For the second Nordic EdTech News interview, I was delighted to catch up with Charles Madon, Partner EMEA at LEGO Ventures last week. It was fascinating to learn more about their investment approach and to understand how their decisions inform and drive innovation across the LEGO business.
As previously, the transcript of our conversation (edited to bring you all of the very best bits) follows below.
I’ll certainly be doing more of these interviews with key players from across Nordic EdTech during 2020. As always, your feedback is really valuable, so please email email@example.com or comment below.
Jonathan Viner (JV): Could you could start by describing what LEGO Ventures is and what it does?.
Charles Madon (CM): LEGO Ventures was founded a little over a year ago to invest strategically along LEGO’s mission of learning through play. So our goal is to invest across the world and to that end, we have offices in San Francisco, Shanghai and London. We are investing in startups that match our three key tenets of creativity, learning and play.
JV: What’s unique about your proposition? How is the work you do at LEGO Ventures different from a conventional VC environment?
CM: What differentiates us is a strong alignment to supporting the LEGO corporate mission. We’re also attacking a very new space that I like to call KidTech. This is very much focused on helping the next generation of builders to prepare for the challenges of their future lives. Whether that’s looking at education technology, 21st Century skill development, new play spaces or ways to encourage creativity more generally.
JV: Where is the fund’s focus on investment size and stage?
CM: From an investment angle, our focus depends on geography but we are generally fairly agnostic. Our US and China teams might see a larger deal flow from later stage companies. In Europe, we’re focusing more on Series A to Series C, although we have also done some seed investments. I think there are a number of great early stage European EdTech investors, such as BrightEye Ventures, Emerge Education and Educapital in this space, but there’s a bit of a gap in that later stage, so I think that’s a place in which we can operate, add a lot of value and be successful.
JV: What underpins your investment thesis?
CM: LEGO Ventures is really focused on strategic alignment and how we do that is really interesting, I think. We start by looking at the alignment of the start up with our business - not just the deal team but also the incubation and value creation teams - the latter are often described as our connecting tissue. They keep us locked into the work of the wider LEGO corporate and they’re working to help our startups to gain knowledge from us, whilst at the same time using the start-ups to inspire new thinking internally in LEGO.
JV: What does that mean for the length of funding that you typically have with a startup?
CM: LEGO has been around for 87 years, so you can say that the family who own it are quite patient. We don’t have a fixed timeline when we look to exit a startup.
JV: Does that commitment and the universal love for the LEGO brand place any restrictions on what you can do or cannot do?
CM: The family has their own office and manage their own investments for financial returns. That allows us to focus on the strategic side of things and our mission is to look a little further out and see how we can help the business to grow in the long term. Many internal divisions are looking at the next 3-5 years, we’re looking at next 5-10 years plus, which is hugely exciting. More broadly, I’d prefer not to talk about restrictions but to focus on alignment with our learning through play mission, which is largely in the Pre-K and K12 space.
JV: Can you comment on the size of fund LEGO Ventures are currently running and what are the biggest, smallest and sweet spot tickets that you’re writing?
CM: We’re lucky to be an evergreen fund, which allows us to deploy cheques across a variety of sizes and stages.
JV: Alexis Horowitz-Burdick, managing director of LEGO Ventures is quoted in Tech Savvy saying that “Our value proposition needs to be more than just money. We are looking to add value beyond the money we're putting in. The financial return is not our primary goal and not even our secondary goal. “ If it isn’t the primary goal, then what is?
CM: The strategic return to LEGO is absolutely top of mind. Of course, financials play a large part and we’re not out to lose money but we’re looking to make a significant and innovative change to our corporate operations. We’re trying to be as competitive as possible, and move as quickly as possible in every deal, but we don’t always go for those deals that are solely about financial gain for LEGO Ventures.
JV: So how do you measure the success of the fund and the investments made?
CM: This is something we’re continuously working on and we’re developing our own internal metrics of what success looks like. That will take a little bit longer for us to develop, mainly because our portfolio is, after 13-14 months, still new so it’s tough to see strategic or financial returns at this stage.
JV: How do you make your investment decisions? Is that different from other investors?
CM: Traditionally, you’d look at unit economics, business financials, market size, competition etc and that’s obviously in our minds throughout. But ahead of that comes the strategic investment piece where we seek to map where the startup fits most relevantly with the wider LEGO Group. We want to make sure that there’s a strong alignment with where the business currently is and where it might be in the future.
