Thought Machine is delivering a new era in banking using truly cloud native technology. Founded in 2014 by Paul Taylor, Thought Machine now boasts a rapidly growing customer base, with tier one banks, challengers and fintechs being served, including Lloyds Banking Group, SEB, Standard Chartered, Monese and Atom bank.
IQ Capital: What was your early vision for Thought Machine, and how has that changed?
Paul Taylor – founder, CEO: As an entrepreneur you always have to be aware and adaptable. Keep your wits about you and assess evidence. My core philosophies are to be adaptable and client-centric, along with creating a product of superlative technical quality. The features of Vault, our core banking engine, are increasing every day but the core philosophies remain constant.
What’s next for Thought Machine in the coming years?
A lot of international expansion in Asia Pacific regions as there are still so many banks not utilising modern technology over there. We’ll be launching in North America in Q3 of 2020. We also plan to start launching, as yet unannounced, new product lines, so there is a focus on expanding and trying to bring that kind of engineering excellence to more parts of a bank.
How did you get into entrepreneurship and why did you get into it?
I was an academic for the first ten years of my career. I did a PhD in linguistics technically, but in fact it was purely focused on artificial intelligence and text-to-speech synthesis. I did that for seven years post-doctorate and really enjoyed it. However, I always admired the tech industry, but it felt like it was a distant place from where I was. As the world started reaching fever pitch in one of the tech booms of the late nineties, I was finding it more and more attractive. It was then I met Peter Denyer, who was a professor of electrical engineering at the University of Edinburgh. Peter had already founded a startup and really helped me make the final step into entrepreneurship. That’s how I started my first company Rhetorical Systems in 2000. It was an eye opener, further reinforced in Phonetic Arts which I started in 2006 and Thought Machine in 2015. When I look back at my career, entrepreneurship feels like the thing I was born to do. I am somebody who likes to get things done and move things along quickly. And an academic career is by nature pretty slow. When looking back in hindsight, it was obvious, but it didn’t feel like that at the time.
Do you think there’s truth in the fact that a lot of deep-tech founders have academic backgrounds, and some potentially put too much focus on research, as opposed to delivering?
Ultimately, you can’t serve two masters. It’s impossible to be improving human knowledge as an abstract core principle while building a company, they are two different things. I think too many academics see the commercial world as a way to get some reward for all the hard work they put into their university years. As academics, they don’t get paid tremendously well, so commercialising what they’re doing would be nice. Then they could return to what they really want to do, which is do more academic research. I’m not sure that works out.
Instead, I’d recommend becoming an advisor for another startup, not necessarily creating your own. Ninety per cent of starting a startup is the perspiration, not inspiration, it’s all about those hard yards building products and understanding customers, understanding markets that make a company successful. The genesis of the idea, the core IP is key, but it pales in significance when compared to the amount of work that is required to actually get it over the line. However. If you are determined to make a commercial success of what you do and you’re not a very commercial person, then surround yourself with a top commercial team. You don’t have to become a salesperson overnight.
“Ninety per cent of starting a startup is the perspiration, not inspiration, it’s all about those hard yards building products and understanding customers, understanding markets that make a company successful.”
Any advice to deep-tech founders about hiring in the early days?
I adopted key principles from Google and made sure we applied them at Thought Machine. The number one priority is to make sure they are a great cultural fit. Ensuring that people are team players and aren’t political. They’ve got to be keen on the overall goal, selfless and hard working. The second priority is to hire for excellence in every role. Lots of companies are happy to have excellent people in key roles, but there’s lots of secondary roles where they hire in the middle of the market. That doesn’t work here. We hire the best possible person we can hire for every possible role. It doesn’t matter how far away the role is from those so-called “core” activities. We do a lot in terms of engagement to make sure our employees feel empowered in their roles and ensure we have a great atmosphere that encourages people to want to come into work. They feel like they can focus on their job and don’t have to worry about what everybody else does. If you only have to concentrate on your job and have confidence in your colleagues, it makes everything a lot easier.
Some founders don’t bring on top senior teams earlier on because it costs a lot of money and is an important decision to make, so people delay that. Would you say that is an important step to take?
There’s excellence to take into account, but also what’s appropriate for the company maturity. The person who first marginalises your product may not be the person who will be in charge of international expansion and selling around the world in five years’ time. Different people have different boxes to where they best fit in the ecosystem. I’ve certainly seen companies go for so-called big names in sales, finance or management far too early. All of those people don’t necessarily have that kind of street fighting ability and that kind of scrappiness that they need in the first two, three years of a company. You should always find the best person, one who fits your culture and will make a really positive impact on the company, and the remuneration should always be fair. There should never be the issue of not being able to afford it because the emphasis needs to be on the cost of not affording it. It’s worse. With that in mind then, make sure you always make educated guesses as to what senior people especially are going to cost. Early on, you should be more generous with equity rather than cash in people’s packages. People who will take those deals is also proof they are right for you and at the right stage of the company.
“I’ve certainly seen companies go for so-called big names in sales, finance or management far too early. All of those people don’t necessarily have that kind of street fighting ability and that kind of scrappiness that they need in the first two, three years of a company.”
Any advice on how to compose the best board composition for early stage founders?
