The Disruptive GCs: Passion Capital’s Jamie Whitcroft

Despite being a small venture capital company Passion Capital has given itself a mammoth task – it is aiming to find the next Facebook or Google. To do this the company invests heavily in start-up technology businesses in the hope that one will change its market dramatically.

Start-ups that have received backing through Passion Capital include online payments business GoCardless, search engine aggregator Adzuna and audio platform Mixlr. The companies have little in common except that they all use technology in new, interesting and, hopefully, profitable ways.

Among Passion Capital’s eight employees is the company’s first in-house counsel Jamie Whitcroft. While most lawyers are encouraged to be risk-averse, Whitcroft has learned to adapt to the business’s positive outlook to high-risk investments.

“When I joined I remember thinking – this is quite punchy,” says Whitcroft. “I’ve quickly come round to the view that being super-cautious is just not what it takes when you’re trying to find the next Amazon.”

The funds

Passion Capital operates three main funds with a combined value of £95m. Each company that is approved receives an average of £350,000-£500,000 to help launch their business.

The first fund consists of 41 companies that will receive around £37m in total. These start-ups are in a later phase of their business cycle and are looking for a corporate exit or an IPO. Fund number two was launched last year with £45m and has grown to 22 companies. The final fund differs in that it has been set up to finance only one ­business, challenger bank Monzo. The bank
uses technology to update account balances instantly through its smartphone app, and is designed to make banking more compatible with the mobile age.

 As a challenger bank Monzo did not fit the legal criteria that allowed it to be placed into Passion Capital’s second fund. This presented Whitcroft with an interesting dilemma as the business was still keen to invest in Monzo. Instead of choosing not to invest in the bank, Whitcroft helped create the third, dedicated fund.

The day job

As the company’s in-house counsel most of the work Whitcroft carries out is transactional, surrounding investment in the tech companies.

“When we fund new companies and we’ve agreed the deal I take over and run the process,” says Whitcroft. “I look at the due diligence and anti-money laundering process, but another big part is the follow-on investment.”

What Whitcroft means is that Passion Capital does not make a single investment into a company, it makes many as the business grows.

Passion Capital will make an initial investment that it exchanges for a stake in the business. As the tech business develops it inevitably seeks further investment, which has the effect of diluting Passion Capital’s shares.

To combat this Passion Capital invests only a third of its capital in the start-up initially. The rest is invested at a later date, to keep the equity house’s share percentage at an appropriate level.

Open-door policy

Another big part of Whitcroft’s role is as an adviser to all the companies that sit within Passion Capital’s fund portfolio. The venture capital outfit shares an office space with a number of the start-up businesses. This allows the tech companies to collaborate on certain projects, but also enables them to call on Whitcroft personally for his expertise.

“What really interests me is the GC role I have within the portfolio companies – I’m a resource for those guys”

“What really interests me is the general counsel role I have within the portfolio companies,” he says. “I’m a resource for those guys and if I have capacity I help them with legal work.

“It’s great for Passion Capital too, as it’s a value-add. We don’t charge for it. It gives me a broader view of what’s happening in those companies and that’s about 20 per cent of my role.”

This service is a major benefit for start-up businesses which may not have access to a great deal of legal advice. It also gives companies an incentive to work with Passion Capital.

Lawyer and investor

Alongside his duties as in-house counsel at Passion Capital Whitcroft acts as one of the key decision-makers in the organisation when it comes to choosing which businesses to invest in.

To begin with, the founders of a technology company will meet one of the partners at Passion Capital. If the meeting goes well the business is invited back for an interview with the rest of the team at the venture capital company.

“They meet the whole team and that’s when I come in and join the pitch, at a late stage” says Whitcroft. “Then, as a company, we have a meeting where we talk about all the start-ups we’ve seen and discuss their advantages and disadvantages. Some may not meet the criteria.”

At this point Whitcroft is able to bring his legal knowledge to the table and point out any issues that could prevent the business in question from being a success. It also gives him the opportunity to back projects he feels could be successful.

For Passion Capital, having Whitcroft as in-house counsel has no doubt paid off both through the advice he gives and the money he saves them on employing external counsel.

Whitcroft is proud to say that he is relatively self-sufficient when it comes to carrying out Passion Capital’s legal work. When external counsel is necessary he brings in Travers Smith to assist with tax work and occasionally turns to Scottish firm MBM Commercial.

Whitcroft’s role within the business is crucial both as a lawyer and as a member of the investment team. His experience is vital not only for Passion Capital but also for the technology businesses trying to raise finance.

So, if you are an innovative tech company looking to get off the ground, it could be this lawyer who makes, or breaks, your business.