Exit strategist: Simon Cook
Article Date: Oct 23 2008
Simon Cook, DFJ Esprit
DFJ Esprit head honcho Simon Cook has had a string of multi-million dollar exits under his belt, but he’s still on the lookout for more great early stage companies.
Computer games in the 1980s introduced a new breed of geek to the world: the adolescent male who could stare for endless hours at a monitor, transfixed by continuously shifting blocks and dots. These daylight-fearing creatures were surpassed only in outsider status by the programmers who made the games.
Simon Cook, now the CEO of venture capital firm DFJ Esprit, was one of those frontier über-geeks. Using both a trusty Atari ST and Commodore Amiga, he started his own computer gaming company aged 19.
‘When I started the company, I didn’t understand equity and what it meant to build a business and sell it on to other people,’ Cook recalls. ‘I ran it for cash as a small business and we sold a few thousand copies.’
It’s a realisation that still needs to be made by many owner-managers today. ‘In Silicon Valley, people understand the dilution of equity. In Europe, most entrepreneurs are confused by venture capital. It’s not a bad thing to release equity and allow people to come in and help grow your business.’
Fast companies
DFJ Esprit currently has around $550 million under management. There are around 35 companies in the firm’s portfolio, such as Lovefilm, Oxford Immunotech and XMOS Semiconductor (the latter two raised $40 million and $16 million respectively earlier this year). The online marketing company Buy.at was sold not so long ago to AOL for $125 million – a ‘great return’ on the original investment of $15 million, comments Cook.
'In Europe, most entrepreneurs are confused by venture capital'
There are three main areas where Cook believes tomorrow’s great businesses are likely to emerge. ‘Television will change radically,’ he says. ‘More audio and visual content can be delivered by the internet and therefore millions of channels can be delivered to the home.’
The emergence of software and services on the web is also an area to watch. ‘There is a major shift in the way IT is built using cloud computing. The way software licenses are sold and servers are run will change as you can buy more services over the internet with the continuing increase in bandwidth.’
After that, it’s the wide-ranging “cleantech” sector. It’s a catch-all term but Cook talks enthusiastically about a portfolio company Green Peak, which makes radio chips that don’t require batteries, and ZBD, which makes screen technology with “digital ink” that doesn’t require any power to keep an image on the screen.
A graduate of UMIST, Cook set up professional services firm KPMG’s internet consulting practice in 1994 – where he was told the web would never catch on – before moving to investment giant 3i.
It was here that he shed that geek image and made a name for himself as someone who could spot a groundbreaking venture.
He led the first £6 million round of investment in Cambridge Silicon Radio, maker of the Bluetooth chip. Seven years later, the company was worth $4 billion and had 70 per cent of the world’s Bluetooth market. Other successes include Virata, nCipher and KVS.
Pieces in place
Cook and his team have led a number of reforms at the firm over the past couple of years. The buy-out of Cazenove Private Equity and Prelude Ventures increased the firm’s firepower to the tune of £285 million, and this led to Esprit joining the US venture capital network DFJ, which has offices in 30 cities around the world, and the new name.
The current set-up means the business should have the financial firepower and infrastructure to scale fast-growth companies. Although acknowledging the seriousness of the economic situation, Cook believes the firm is well positioned to pick and groom early stage ventures.
‘Our businesses are loss making or break-even at best'
‘Our businesses are loss making or break-even at best,’ he says. ‘We’ve never been able to borrow money – we couldn’t do it five years ago and that holds true today. We make our returns through growth.’
In fact, Cook goes as far as to suggest that the current environment will force entrepreneurs to focus on the bottom line. ‘The mentality of people is now right for starting a company. Cash becomes much more important when it is a scarce commodity, rather than being easy to raise. You have to make the money go further.’
Cook remains enchanted by the prospect of unearthing a gem of a business. ‘If you take the combined movie receipts for every Star Wars film released globally over the past 20 years, that comes to $4 billion. One start-up can create that much wealth.’
