interview with Matthew Scullion
"Do I think enough’s been done? Never. But I do think we're making great progress."
Maurice
Hello everybody, welcome to another edition of C&F Talks and it's a great pleasure to have with me today Matthew Scullion, who's the Founder and Chief Executive of Matillion. Matthew, thank you very much for joining us. Matthew is going to be speaking at our upcoming conference, the Future of the UK Capital Markets Regulations Summit, which is being held in London on the 11th of November. Matthew, welcome.
Matthew
Maurice, thank you so much for having me here. I'm excited about the conference, excited to be with you here today.
Maurice
Fantastic. Well, as somebody who is a successful entrepreneur and also somebody who sits on the Capital Markets Industry Taskforce, you're, if you like, in a unique position to address some of these issues we're going to discuss with a degree of insight perhaps others might not have.
Enough effort to make the LSE a desirable place to list
So, obviously the CMIT has made multiple recommendations to improve the regulation of the capital markets. There have been a number of reforms already brought in, for example, in relation to dual class shares to encourage more companies to list. As a champion of high growth companies, do you think enough effort has been put into making the LSE the place that companies and entrepreneurs will choose to list on?
Matthew
Well, hey, as an entrepreneur, as a founder and CEO, I never think enough effort has been put into anything. You can always go from good to great.
But two points, if I could start, which is I already think in many ways that the LSE is a great place to list businesses. And separately, germane to your question, yes, I think we've, as an ecosystem, sure, CMIT, but more importantly, the wider city, regulators, government and country have made great strides forward, taking something that's, you know, I think already really good to be an even better place to list domestic and foreign consequential companies of tomorrow. You know, the CMIT is a convening function.
And it's worth mentioning that its role isn't solely focused on the stock exchange, right? It's not a stock exchange activity. CMIT's brief is to make the UK even better at starting, growing, scaling and keeping companies, all aspects of that. But on that keeping side, making sure our primary stock exchange, the LSE, is a great place to list companies is important.
And, you know, we've been a party to or contributed to, you know, five separate areas of focus to try and make the London Stock Exchange as resonant a place as possible to list your companies. So overall, do I think enough’s been done? Never. But I do think we're making great progress.
I already thought it was good. But my role on the CMIT as the representative of private companies, of high growth companies, also answer the exam question, you can make the stock market as good as you like, you can make the capital markets as business building friendly as you like. But if you don't have the companies to list on them, it's all for naught.
We also have to figure out how to get better at the starting, growing and scaling piece.
Maurice
I fully take your point. But your own personal journey as a technology company has not necessarily followed that of some of the others who've gone to the US markets and so on.
Why the UK over the US
So what was it that encouraged you to, if you like, stick with the UK? What were the elements that gripped you?
Matthew
I mean, in some ways, I'm not sure we did, Maurice. So we are a Manchester-based technology company selling globally. We make cloud data software and an intelligent data integration platform designed to eliminate friction in data. And the market for that product is global. 92% of our revenue comes from outside of the UK. Two thirds of it come from the US because that's the biggest market to sell software to.
But if you look at the way my business is configured, essentially, the factory where we make the software is in Manchester. And the dealerships where we sell it are largely in the United States, although we have go-to-market teams here. But in terms of capital, Matillion's raised, I believe, 305 million dollars of venture and growth capital since 2016.
Of that 305, 300 was raised outside of the country. So we are co-headquartered here in the US and we're not yet a public company. You congratulated me earlier for being successful, Maurice, but I don't think we are yet.
I think we're on the way to hopefully building a consequential company. But we haven't yet become public. And so I haven't yet listed in the UK or the US.
But most of our capital has come from outside of the country. Now, what we have done is we've gone to a certain size and intend to get much bigger. And I think the reason that we've been able to do that, done that, enjoyed doing that, is we followed that very aggressive business building playbook that is so often used in Silicon Valley and less frequently used, perhaps in the UK, somewhere where we're trying to solve a big problem that lots of people in the world have and are willing to pay to have solved.
And then we execute after solving that problem maniacally and as aggressively as possible, because that's what you have to do if you want to build a big business quickly. And that's part of the reason we took US capital during our business building journey, because it means the investors are likely to be aligned with the way you want to build the business to get it as big as possible. That's high risk, high return.
And that's what is so commonly and well done in the US, particularly in the Bay Area, but less frequently the case in the UK. At each of our fundraising rounds, there's been five, we're a Series E company. We were lucky enough to have term sheets from European and British investors as well as American ones.
But at each turn, we thought to ourselves, we definitely want to be partnering with someone that shares our vision for building something as big as possible, as fast as possible. And focused on that shared goal. And at each time, we felt possibly incorrectly, that that wouldn't have been the case with British money, which should have been more about getting a modest return, but mitigating risk.
And that would put an asymmetry between management and the business building initiative and the investor. So, in some ways, my experience has been illustrative of parts of the challenge that we have. And, you know, really, I don't want Matillion to be the famous IPO on the London Stock Exchange, not because I don't want ours to be great.
