Holding patterns

A prolific investor, Brandon Deer went from picking stocks with his grandmother to helping develop a $36bn company: enterprise automation provider UiPath. He also co-founded Crew Capital, an angel investor that has supported the success of many other innovative technology firms, and continues to be an active expert in the sector Brandon Deer has been investing for 20 years.

“It’s what I’ve always loved,” the venture capitalist and corporate tech strategist says.

Deer first started investing when he was 13 years old after his grandmother Carol introduced him to it.

This early grounding helped him grow into a prolific and highly successful technology investor. As co-founder and general partner at Crew Capital, Deer has advised dozens of high-growth businesses, including Expensify [EXFY], BetterUp, Melio and Chainalysis, among others.

“My mindset has always been steady. I know the market I’m going after and where I’m an expert. It’s always been business-to-business [B2B] software,” Deer says. The angel investor’s expertise in the space helped him to gain an executive role at one of the fastest-growing software firms in history, UiPath [PATH]. He was appointed chief strategy officer at the $9bn enterprise automation provider in early 2022. 

The benefit of having such a varied career in the tech sector gives Deer an edge in his investing. For example since co-founding the venture capital firm in late 2020, he has invested in a number of fast-growing technology companies. Deer says he holds companies in his portfolio of investments to the same standards that he applies as chief strategy officer at UiPath.

Early advice

Deer’s grandmother was the daughter of Polish immigrants who came to the US during the Second World War and taught her the first things she learned about stock trading. She started investing in the 1930s when it was rare for women to trade stocks and shares.

“When I was growing up, I used to spend time at her house,” Deer tells Opto. Her father had given her the habit of “going through the paper every morning to check the stock prices and conduct due diligence on what she wanted to purchase. She always told me: ‘Invest in things you know and love. If you like it [and] you have good taste, [it’s likely that] other people are also going to like it.’”

These days, Deer’s investing has become much more technical. His early investing experiences taught him that “the key to a successful investment is being intentional about what you’re purchasing”.

This means being considered deliberate and taking your time rather than rushing to follow the crowd. It’s an increasingly relevant approach. In contrast, jumping on the latest trend is “a bandwagon mentality”, Deer says.

That mentality was prevalent between 2010 and 2021. The technology sector had become increasingly appealing and sexy during that time as an avalanche of money poured in, including from many non-professional investors.

“The key to a successful investment is being intentional about what you’re purchasing.”

 

“I’ve always been better at investing in early- or mid-stage private companies with less than $100m revenue. And I place great importance on assessing the quality and calibre of management teams: their ability to attract talent, raise money, innovate with quality products and ship them in a timely fashion.”

He isn’t looking for perfection. Fast-growing companies will make mistakes. But they need to be able to ride and grow from them. Another important thing is setting a “walk away price” — a level you won’t go above. 

“I love founders who think their business is the next trillion-dollar company,” he says. “You’ve got to have that perseverance and some ego in there. But as an investor, you’ve got to have the discipline to say ‘no’.” 

Angel successes

Deer has been a prolific angel investor at Crew Capital. The firm has made 40 investments in the last two years, predominantly in early-stage businesses. 

“Investors Benjamin Graham, Warren Buffett and Charlie Munger have written great books on [how to analyse] potential investments,” Deer says, adding that it’s about the forensic analysis of metrics such as profit and loss and growth expectations. “I like to see business metrics, but that doesn’t take long. For me, venture capital is more about getting to know the people.”

“I don’t meet someone, like what they’re doing and give them $10m,” Deer adds. “I say, ‘they’ve told me they will hit this number. Let’s see if they do.’ And if they miss the target, I want to understand why.”

According to Deer, it usually takes a year from his first meeting with a potential business to determine its “say-do ratio”.

While it may take a year, Deer does want “to meet them the day they have the idea so I can start the clock”.

Taking a year “gives you a chance to find out how they think, handle adversity and seek advice. People can’t mask their true selves for so long... People sometimes try to pressure you into making quick investment decisions, but you always have time as an investor. I’m a huge proponent of time and getting to know people.”

Fastest-growing software firm

Deer joined UiPath as vice president of operations and strategy in 2018. He helped grow the company from $43.7m the year prior to his joining to over $1bn in revenue five years later. He also helped lead the company to an initial public offering (IPO) on the New York Stock Exchange (NYSE) that valued the business at $35bn, although that has since fallen substantially during the tech crash of 2022. It is currently valued at around $9bn.