Make sure you get people who have done this before, people who have previously built tech companies always helps, as do people from the industry you’re selling into who can open those doors. It’s also incredibly important to ensure you have a diversity of views and a mixture of talents. When finding a chairman, it’s extremely important to find someone who’s prepared to give the CEO that extra encouragement when things get tough, especially if it’s your first time in that position. The problems can seem overwhelming, but you’ve got to realise there’s nothing new under the sun. Nearly every entrepreneur has faced all sorts of issues before, and you just need somebody to go to and talk through this issue. It’s unnecessarily stressful to have to figure out how to deal with every issue on your own.
Do you have any advice for founders when they come to taking venture capital? And what has been your experience with it throughout the years?
You need to have a good idea of where you want to go and then realise what that is. VCs want companies that have high growth potential, so you need to ask yourself “does my company have it?”. You need to have enough understanding of how your product fits in the market. How big is the addressable market? How big can my product get there? I think these are the questions that you have to ask yourself to begin to have a conversation with a VC. You have to be able to go to a VC and say “This market is worth 20 billion dollars a year. I think if we’re very successful, we can capture 5 billion dollars of this in 10 years’ time.”
You don’t have to convince the VC that you’ll never make a mistake and it’ll all be smooth sailing. What you have to convince them that if you win, it’s going to be worth all the pain along the way. The days where VCs had a reputation for being cutthroats and being very harsh on founders are gone. At Thought Machine, our investors and VC investors are seen as being part of the company, a part of our team. In terms of finding specific VCs, make sure that you go for the ones that have the best cultural fit for you, then look at the alignment on vision, alignment on expectations of exit are key. Go for the VC who you feel has got your back. There will always be problems. And in problematic times, VCs who you believe have got more than just a financial commitment, those who have a deep emotional commitment to the success of the company, really pass the test in terms of making a good choice of VC in the first place.
“At Thought Machine, our investors and VC investors are seen as being part of the company, a part of our team. In terms of finding specific VCs, make sure that you go for the ones that have the best cultural fit for you, then look at the alignment on vision, alignment on expectations of exit are key. Go for the VC who you feel has got your back.”
What advice do you have for less experienced founders who are thinking about scaling up, where they think about exit, acquisition or are beginning to think about moving on?
It’s all about product maturity. Always ask yourself, what can I do more of with the same level of input? That’s the reason why tech businesses are so successful, because of the key productivity they exhibit. That’s why tech investors are so drawn to them because the growth potential is a leverage off the core profitability. The key is to get that growth potential as high as possible and then keep on expanding without having to necessarily expand your cost base. Unnecessary rapid expansion is often the key reason for companies getting into trouble. In terms of practical advice, make sure you have planned your organisation well. At Thought Machine, we basically had all the senior roles of all the departments and then all the people who reported to them all ready by the time we set the expansion up. Try to have as much of the structure in place before you start.
“The key is to get that growth potential as high as possible and then keep on expanding without having to necessarily expand your cost base.”
And how should a founder go about their exit, when should founders proactively start having those conversations?
In my first company, the acquirer approached us first, I think that’s always a good sign because it shows that if they make the first move, they are clearly interested and there’s going to be a half reasonable price on the table. You also have to be reasonable, but you have to look at the proper viability of the business. Highly specialised deep tech businesses are mostly businesses where you can simultaneously have low revenue but also lots of acquisition potential because what you’re building is something really important, but it’s also a horizontal product, a deep fundamental solution, and it’s hard to monetise that. If you go to a big company, they could monetise it successfully. This is exactly what happened with Phonetic Arts and Google. We had a text-to-speech system which was doing OK, but when Google bought it, then they could deploy it through all their products and that’s why it has billions of users today. As a general rule, going for a trade sale in too short a time frame often doesn’t offer very good returns to investors.
“Highly specialised deep tech businesses are mostly businesses where you can simultaneously have low revenue but also lots of acquisition potential because what you’re building is something really important, but it’s also a horizontal product, a deep fundamental solution, and it’s hard to monetise that.”
If you weren’t building a startup, what would you be doing? How do you relax and switch off?
To be honest there isn’t a tremendous amount of switching off these days. Somebody asked me “would you sell if you could?” I said no because if we sold the company, then I would exit personally, get bored and have to start another company. So there isn’t any reason to sell! I have left the land of travel and holidays some time ago, I did plenty of that. However, I do feel I get a great work-life balance now I’m in control of my day-to-day schedule, and I get a much better balance on my workload and subsequently less stress associated with it. It’s a full-on job but it rarely gets to be too much.
How has IQ Capital helped you at Thought Machine?
I have known Max Bautin since December 2007. He’s the best seed investor in the UK. The fund he’s running with Kerry, Ed and Simon is one of the top funds. They’re showing strength and great return, the numbers just speak for themselves. But what really distinguished them is that they are very, very good people to deal with. They have a lot of empathy for how other companies work and have a deep understanding of technology. They respect the founders and the companies. They don’t make you feel as they’re pushing in unnecessary ways. Whenever I meet a new seed company, I recommend them straight away. And when I meet a series A or B company, I always recommend to have a look at their portfolio as I think there are a lot of opportunities there.
“[IQ Capital partners] are showing strength and great return, the numbers just speak for themselves. But what really distinguished them is that they are very, very good people to deal with. They have a lot of empathy for how other companies work and have a deep understanding of technology.”
“IQ was a great partner throughout the life of the company and invaluable in providing tactical and strategic advice during the negotiations and exit to Google. They were naturally my first choice when it came to funding my next venture, Thought Machine.”