But I want it to be because there are 10 that week. And that there are companies better than mine and bigger than mine solving even bigger problems. But and that's why I say it's not only is it important to focus on improving the capital markets once a company is public.
But it's also really important to ensure that we have the companies that want to and can go public, because they're good enough companies getting big enough, fast enough and well enough run. And that involves is also focusing on the exam questions of how do we make sure our entrepreneurs, founders and CEOs are using the right playbook? And how does domestically allocated capital, remember, I got term sheets from British and European investors at each round, I just chose not to take them. Why? And it's been in my case, it was because I didn't feel my outcomes were aligned.
I think we need to learn that playbook for the capital allocation, as well as revolutionising our public markets. Does that make sense?
Maurice
It makes perfect sense.
Overcoming the cultural reluctance of institutional shareholders to invest
And actually, if you're happy to go on to the next question, it really leads into it quite nicely, because part of the issue appears to be, I'm not sure whether it's a cultural issue with you refer to the institutional investors in the UK, being more interested, perhaps in a low return, low risk type investment opportunity.
Whereas in the US, people are more willing to spread their risk and go for high returns, high risk on the basis of a portfolio approach. Or is it that do you think? Or is it perhaps that sometimes there's a better understanding of technology, and the returns ultimately can deliver in the US, a cultural thing, if you like, two aspects of culture, perhaps, you know, one is that low risk mentality, the other one might be a lack of understanding about technology and its potential and the returns associated with it. How can this change, do you think, in the UK? For all the changes which CMIT is pushing through, how can you affect that sort of cultural change?
Matthew
Yeah, it's a great question. And I think there's a few things in there.
I do think overall, societally, in the UK, we have a poor attitude towards risk. And so I'll come back to that point. We all know it, it's a difficult problem to solve. But perhaps Maurice, if we could, we can return to that point in a moment. I do think there are some other things in there as well.
So first of all, once again, and apologies to sound like a stuck record here. I do think that a material part of this part of the exam question is to do with the volume and quality of British companies that want to become public here in the UK, and therefore that our domestic investors can apply themselves to, you know, that the narrative goes that British public market investors don't understand how to value tech stocks in the same way that US ones do. And therefore, that discounts the value of those companies if landed on the London Stock Exchange, and that it also leads to volatile pricing of equities.
And it's all down to, you know, the lack of understanding by analysts and researchers in the London market. So some of this is about volume. Is it true that if you talk to a tech specialist in the UK and a tech specialist in the US, it's a different experience? Yeah, that's in my experience true.
Tech's a very broadly defined thing in the UK markets. It could include all of software, so that would be infrastructure software, like my company makes, application software, those quite different markets. But it could also include other areas of tech, like deep tech or hardware, or tech enabled businesses, which aren't really tech businesses at all, they just use tech technology.
There's only a fairly small number of those sorts of companies, all you can really do is have a generalist that can cover all of them. And then, you know, put a collective noun around the side of it called tech. If you go to the US, you know, you don't find someone that's a tech specialist covering all those things, or a software specialist covering all parts of software, you know that they will cover a particular part of enterprise infrastructure software.
So they might be a data analytics and development tools specialist. And the reason is simple. It's because there's enough companies to keep yourself busy all day to learn and get good at that, which is why to me, this stuff comes back to the feedstock, right? If we are not building enough companies of a commensurate quality to go public, and you see one in a blue moon, it's wildly different from the last one.
And it's hard to know how to price it. How do you solve that, you get more volume in the system, which comes back to the part of CMIT’s mandate that I'm passionate about, which is the supply chain of proto consequential companies.
The second point here I'll make is that the US market did learn it, right? There is nothing cultural.
It's just volume, like they started to put, they started to create lots of tech companies and therefore got good at understanding them and pricing them. I think if you go back 15 years, that wasn't the case. And, you know, many of the people doing that work were liberal arts majors that, you know, didn't know one end of a software stack from another.
I will also point out here that I do think some of this is on the companies. Because, you know, again, the kind of classic anecdote, I suppose, is that the company lists on the London market, it pops in is worth a huge amount of money. And then there's a couple of scary trading periods, and it's worth a 10th of what it once was.
But I do think the company has to bear some responsibility for that as well. You know, if you are running your business in a stage commensurate way, and you're able to, you know, predict your forecast four quarters out with a reasonable level of confidence, you take investor communication seriously, you have a stage commensurate team of executives running the business for you that know how to do this stuff and have done it before, you're gonna get a much calmer experience in the price of your shares on the London Stock Exchange. Compared to, you know, if you turn up, and you do a really good job selling a story, but you've not necessarily got all the maturity in the business underneath to provide a predictable, well communicated, beat and raise experience every quarter, then it's perhaps unsurprising that you're going to get punished when you have a bad quarter and see a big swing in the value of your company.
