Nicola McClafferty, investment director, Draper Esprit. Image: Draper Esprit
Nicola McClafferty started out as a venture capitalist, then she earned her stripes with her own start-up, Covetique. Now she’s back in the investment game.
The realities of starting and scaling a start-up business and then selling it are top of mind for Nicola McClafferty, who joined esteemed Irish entrepreneur and investor Brian Caulfield at Draper Esprit’s Dublin office earlier this year.
McClafferty and Caulfield make for a dynamic team, since both of them are seasoned entrepreneurs as well as investors.
‘What breeds greater diversity is, people need to see successes that look like them. How do we better elevate and promote diverse success stories that we start to see?’
– NICOLA MCCLAFFERTY
Caulfield led the successful exits of Exceptis in 2000 for $26m, Similarity Systems in 2006 for $55m and Aepona, which was acquired by Intel for $120m in 2013. Last year, he helped to spearhead the £100m flotation of Draper Esprit on the Dublin and London stock exchanges.
McClafferty, who will be speaking at the upcoming Bank of Ireland-backed Startup Grind in Dublin on Wednesday 31 May, is of the same pedigree as Caulfield for starting and selling companies. As well as her investment prowess, she also built and sold her own start-up, Covetique, to online fashion giant ASOS in 2015.
The University College Dublin graduate began her career in London in investment banking before going on to work with notable investment firms Balderton Capital and Ravensbeck.
The lure of entrepreneurship
Inspired by the start-ups she was guiding and advising, McClafferty felt the start-up urge and co-founded Covetique, a leading online retailer of pre-owned luxury fashion.
“I think when you spend so much time around start-ups and entrepreneurs, you kind of want to give it a go yourself,” she recalled.
“It’s all well and good sitting behind a table and being able to make judgements on business plans and entrepreneurs and invest in their businesses, but I felt I wanted to do it myself on a much more grassroots, hands-on level.”
McClafferty spotted a gap in the market and was eager to give it a bash before anyone else thought up the same idea.
“The thesis behind Covetique was that there was this huge luxury market where women were spending money on goods, and a lot of these items just sit in wardrobes representing a lot of value. These are women who don’t have a lot of time or inclination to use eBay. It was just something I had seen from friends, and I spent a lot of time looking at e-commerce and flash sale businesses that were emerging. And what was clear to me was that off the back of Airbnb and all the peer-to-peer car sharing and rental services, people were thinking differently about the assets they owned. They were thinking of extracting more value from their own assets, whether it was renting a room or a car.
“We felt that for most women, your wardrobe is more valuable than your car – you would resell your car, why not your wardrobe? The big challenge was, to resell your wardrobe or high-end designer clothes, shoes, jewellery [etc] required time and patience. I felt there was this whole market of women who, in theory, would be very active sellers of an interest asset – their wardrobe – but didn’t necessarily have the time to do to it.”
A year after Covetique was set up, ASOS invested in the company and helped to grow the business.
“We were still an independent business but we worked closely with ASOS and they were a supporter of the business throughout the growth period.”
Growing pains
McClafferty learned that one of the hardest parts of scaling a business isn’t just access to capital, it is access to technology.
“We reached a point where we had 20 people, we were shipping to 68 countries, doing a run rate of $5m in sales, but we were struggling to scale on the infrastructure side.
“One of our major challenges was that we underestimated the complexity of our operational model. We had underinvested in technology and got to a point that our growth was becoming an issue and we were struggling to scale systems to meet our growth.
“That triggered a fundraising drive to try and raise the funds we needed, to invest to address that scale-up [of] our infrastructure. It was a difficult time to raise money.
“Appetite for e-commerce investment at the time was more muted than we would have liked and so, after number of different discussions and in the midst of that, ASOS put an offer to us for them to take on the business.
“It was the right thing at the right time. I would have liked to have taken it further and driven the growth but we were struggling to raise the capital we needed. And so, ASOS became the right home for the business.”
When a good idea just won’t let you go
Nicola McClafferty, investment director, Draper Esprit. Image: Covetique
The Covetique experience sated McClafferty’s curiosity about start-up life and taught her valuable lessons.
