all their ducks in a row. But if the core product and market fundamentals are in place then there is a great opportunity. The critical thing is to be able to move quickly, to ensure a problem does not become a serious distraction, and to preserve or re-establish goodwill.
With regard to new ventures these may attract a different type of investor. What we want to here is to establish a very structured, gated approach whereby we chunk the commercialisation process in a fairly granular and transparent way and then align funding to each specific stage. I believe that by engaging with the market early, by co-developing solutions to high value problems with industry partners, and by confirming, prioritising and sequencing demand, we can accelerate the time to revenue while reducing both business risk and a new venture’s early funding requirement.
FR: What still surprises you after running RIG for more than 10 years?
SR: I suppose I thought that as I got older my curiosity might wane but it hasn’t. I thought I might become more conservative with age but if anything I feel more adventurous. We play in such interesting spaces. There is so much to learn and engage with. I spent a little bit of time on my summer vacation doing a deep dive on the ‘circular economy. It is so relevant a concept that it must become part of our internal discussions as to which companies and technologies we work with.
FR: Are you ahead or behind where you might have imagined you would be when you started?
SR: Definitely behind. I am impatient person who has had to learn patience. What I have learnt is that developing talent takes time, sometimes much longer than first imagined. But I have stuck with people. I made the decision early on to hire young people and to try and give them the type of challenges that could drive their development. I think you have to commit to talent and be prepared to wait. It probably takes six years or so to get really good at what we do.
FR: Last question: Why are all RIG’s partners male?
SR: It is a fair question and it is something that I would like to see change. I started with four male graduates; one is now the CTO of a crowdfunding platform, another left to join Roland Berger, and the other two are senior partners at RIG. So we started off with an imbalance which was compounded by an early failure to attract a sufficient number of female candidates. Foolishly on our part, and mistakenly on theirs, we were viewed as being overtly ‘techie’ which is a mile from the truth. But we are well past that now and so the situation should rectify itself over time. I think that will have a very positive impact on our culture.