Matt is an impressive entrepreneur who has built a very disruptive, capital-efficient model in an extremely competitive space.
Those were the opening lines of the Balderton investment memo that introduced us to Matt Moulding when he first came in to meet our partnership in March of 2010. A few weeks later, we signed terms to invest in his company, THG, and by April the deal had closed.
There are many remarkable things to say about Matt and THG — which just became the largest IPO in London in the last five years.
But, if we had to pick just one word to describe Matt and his co-founder John Gallemore it would be relentless.
They and the 7,000-strong team they have built exhibit that relentlessness in absolutely everything they do: the exacting attention to detail that delivers world-beating customer service; the bold strategic infrastructure investments, staking out huge ambition many years in advance of the business; and, hearteningly, their fierce commitment to investing in the local community — even today, the company does not have an office in London having been founded and built in and around Manchester.
Ten years after Balderton’s first investment, and as the company embarks on its new life as a public company, it’s interesting to look back at Matt’s original pitch deck and dig into what has come to pass and what has not. While entrepreneurial journeys always meander with unexpected twists and turns, what is remarkable in this case is the clarity of vision Matt had at that Series A point in time, in 2010, and how it remains true to the business today.
Matt realised then that brands in markets that build a direct and personal link to their customer — entertainment, beauty and health being just three examples — had struggled to move that relationship online. They could sell via third parties, but that risked losing their individuality and damaging the passion that is key to their products. They could continue to focus on offline retail as their primary channel, but that would mean losing out in the long run in an increasingly online world.
Matt and his team bet there was a huge opportunity to be uncovered by building a highly automated, hyper-efficient operation selling multiple categories of popular products directly to the consumer. Today, in 2020, this feels obvious. But in 2010 “direct to consumer” was an entirely new insight. Warby Parker was born in 2010. Dollar Shave Club two years later. The revolution of direct to consumer brands was really just beginning.
What impressed our team in those first presentations from THG was not only the opportunity to offer fast delivery of popular products consumers using an innovative eCommerce business model, but also a founding team with an unmitigated drive to win, and a commitment to continual innovation.
And it turned out, as it often does, that drive to win and determination were key factors in the success of THG. Because while technology innovations had made it relatively cheap to start a business in 2010, it was and continues to be, incredibly hard to scale one. THG went through all the required painful pivots to sharpen their model. Their gimlet eye on data to uncover cross-selling opportunities and repeat purchases allowed them to predict the move from physical entertainment products (CDs, DVDs, boxed video games) to streaming platforms before most of the market and so they shifted early to health and beauty, in time for the coming wave in those markets.
Looking back over the huge privilege of sharing a ten-year journey with THG, the moment of an IPO feels a good one to reflect back on some of the learnings we have discovered along the way. As with all great entrepreneurs, we’re certain Matt and John had no fixed idea on how to solve the challenges they faced, but their balance of tactical agility and strategic commitment to the vision has allowed them to navigate all of them. We’ve certainly learned a lot from our ringside seat on the board at THG and we’d love to share some of that for the wider entrepreneurial community here.
1/ Stick with it, through thick and thin
When we first invested in THG in April 2010, the vision of bringing brands direct to the consumer was clear. The focus of the business at the time was around physical entertainment products (CDs, DVDs, Games). As it became clear those products would move online, THG shifted towards Health and Beauty products instead.
Two years later in 2012, this pivot came to a head — it was a phenomenally tough time for the team as the business precariously tried to manoeuvre its weight from one stool to the next. It would have been easy for Matt and John to give up. It would have been easy for the team to abandon ship, for investors to throw in the towel. But that didn’t happen — everyone looked back at the vision, realised it was, if anything, stronger than it had been two years previously and re-committed. The team kept grinding and we re-invested no less than four further times in two years as we all got the business around a tough corner.
2/ It's a team sport
Five or six years before it became the norm in London, Berlin, Paris and Stockholm start-ups, Matt obsessed on culture at THG. He built a People and Talent team that reported directly to him and reported on their progress at every board meeting. Understanding that Manchester was not always an obvious destination for the continent’s best engineers, THG invested heavily in wooing the likes of the graduating computer science class from universities like Cambridge, Oxford and Imperial. Today they have one of the UK’s largest software teams outside London, with industry-leading retention.
As the company grew and raised capital from other later stage investors like KKR and Blackrock, the make-up of the Board changed as Matt built the right team around him to navigate the evolving nature of the business’ needs.
And, at Balderton, our equal partnership structure allowed us to mirror those changing needs. As our partner, Mark Evans who had been on THG’s board left the firm, I joined the board, offering experience from my own journey building a European business with over 6,500 employees. Even more recently, as the company navigated the IPO process, our partner Tim Bunting was closely involved given his background running the global equity and debt capital markets at Goldman Sachs.
3/ Learn from others, but be bold and contrarian
Matt is a student of entrepreneurship and business. In his presentations, it is clear that he has an encyclopedic knowledge of how other vast corporations are built and run and he is keenly interested in, and respectful of, the legacy players of markets he is disrupting. However, he is also entirely able to contradict and walk in a different direction when he believes it is the right thing to do. The bravery of taking a contrarian position is not something that is discussed a great deal in start-up culture but, without being different it is very difficult to be very big.
There are lots of great examples of this in THG’s story, but one that has informed us most is the funding journey. Most of the companies we invest in at Series A, move to the US and raise their future rounds from growth investors in the Bay Area or New York or Boston.
THG offers a completely different path — the team were born and bred in Manchester, raised initial capital from European sources and then, as the company scaled, directly tapped into a global investor base through a London listing.
It would be an understatement to say that we are intrigued by this path and its potential relevance for other European technology companies.
4/ Innovate, prove, scale
THG has a strong ethos of continually innovating every aspect of its business. Once it has built a new way of doing things, it proves it in small scale experiments and once the data is right, scales rapidly and often vastly beyond the current size of the business — locking in gains for the future.
For example, the company’s software platform was built entirely in-house — from the branding system that engages consumers through to the software that runs the robots in the warehouse. This level of integration gives it an edge in everything it does. And, remarkably it is what has unlocked the company’s current phenomenal growth. Built for own-brand products, the platform allowed the company to acquire a multitude of new, external brands (all of which have scaled rapidly on the platform) and now allows the company to build and fulfil for external brands and customers unlocking a near-limitless potential scale of business in the future.
Over our twenty-year history, Balderton has witnessed Europe becoming the birthplace of a generation of new technology giants. Europe has been the cradle of innovation before, it has the raw material in the form of large markets, incredible talent and a growing entrepreneurial ambition.
We believe Europe will learn from the successes of other entrepreneurial centres, in Silicon Valley and beyond, but we also believe Europe will do this in its own way.
THG really represents that in all the right ways — it has been a privilege and pleasure to watch Matt, John and their team build the company over the decade. They have built a technology giant that defines their market, not just here in the UK and Europe but across the globe and they’ve done it their way, blazing a confident path for more to come.
Congratulations to everyone at THG from all of us at Balderton!
Sign up for our newsletter to stay up to date on news from Balderton, and our portfolio.