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25 May, 2015 - 07:09

Lynch turns £2,000 cash into $10.2bn US sale

Mike Lynch on stage at the Corn Exchange in Cambridge

Chipmaker ARM launched with less than £3 million funding and today has a market cap of $25 billion. £3m! Such riches! Cambridge’s second most successful ever technology business, Autonomy, was launched by Mike Lynch with just £2,000 – donated by what he calls “an English eccentric” – yet fetched more than $10.2bn net when it was acquired by HP.

Lynch is refreshingly honest in assessing his triumphs and tribulations and was one of the first entrepreneurs to engage with the Cambridge Torchbearers initiative so he could pass on his experiences to new generations. Lynch’s story will strike a familiar note with entrepreneurs everywhere as he recounts how frustration in his personal life morphed into an unexpected opportunity to become a multi-millionaire. Here is his own story – Mike Lynch uncensored.

My first interest in business grew out of the fact that I was a musician and I could never afford to buy what was then called a ‘digital sampler’ – they were about £100,000. I wanted to use them to make music – so I set about building one instead. As I had designed one, I found that I could sell the design – so it all happened by accident really. 

When I was doing my PhD I realised that some of the work that I had done would be very useful to solve problems  – I didn’t know anything about how to run a business or the challenges involved so naively I just got started. 

I was doing my PhD and living in a student house on Devonshire Road. Whilst doing my PhD I was building prototypes of synthesizers – and I understand that because the college never changes the carpet, the solder is actually still there! This was in the late 1980s and I was in my mid-twenties.

The nature of the Autonomy business was completely driven by the technology: one of the first things I did was use computers to match fingerprints for the police, which was a very easy sell. It would take several people weeks to do this job but a computer could do it in five minutes flat. 

I had been very fortunate to have a large number of people in my life who were very inspiring – from my old PhD supervisor Peter Rayner through to John McMonigal at Apax, who was really the person that let me know that you could take this technology and turn it into a real business. I didn’t have a business plan and I didn’t know how to compile one – it was only by the time the business got to £4 million of turnover and £2m of profit that we prepared one – by the way, this was a margin I never achieved thereafter! 

The business got going with a £2,000 loan from an English eccentric. In the early days no-one would give us any money, which proved stressful – so we were very grateful and lucky to receive the initial loan. After that, it meant that you learnt to run a business very quickly – or you simply went out of business. We encountered all kinds of problems. We didn’t know anything about marketing, we had to go back to first principles to learn these things as we went along. A lot of our early lessons were about finding really good people and listening to them. 

There is a lot of stress in running a business but you are on a mission to make your dreams come true, which is incredibly rewarding. I found the most negative part to be the small number of rogue elements in the City who were out to destroy value for their short-term gain. At least my dog was always there for me – for a small treat, it would listen to all of my problems and then look reassuringly into my eyes!

The success of the business got out of hand! The company got about a billion times larger than originally envisaged. I was glad I had a co-founder: it is very important to have co-founders because on the days that you are up, they are down – and likewise; they can pick you up on the days that you are down. This balance is important for the business.

It is equally important to have a distribution of synergistic skills. For example, I’m very bad at networking – generally I think its importance is placed above good product and customer care, which is to the detriment of the business. That said, my links with certain institutions have been invaluable – obviously, without Cambridge University we wouldn’t have had anything to create a business from and some of our early stage investors, such as Apax, proved incredibly helpful. 

After leaving Autonomy, I founded Invoke Capital, a technology investment company that seeks out fundamental technologies across Europe. It has some superb portfolio companies including cyber security market leader Darktrace and behavioural analytics specialist Featurespace. There are many significant others.

Did I ever regret being in business? Yes – at the height of the dot-com bubble, when Autonomy was worth an absolute fortune I would have bought up every biscuit factory in the world.

You have to realise what you are letting yourself in for. It’s like flying a fighter jet – it’s incredibly exciting, but there is often vomit in the cockpit and it takes total commitment. Equally you must also realise that it is absolutely possible for you to do this.

Looking at the broader question of the entrepreneurial environment in the UK, the country is making a lot of progress and we are entering a new phase where a lot of the problems for early-stage companies have been fixed. However, a lot of the problems still remain for the mid-stage companies.

The UK has become a lot more supportive of entrepreneurial ventures – it is night-and-day different from when I first started. Yet, there are still many areas that could be improved, both at the beginning of the process and at the end. 

The size of businesses is not limited by ambition or short-termism – they are limited by structural failings in the UK stock market. A lot of work is going on to fix these and hopefully will mean that in the future, the rational decision for business owners will be to not sell their company but instead to keep it going themselves.

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