‘Silicon Valley tech bros aren’t very good at financial services, we are’

He’s been a founder, director or investor in a string of promising and sometimes not so promising start-ups, including Zoopla, Secret Escapes, Graze, Adzuna and Nutmeg, the investment platform sold to J P Morgan Chase. Today he runs Goodlord, a digital platform that claims to do all the grunt work for letting agents.

He also chairs Augmentum Fintech, an investment trust specialising in backing ambitious tech-enabled banks, payments firms and trading platforms. Its investments include Zopa Bank and Tide, as well as BullionVault and Gemini, platforms respectively for gold and crypto punters.

Augmentum’s entire raison d’etre is to get in early on financial services businesses with the potential to grow exponentially and take the fight to the incumbent players. It has succeeded once before, alighting early on Interactive Investor, the platform for retail investors, making 11 times its money when it was sold to Aberdeen Group for £1.5 billion.

We’re in Orrery, a plush restaurant in Marylebone, central London. Reeve has chosen it because it first featured in his life when he was “a penniless entrepreneur”. It was 1997. He’d just been terminated by McKinsey, the management consulting firm, and with business partner Neil Bradford, had set up a fledgling market research outfit.

The two men promised their respective girlfriends, also McKinseyites, that if they ever showed signs of making a bean they’d treat them to dinner at the Orrery, then newly opened by Sir Terence Conran and the ultimate in fashionable dining. Their luck seemed to come in quickly when the very first report they penned, on football finance, made it on to the front page of the Financial Times.

The promise was honoured, he recalls, as the waiter hovers, though he can’t remember what he ate. His girlfriend Fiona later became his wife. Today, he goes for a glass of Piper Heidsieck champagne, saffron risotto with ossobuco sauce and sea bass with a herb crust.

Back to 1997. Reeve and Bradford’s timing was impeccable. It was the dotcom boom and suddenly everyone, large corporates, the media and the investment banks, wanted to know about the internet and were prepared to fork out as much £800 a time for one of their hastily created reports. “Everyone was trying to understand, what’s this internet thing, how’s it gonna work?” The business took off.

They sold out to Nasdaq-listed Forrester Research six months before the dotcom boom turned to bust — good timing again — and Reeve was left with what he says was a “life changing” amount of money. He stayed on at Forrester for a while but was soon thinking what sector would be good for another business venture.

• What I learnt… about timing

“I had two graphs in my head, both shooting upwards.” One was mobile phone demand, the other was DVD rental by post. “So I started just asking around, anybody seen any DVD businesses? And Neil, said well, there’s this thing in America called Netflix, and I had a look at that and thought, that actually looks like quite a lot of fun.”

He and a new business partner Alex Chesterman got together, launched ScreenSelect, one of a string of DVD rental firms that emerged at the time. They raised £1 million purely from around 30 angel investors to seed the business. There was no venture capital money. “Back then I didn’t quite realize how extraordinary that was.”

Soon came a scramble of consolidation and Reeve and Chesterman ended up as the big winners. After taking over one rival and adopting its brand LoveFilm for the enlarged business, they were by this time the number one in the UK. “It was a scale game and we had the lowest cost structure, which was what ultimately enabled us to win.”

Then came the start of the big shift from DVDs to streaming. The LoveFilm team first sold a 30 per cent stake, then the entire business, to Amazon, which incorporated it into its Amazon Prime offering, a service giving subscribers free delivery on Amazon purchases as well as streamed movies.

Reeve had already moved on by then, as had Chesterman, who founded Zoopla, which was to become another disruptive winner —in property search. Could LoveFilm have made it as an independent, I wonder, and continued to grow at that extraordinary pace? It’s a tantalizing “what if?” After all, Netflix in America continued to mushroom in scale and ambition and is today valued on Wall Street at $380 billion.

Could LoveFilm have muscled in to the US and achieved anything like that? “Probably not,” says Reeve, munching on a spear of broccoli. First, the shift to streaming levelled the playing field with American rivals, dramatically increasing the benefits of scale and their giant home market.

Secondly, came the decision by Netflix to create its own content becoming in effect a Hollywood studio in its own right. “I think that was punchy.” That would have required vast amounts of capital which from London might have been hard to source. Netflix’s co-founder Reed Hastings was “a genius” to do it though, he says.