“Nothing can you prepare you for start-up life. That’s for sure. I felt like I had been surrounded by so many incredible businesses that really had inspired me. I just love working with technology companies and was inspired to want to run my own.
“I felt I spotted an opportunity too in the market; I had sat on an idea and it was sitting with me for a long time. I put off starting it for a while on the basis that I was looking at these people who were entrepreneurs and wasn’t sure if I was one. I think a lot of people think like that. That’s it’s not for me. I still struggle to call myself an entrepreneur.
“But I felt somebody needed to do this and eventually, I talked myself into a place where if I didn’t do this, then someone else will and I will kick myself. I felt strongly that there was a strong market opportunity.
“There is very little that can prepare you for that life. But I suppose I still underestimated what it was going to involve, both from a personal standpoint and a professional standpoint.
“There is no question. The way I see it, in the start-up world, the highs are higher and the lows are lower than anything you will ever do.”
Gender bias in investment circles
I ask McClafferty about being a woman investor in a venture capital industry with a dearth of female partners. I pointed to Astia figures that show just 6pc of investment partners in VC firms are women, and this results in a correspondingly poor 6pc investment rate in women-led start-ups.
“You are right, this is an issue. There is a diversity issue both on the gender side but increasingly, whether it is ethnic, culturally – there is definitely a diversity problem.
“How do we fix this? The only good news is that it is being talked about a lot more, but that by no means is enough.
“There are, without question, particularly on gender side, unconscious biases that come to play when female entrepreneurs or business leaders are pitching. And I think that when people talk about VC being largely pattern-recognition, that it is true to a certain extent.
“Having more women in investment roles is going to help the backing of women-led companies. Different perspectives around a table are going to lead to a broader range of businesses and business types being invested in.
“We as a firm have three women investors on our investment team, which is not a small number. Investment firms, number one, need to make that conscious decision that they need to grow the team.
“What breeds greater diversity is, people need to see successes that look like them. How do we better elevate and promote diverse success stories that we start to see?
“People are inclined to stick with what they know and what looks like them. It is a long term game unfortunately, but the more female investors there are, the more investors that are of a diverse background, the more diverse companies get funded and the more success there will be.
“It is our job to make sure we celebrate those successes in a great way because, for young kids coming through, young entrepreneurs starting to think about opportunities open to them, it is vitally important.”
Ireland has software in its DNA
McClafferty’s e-commerce and consumer experience means that she is 70pc focused on Ireland, with the remainder of her time focusing on Draper Esprit’s consumer and retail interests.
“We have a remit to build the Irish pipeline and actively invest in Irish businesses, and that’s what we are doing.
“What is notable to me is that Ireland has always punched above its weight in terms of its ability to produce interesting and global-scale technology businesses. There is a strong culture of entrepreneurship in Ireland. I think that is being embraced in a big way now.
“The Irish State has done a very good job in seeding the market and, to a certain extent, there is a bit of a volume gain in that the more start-ups that enter the market, the more successes we will see.
“The key here is the huge amount of activity in the very early stage in Ireland. It is about trying to understand how do we build companies in Ireland that are world-leading technology business. There is a lot of really interesting intellectual property coming out of Ireland. The universities have incredible research and, no question, the ability to create really interesting scalable technologies. But we need to make sure the companies we are building and the teams we build around them can scale to an international level.
“Ireland has done that, just let’s do more of it.”
From Draper Esprit’s perspective, the focus is on Series A-plus investments in businesses that can demonstrate a €1m annual revenue run rate.
“We are seeing a lot of interesting fintech plays come out of Ireland, especially around blockchain, and we are keeping a close eye on that. It is still early days.
“There are interesting things happening in AI and that’s where a lot of the new killer apps are going to be.
“We see a lot of good software coming out of Ireland, but not really in consumer. Overall, Ireland has good DNA for software building,” McClafferty concluded.
“Enterprise software and SaaS is a large proportion of what we would see reaching a meaningful scale in Ireland.”
