We first invested in a Cambridge company in 1998 – two years after Index was founded. Our investment in Virata, a fabless semiconductor company, was a milestone for us, as it was our first major investment --and the biggest venture deal in Europe that year. It was also a highly significant moment in the story of the ‘Cambridge Phenomenon’ – Virata emerged from the city’s illustrious cluster of silicon companies.
Over the years, we have continued to be active investors in Cambridge, one of the key hubs of entrepreneurial innovation in Europe. This time, however, we’re backing a rather different proposition and one a world away from the hardware, software and bio-tech companies that Cambridge is best-known for – namely, The Cambridge Satchel Company.
We first came across its colourful and charismatic founder, Julie Deane, in 2012 when her company (and pet boxer dog, Rupert) featured in an advert for Google Chrome, which played on TV, in cinemas and online.
The power of Julie’s story instantly struck a chord with us: here was a company painstakingly built from a family kitchen table-top. A profitable, European bootstrapped business and home-grown brand, with a hand-crafted product and a resonance far beyond the company’s size.
These are all qualities which we, at Index, love and admire – and exactly the type of brand we’d been on the lookout for. So we began reaching out to her.
Bombarded with approaches from potential backers, Julie kept her distance at first, as she wanted to stay focused on building her company.
Nevertheless, we kept in touch, and in May 2013, we had a breakthrough meeting; Julie and her team came to our London offices and we spent a whole morning together. We took them through the story of Moleskine, an enduring brand we work with, which has so many similarities with The Cambridge Satchel Company, and shared our experiences with the fashion and e-commerce companies in our portfolio, many of whom have made the tricky transition from local champion to global player.
From there, we spent time together building a dialogue and common vision, finally formalizing our partnership earlier this month.
At Index, we are often asked why profitable, steadily-growing companies, such as The Cambridge Satchel Company – and Moleskine, too, for that matter – take on investment when, arguably, they are doing perfectly well without?
The answer lies in Julie’s vision for her company and her ambition to take it to the next level – leveraging digital to expand into new markets, more deeply into existing ones, as well as roll out new product categories, when the moment arises.
That jump to the company’s next phase requires three key elements. First, is the financial investment. Although this isn’t, in our view, the most important element of the mix, it nonetheless ensures that the business has adequate resources to support a more aggressive pace of expansion and take the necessary risks required to accelerate growth.
The fact that The Cambridge Satchel Company is profitable and bootstrapped means it is a business born with good DNA – frugality tends to mean an entrepreneur is obliged to live on their wits and because there is little or no budget for marketing, they are forced to zero in on the proposition itself and focus on their customers’ needs.
Julie has created a mid-size company that is already highly successful, but with growth capital investment she can shift onto a higher growth trajectory – and scale the company to one with a £100m+ run rate.
That’s no easy task. To do so typically entails reducing profitability, potentially even incurring some losses, while a founder invests to build their team. For example, executive management, corporate governance and digital/marketing/international specialists are hired, manufacturing capabilities are enhanced and websites are redesigned, all of which help create the preconditions for rapid growth.
Second, and more importantly than money, the right investors provide helpful guidance and insight, having successfully supported similar businesses at equivalent stages in their development.
Even if entrepreneurs know what needs to be done, somehow it’s still very important to talk to people who’ve done it before and can help them make the right strategic choices. (Obviously we’ve made mistakes too, but at least we have collectively accumulated deep experience and have multiple real world examples to point to.)
Index has been very active in the digital space, especially in fashion and e-commerce both of which are highly relevant to Julie. We’ve worked with fashion brands such as NET A PORTER and ASOS, and continue to do so with companies like Nasty Gal and Farfetch. In the intersection between design and e-commerce we work with MOO, as well as retailers such as Ozon and Photobox – among many others.
But the brand we’ve partnered with, which is closest to The Cambridge Satchel Company, is undoubtedly Moleskine. The Milan-based company, best known for its iconic notebooks, has encountered similar dilemmas to those Julie now faces, on its journey to becoming a truly global brand. These include ensuring the brand has impact both off and online, while leveraging online as a distinct advantage.
There are several ways to achieve that, such as successful engagement with the community -- which Julie’s team already does with bloggers. Social media, sharing content and doing e-commerce well, all help build brand equity over time.
The third element is becoming part of a wider network – an Index ‘family’ consisting of scores of founders, many of whom Julie has already met informally.
Having a community of peers to turn to for advice, with whom to pool wisdom and share contacts, or simply bounce ideas across, often proves invaluable to founders, in our experience. So much so that Index has created a number of online forums for our portfolio companies, categorized by roles (for example, there’s one exclusively for CEOs and another for CTOs).
So much for why a proven and already successful business such as The Cambridge Satchel Company would want to partner with us. Our reasoning is far easier to figure out. It’s simply this: we’re delighted to be joining forces with an entrepreneur, in Julie, who is building one of Europe’s most impressive entrepreneurial stories. Another Cambridge Phenomenon, only this time carrying a satchel.
* Giuseppe Zocco is a co-founder and partner at Index Ventures.