And I think you see both stories play out on the London Stock Exchange over the last few years, companies that have gone public and actually done really well. And share prices, you know, remained fairly unvolatile and the business is worth more than when they IPO. And by the way, that is not the case for a lot of companies that listed in the last few years on the NYSE or the NASDAQ.
And then you've got other companies that were worth a huge amount and are now worth not much at all. You can't blame all of that on the stock market. Some of it's got to be the company.
Maurice
Yeah. Now, I think that point about volume, how do you drive the volume is key, isn't it? But that's such a fundamental area that we seem to do well at, say, university spinoffs of technologies which don't progress within the UK system and tend to end up being funded elsewhere and listing elsewhere.
Whether PISCES will help get companies listing in London
Do you think that, this is not quite what we might have discussed, but do you think that PISCES, this sort of halfway house, grooming, if you like, market will help these companies achieve a degree of maturity, as you put it, and enable them to move on to a main market listing and help them in terms of their planning and their corporate governments and might move more of those technology companies through from the starting point to a listing in London?
Matthew
I do think Pisces is a really innovative and useful new tool and platform being provided in a differentiated and unique way in London to provide the ability to raise capital or facilitate secondary transactions and bring investors onto the cap table who can then grow their positions and help you as you go public.
These are all attractive utilities for the high growth company, and I think it's a great market development. I'm really excited about it and proud that it's happening here in the UK. And I like the fact it's differentiating us from other geographies in terms of our support for building businesses.
I don't think it's the only thing though, and you've got to remember CMIT is made up of a group of people that are, each of them has a worldview on the flywheel of business building in the UK. And the reason I'm on CMIT is, my experience is around high growth business building in private companies, ones that haven't yet become public companies. And in my experience, PISCES would be something that's relevant for my company, Matillion, sort of now and going forward, maybe a little earlier.
But I also think that the ultimate solve to the problem of starting, growing, scaling and keeping companies in the UK, yes, we have to solve the keeping bits as they become public. But also, we have to get better at the starting, growing and scaling bits and make sure we don't either fail at that point or lose the companies at that point. To bring this slide to you with a bit of technicality, take my journey.
So we did a friends and family fundraising round and then several years later, once we found product market fit, we've to date done five institutional rounds. The first one was with a British company, a really excellent VCT called YFM. And then the second, third, fourth and fifth rounds were with collections of US-based, mostly Silicon Valley-based investors.
At each of those rounds, we took term sheets from US investors, and we took term sheets from UK or European investors and then chose, I chose, as a very proud person to be building a company in the UK, I chose to take the money from the US. Now, the money is the same wherever I get it from, Maurice. It wasn't about the price of the money or even the terms.
You know, money is the ultimate home ingenious product. A dollar from the US is exactly the same as a dollar from London. So why did I choose to take those US term sheets? Well, in my case, it's because I believed that the investors that would be joining my board, you know, that's something that's more difficult to get out of than a marriage.
I needed them to have the same worldview as I did, which is that I'm going to try and build a big, durable, consequential and valuable company. And all my activities were around doing that. And they felt the same.
They were like, ‘go for it, Matthew, go as fast as you’ can in simple terms. Whereas I felt if I'd taken the European money, that they just told me like, ‘yeah, build a company, but we're interested in definitely making a return and definitely not losing out along the way’. And that's slightly different.
And it does produce a return well, but it doesn't create consequential companies well. Now, the interesting thing about that is every time I do one of those rounds, a board member comes with the investment. So I've done five, there's five people on my board now that have turned up on my board as a byproduct of investment.
In fact, it's six because in the Series B round, it was co-let. So two investors came in. So when it comes to a vote about where Matillion IPOs at some liquidity event in the future, on an 11 person board, six of them are investors who've only ever listed in the NYSE or NASDAQ on their previous companies.
Now, as it happens, I think the London Stock Exchange is a fantastic place for Matillion to list and we'll be having that conversation and making the right decision for Matillion. But the point I'm making is many of the things that we are solving for on the public's market side all make the boat go faster, but only if you've got sufficient companies coming up through the ranks. And the decisions you make fairly early on in those companies really affect whether you start growth, scale and stay in the UK well before you get to the public markets.
NYSE is great because it brings that conversation earlier. But actually it starts happening at Series A and Series B. And so we really need to think about the UK investor playbook at that end of the market and the CEO playbook that goes with it in terms of how to build consequential companies. Does that make sense?
Maurice
Yeah, that makes perfect sense. I mean, that expertise that you have that comes with a board representation is obviously an asset to the business, to the extent it's very well informed, which I guess for these investors it is. That was extremely interesting. I think we've probably come up against the time limit for our interview. I could continue this for a long time, Matthew. It's absolutely fascinating.
But for our viewers, please do come along to the Future of UK Capital Markets Regulation being held in London on the 11th of November. Further information available at our website www.cityandfinancial.com.
Matthew, such an insight to have this conversation today. Really interesting. Thank you so much for joining us.
Matthew
Thank you. Pleasure.