JV: LEGO Ventures portfolio company Monti Kids recently launched a giving programme in partnership with Lumin Education, where unwanted toys can be donated to children in need. How important is it that your companies show a commitment to the wider LEGO mission?
CM: That fit has to be there for us to proceed. Lots of the spaces we’re looking at are not traditionally about impact - our founders are people who are looking to make a difference and that mentality drives their businesses. We’re certainly looking for founders who are genuinely motivated by improving access to play or improving learning outcomes.
JV: Are there particular technologies (e.g. AR, VR) that you and/or LEGO Ventures are particularly looking at currently?
CM: We’re looking at lots of things at the moment, but I cannot say that there’s any one technology that is sticking out for us at the moment. They each have their pros and cons and we’re trying to do our homework across a very competitive space to deliver a thesis driven investment strategy.
JV: Do you have to fund opportunities in all of your four key investment areas (i.e. Education Technology, 21st Century Skill Development, New Play Spaces and Creative Making)?
CM: No - we’ve got large amounts of freedom. We can explore opportunities across those areas, but we want to build a well rounded and diverse investment portfolio. We’re specific about the spaces we work in and are ready to pull the trigger when the right opportunity comes along.
JV: The search for those opportunities is, I presume, global?
CM: Yes absolutely. Our global offices receive inbound enquiries from all corners of the world and we’re proactive in targeting businesses that are of interest.
JV: Is there any specific focus on the Nordics given LEGO’s historic Danish roots?
CM: There’s no specific focus - we try to be as global and as unbiased as possible about where we look for interesting startups. The Nordics are certainly considered a core part of the European landscape. The Nordics are a booming space for EdTech, particularly with xEdu and there’s lots of great development happening across the region. You could also say the same for France, who have also made big investments in EdTech with many new companies being created and expanded.
JV: Do you have a preference for B2B or B2C propositions?
CM: Again we’ve no specific preference or focus from an EdTech point of view. We certainly understand that selling to schools can be slow but recognise that it does have the potential to deliver big numbers, similar to enterprise sales.
JV: What has made the biggest difference among your successful investments?
CM: The best founders we have worked with, and that I’ve worked with throughout my career, are those who can sell their vision. They then go on to deliver that vision and then tell investors and stakeholders about the vision (or change) they’ve delivered. It’s incredibly powerful to put investment into founders who are reliable and who deliver results.
JV: Are the other societal challenges out there which EdTech has the potential to solve, but which founders have not yet addressed?
CM: EdTech is hugely competitive and there’s no obvious gaps. I would like to see more in Formative assessment outside of STEM, but perhaps someone’s already onto that! The biggest challenge in EdTech is scaling - lots of companies raise seed and Series A funding but don’t have the traction that they need. This is something that the investment industry needs to focus on helping.
JV: OK, so how can you help founders with that?
CM: It’s about putting them together with successful people who’ve succeeded in the past. LEGO has great connections that can give founders support, particularly for EdTech businesses, where they tend to know the problem at first hand from working as an educator in the classroom. We can give them expert support to develop the product and sell it appropriately.
JV: As it’s the last Nordic EdTech News before Xmas, can I ask you for a crystal ball prediction for EdTech in 2020?
CM: The market will continue to see more investment going into the US and China, and I’m also hoping to see more European EdTech companies grow and reach the later investment stages. The key to that is getting them to sell across borders - win your home market, prove the model and then find a way to get into other territories around Europe. But that’s often the toughest part given different regulatory environments and curriculum frameworks.
JV: What is the best way for founders to get in touch with LEGO Ventures?
CM: The best way is to complete the ‘Get in touch’ form at the bottom of the home page on our website. A member of our team will then follow up with each startup after that.
JV: What 3 things could founders improve when approaching a strategic investor like LEGO Ventures?
CM: Definitely to clearly understand our investment thesis by studying our website and thinking about the alignment between LEGO/LEGO Ventures and your company. Secondly, be really clear about your target market (who are you targeting and how?) and the potential market size. Thirdly, clearly explain your assumptions and detail the unit economics which underpin their company’s financial projections.
JV: Thanks very much for your time Charles! It’s been a fascinating conversation and a pleasure to talk to you. Merry Christmas!