Deer was working at investment firm OpenView Venture Partners when he first met UiPath founder Daniel Dines in 2016. Dines started the business in Romania but planned to move it to New York, and he asked Deer to join and help with the business side.

At the time, UiPath’s financials didn’t “scream product-market fit” — the business had $30m in revenue. Still, UiPath’s market of enterprise automation was something Deer found interesting.

“We allowed for a cushion because you’re going to make mistakes. But we also had to be aligned in what was going to be important to us going forward,” Deer says. “At the core, it was all anchored around three things: innovation, culture and customer-centricity.”

Putting those three things at the forefront of all strategic initiatives tells customers, employees and investors that the company is dedicated to keep building great products and ensuring their success. “And we are ensuring our employees are happy and having a good time along the way, which is an important element in all that. 

“At the core, it was all anchored around three things: innovation, culture and customer-centricity.”

 

“There’s a famous adage that ‘culture eats strategy for breakfast’. As someone who today is the chief strategy officer of the company, it could be easy to take offence to that comment, but I’m a huge believer in it.” 

Unconventional strategies

UiPath also took some early risks and unconventional approaches. For example, the company recruited globally from the start, because it was constrained by the small talent pool in Romania.

“We were going to India, Japan and China”, Deer says, noting that the ways of doing business in each of those places were very different, which required them to learn many nuances and “make some silly mistakes” along the way.

Another core value that has driven UiPath’s success is to move as fast as possible, for example, when it comes to product development.

Deer acknowledges that “the global economy has just gotten faster and competition can take many forms; not just purely against [who else is] selling your product, but going after the same talent, customer base and mind share.”

At the time, enterprise software was commonly sold through large business process outsourcing or systems integrators, which are people or companies who specialise in integrating various subsystems and ensuring their functionality. But UiPath started to sell directly, handle its own implementations and “invest heavily in a direct field force”.

That had a powerful impact, because UiPath’s product development teams were hearing directly from customers, creating a valuable feedback loop, Deer explains. It also aligned with UiPath’s focus on innovation and customer-centricity and enabled it to extend its competitive lead.

Building the dream

When Deer’s grandmother was teaching him about investments on the NYSE, she may not have imagined that one day he would be ringing the stock exchange bell to announce the listing of UiPath with an incredible $35bn valuation.

But he did achieve that dream early on in his career, supported by some illustrious mentors.

“I’ve had so many people who I’ve asked for help along the way that I viewed like older brothers,” Deer says. “Someone I’ve grown close to over the years is another European founder, Olivier Pomel, founder of Datadog [DDOG — a $22bn publicly traded company].” 

Deer reached out to him from what was once “this little Romanian start-up” and they would meet to walk around the park where Deer says he would ask Pomel many questions. “He treated me with respect and answered my questions thoughtfully. He was just a great mentor.”

Another mentor was Stewart Butterfield, the co-founder and CEO of Slack [WORK].

“I always thought, ‘man, what if one day we could be like one of these big publicly traded companies, like Slack or Datadog: stand on that stage and be able to ring that bell like they did?’ These guys were like my heroes.”

Fortunate IPO timing

Preparing for an IPO is a process that requires lots of planning and work. Deer worked with Dines and Ashim Gupta, chief financial officer of UiPath, to put together the investment story and conduct the auditing, investor meetings and roadshows required ahead of taking the company public. 

The hardest part was keeping the daily business, product development and culture on track at the same time. Staff inevitably had lots of questions, and the IPO became a big distraction.

Deer eventually realised his dream and rang the NYSE bell, alongside Dines and Gupta, when UiPath listed on 21 April 2021, a day he remembers as being “cool but kind of funny”.

“In New York, there was still a bit of a Covid-19 stir,” Deer recalls, “the policy limited the number of people that could be on the podium. So it was a smaller group than we hoped we could have. The funny part was they still mandated masks for national television.”

The euphoria did not last long, however, as the tech crash was just around the corner. Along with most other tech stocks, UiPath’s share price plummeted. After rising to its all-time high of $90.00 in May 2021, it sank 88.4% to its lowest point on 4 November 2022 at $10.40.

After an IPO, investors care less about how shares perform today and more about your forecast, Deer notes. For that reason, he says, it’s important to have checks and balances built into operations.

“And you need to have a team that has the muscles to not try to oversell you internally or sandbag on numbers so that there’s a surprise beat in the end. You want people who [remain] steady all the way through a quarter because everything around you will change, always. And it’s easy to get emotional.”

