Venture capital and growth
We act for clients across the venture capital landscape
15 7月 2024
Insight
Dylan Doran Kennett qualified as a solicitor in England and Wales in 2014 and joined Herbert Smith Freehills in 2023 from a leading international law firm.
With a number of interesting dynamics currently playing out in the venture capital and growth equity space, Dylan discusses how his background brings a distinctive approach to supporting early-stage companies and forecasts what's next in the market.
What was your background before joining HSF?
I'm Canadian by background, having spent the last 15 years in the UK with two short stints in Australia in 2005 and 2014. After my studies at McGill University in Montreal, I had a passion for music and was given the opportunity to start work in the music industry by helping to put on gigs and working with nascent groups. My favourite job at that time was working for a festival called Pop Montreal. Their focus was to break new talent while shining a light on the local scene as well as living legends. It was a phenomenal time for music in Montreal and I was tasked with helping with their scouting process and paralegal work. It was through that experience I started working with music and entertainment lawyers and realised that was a job I could pursue.
I came to London to pursue that dream. After finishing my studies at University College London, the music industry was still going through tough times, so I focused my energies on tech, media and sport. That coincided with the Cameron government in the UK throwing their weight behind the nebulous concept of Tech City [the east London start-up cluster also dubbed Silicon Roundabout]. I was given a wide remit to develop businesses in the Shoreditch area and UK more broadly and went from watching bands in bars to chasing founders. With HSF, I've come to work with Mike Jacobs and others on further building our venture capital and growth equity practice in London and the UK and also focus on aligning our practices around the world.
How has your background helped with venture and growth capital clients?
All my various experiences in life have always been about helping people bring ideas to reality, whether that's been artistic, commercial or a combination of both. You might be at the beginning of the journey and trying to facilitate a founder's vision into something more concrete. It's understanding how to build the foundations and letting them build the house itself. On the other side of the dialogue, it is helping venture and growth investors in deploying their capital into projects that are still nascent; often it is helping them understand what is the kernel of IP that is going to make this venture fly. Separately, we have to identify the risks to that business by looking at the competitive landscape, IP, and founder relationships.
And as that company matures, we look to assist in scaling, which can often take a land-and-expand-strategy. That means you bring the company into a new jurisdiction and replicate their core business model, while appreciating local nuances and considerations. Separately, it may be the case the company has no international ambitions just yet but wants to offer a different product line in the home country to existing clients to increase their revenue base. We are always keen on such projects and helping client's work through strategy.
If you're investing in something now as a mature company, VC was probably looking at it five years ago. Business that may seem a bit weird and novel, that's my sweet spot.
Much like being a big music head, I've also always enjoyed spotting trends early. VC often identifies a theme ahead of the wider market. If you're investing in something now as a mature company, VC was probably looking at it five years ago. Business that may seem a bit weird and novel, that's my sweet spot.
What are the major VC trends currently?
Capital continues to flow into AI at a quick pace and the scale of change for wider society is quite daunting. Therefore, this remains a very buoyant part of the market and one which we're seeing lots of activity, not only on fundraising, but commercial partnerships. Save for that good news story, the last year and a half the wider venture capital market has been in the doldrums much like the wider economy.
Separately, we're also seeing venture and growth equity investors look at defence, especially so-called 'dual use' investments which can be deployed into the defence industry in addition to core civilian purposes. In other aspects of deep tech, quantum computing is quietly building away in the background; HSF recently advised on the PsiQuantum deal in Australia, where the Australian Government invested over A$900 million into the project. Lastly, media and sport remain very hot asset classes, with significant US capital flows continuing to enter Europe to look for undervalued assets that could benefit from US professionalisation (which often includes stadia financing).
What type of clients are dominating your practice right now?
We're developing the practice on a few foundations. We focus on both sides of the investment dialogue acting for both institutional VCs and corporate venture capital arms. Given our heritage acting for large corporates, it was natural to act for their CVC units and often these are fascinating deals since they are not investing just for economic returns, but for some strategic reason. The other side is we act on the company-related work. That's interesting as it's not just the fund-raising rounds, it's the employment, the tax, the commercialisation of the IP and the supply and commercial contracts, building the company foundations and then hopefully hyper-scaling the business. We're pleased to see fintechs back in the game recently given it is the jewel of the UK's crown and we're working on late stage financings again and thinking around exit plans (or buy and build strategies); it is where our Tier 1 capital markets and M&A teams really get to shine.
What big-picture VC trends do you see taking hold in the next two years?
We're seeing a migration of supply chains to jurisdictions that are deemed to be geopolitically less risky. Post-Covid supply chain issues coupled with outbreaks of war (or looming threats of it) have forced companies, governments and other stakeholders to think about re-shoring or redomiciling their critical supply chains insofar as they're in politically difficult areas. This is a theme we've seen over the last year – companies are not necessarily winding down operations but starting new ones in jurisdictions they are comfortable with.
Climate transition remains a core investment and one which we're on the front foot with, led by our energy, mining and ESG colleagues. The scale of the challenge is enormous, but we're working on all stages of company growth, from earlier stage high-growth ventures with our partnerships with Carbon13 and Earthshot, while helping our mature clients with their needs on transforming their businesses through R&D, large scale infra projects and corporate venture capital strategies (just to name a few touchpoints). The project is long term, but pressing and we're doing our bit to facilitate positive change.
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