• Netflix is woke but it cares more about profit

We chat about the British attitude to risk compared to America. Reeve is scathing about the short-termism of the big investment battalions in the City. “A ‘Netflix of Europe’ would never have got off the ground because the investors would all have said, ‘where are dividends, where are the dividends?’” he says. “Netflix didn’t make profits for years and years and years.”

And the listed company world is worse, even less inclined to invest for the long term and ever more focused on dividends and share buybacks. Reeve has in the past been a non-executive director at both Paddy Power and Dunelm. “At Dunelm we would sit and talk about what the current shareholders wanted. I’d be like, “What about the shareholders that we don’t have? What about the shareholders that would value us at twice [our current valuation], but they won’t look at us.”

We skip pudding. Reeve chooses a macchiato. Talk turns back to UK fintech and the open goal left by the incumbent banks because of their failure, he says, to grasp the nettle of disruptive innovation because of the inevitable cannibalising of their existing businesses. “Name any sector where the large, well-resourced incumbent has succeeded in eating his own children. You know, it’s hard to eat your own children.”

Barclays, he says, also could have been far far bigger today had it not sold its innovative and disruptive exchange traded funds business iShares to BlackRock in the throes of the banking crisis: “iShares, arguably, has been the making of BlackRock, and that could have been kept over here.”

Why, I ask, doesn’t the stockmarket believe Augmentum has the potential to winkle out and nurture the prospective financial worldbeaters of tomorrow? The shares on the day we lunch are languishing at a yawning 44 per cent discount to net assets and are below the 100p issue price at which the trust was launched in 2018. Since then the discount has worsened to 48 per cent on the back of the recent rout in US tech stocks.

That is “frustrating” he says, especially as the revenues at the biggest ten portfolio companies are galloping ahead at 52 per cent and the net asset value is rising nicely. City rules are hurting though: wealth managers who put their clients into Augmentum now see it as too small. They have been increasing the minimum market cap size they are prepared to invest in.

The biggest issue, perhaps, is the paucity of exits across the sector. Investors need to see portfolio companies being sold to trade buyers or floated at valuations at or preferably above net asset value in the books. That hasn’t been happening very often. “Right now, there has been a bit of a drought on the exit front, which is longer than any drought ever in the tech space, but most droughts end.”

A successful flotation of Revolut, say, or Klarna (neither of which Augmentum owns) could be enough to trigger a bit of a rethink. Wise, a London-based and listed financial disruptor now valued at £9.4 billion, shows what can be achieved.

“We’ve got a couple of businesses which have traded very, very well and which, if the market reopens, I’m sure their boards will be keen to understand their options. I don’t want to name a name here. One of our top five investments is making more than £50 million of Ebitda [earnings before deductions]. It’s not necessarily the one everyone thinks is the star in the portfolio.”

He won’t say more, alas. It’s been a stimulating two and a half hours. “I need to run,” says the man with more start-ups to back.

Orrery: receipt

2 x Set menu: 118.00

Saffron risotto with ossobuco sauce; sea bass

Beetroot tartare with straciatella; sea bass

1 x Mashed potato 7.25

1 x Broccoli 7.25

1 x glass Piper Heidsieck champagne 19.00

1 x bottle Aquamarine sauvignon blanc 51.00

1 x still water 5.50

1 x sparkling water 5.50

1 x Macchiato 5.95

Service charge @ 14.5 per cent: 31.82

Total: 251.27

CV

Age: 52

Family: Married to Fiona, three cats

Education: Perse School Cambridge; University College, Oxford, M Eng, engineering and economics.

Career: 1995-97, McKinsey & Co; 1997-99, Fletcher Research;1999-2002, Forrester Research; 2003-2008, ScreenSelect then Video Island then LoveFilm; 2010-2012, Oxalyst Systems; 2010-2013, Paddy Power; 2018-present, Goodlord. Non-executive directorships: Zoopla, Media Ingenuity, Secret Escapes, Graze, Hubbub, Nutmeg, Dunelm. Chairman today: Augmentum Fintech.