The first six quarters after the IPO were a big challenge for UiPath. “We were so proud of ourselves for having made it to that starting line,” Deer says, citing the challenges it took just to go public. “And then we got there, and we realised, ‘Man, this is just the beginning’. We thought we had learned so much. It turns out we knew nothing.”

But with the economic situation and tech stocks bombing all around, Deer admits, it isn’t clear whether any actions they took could have moved the price.

Deer’s experience brings to mind a quote from one of his role models, the renowned value investor and mentor to Warren Buffett, Benjamin Graham: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

Short-term prices are governed by sentiment and social psychology, but long-term they tend to align with the fundamental value of a company, as reflected in metrics such as cash flow, return on investment, and earnings before interest, tax, depreciation and amortisation (EBITDA). 

“The speed at which a business’ success is recognised is not that important, providing [its] intrinsic value is increasing at a satisfactory rate,” Deer says. 

As for UiPath, “we’re continuing to add revenue and increase our operating leverage [and] attracted amazing talent along the way”.

In many ways, UiPath has become “one of the leading automation companies. And in the long term, that will allow us to have an outsized impact in the market.”

Deer says he has never doubted that the timing of the IPO was right — indeed, they were lucky to complete it just before the tech crash started.

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

 

As an avid tech investor, he knows many tech company founders who missed that opportunity and are in a “holding pattern” because they have too many preference shares issued before the crash. Those shares were based on much larger multiples relative to the companies’ values now, so they can’t list their companies. 

“They’re going to go through some tough pain,” Deer says.

Deer feels fortunate for two things: that UiPath got out of that situation when it did, and “that we took that pain over the course of the last year”, versus postponing it any later.

As for the companies that weren’t so lucky, they are facing “some tough decisions”.

“The challenge is you have all these employees and investors now who have this expectation of a high valuation exit.” 

While they could raise more funding to counter that dilution, or recapitalise in some way, Deer says that downsizing is a more probable route, as can be seen with the many layoffs taking place across the sector. 

“Unfortunately, [those decisions] are not going to be made quickly, because lots of businesses are in this holding pattern; there will be a delayed effect. We may not see the full effects for two to four years.”

At the same time, many tech firms have deservedly fallen out of favour with investors, he notes. The technology space is more crowded than ever, and Deer says he “wouldn’t be surprised if 50% of early-stage start-ups that exist today are dead in the next five years.

“They’ve been floated by excess money and expectations that have not been realised or properly executed,” he says. 

Future growth sectors

Despite this, Deer says he has never been more excited about the future of the technology sector, especially due to advancements in artificial intelligence (AI).

AI models that can generate original content and are founded on vast quantities of data are remarkable technologies that have attracted users of all types and industries. “I’m absolutely convinced that this will change the way human knowledge workers conduct work,” Deer says.

After the IBM computer Deep Blue beat world champion chess grandmaster Garry Kasparov in 1997, “everyone thought that was going to be the coming wave of AI and the human race was done”. But today, “the best chess players are not just human or robotic — it’s the combination of the two working in unison.”

“Future enterprise will be the same,” Deer says. Competitive advantage won’t just be about finding the best robotics and AI but also finding people who know how to integrate the technology into their work. Companies who do that will “have the most differentiated advantage”.

Some companies have great expertise and unique, proprietary datasets they can feed into AI models, Deer notes. This will enable them to create revolutionary products and services and leapfrog competition.

Some older businesses have even been accumulating data, hoping that these recent innovations in AI would take hold. It might unlock opportunities for them in how they engage with products, their financials or customer support to produce an “unbelievable result that only they will have access to”. Deer believes UiPath could experience a similar revolution. 

Due to its proprietary data “that no one else in the world has”, Deer says, “we can apply these models to produce unbelievable results for our customers, [which] would take others decades to catch up with”.

For example, UiPath automates millions of processes and workflows for its customers. That data can be used to build more semantic, AI-led ways of automating.

Opportunities in a downturn

Looking at the macro environment, Deer believes that both Russia’s invasion of Ukraine and inflation will likely be persistent elements, and that these will be among the many challenges facing businesses over the long term.

Investors need to be patient, persistent and diligent, he says, adding that they need to keep an intentional mindset focused on fundamentals rather than hype. The recovery won’t come in months or quarters but over years. Nevertheless, there are likely to be innovations and opportunities to make money along the way, even in this environment.