Jos White
Notion Capital, Founding Partner

Jos White has co-founded four businesses and has a BA honors degree in English Literature from London University. He divides his time between New York and London and is currently a founding partner at Notion Capital.

In 1992 Jos co-founded RBR Networks with his brother Ben White, an IT distributor that specialized in Cisco products. By 1998 RBR had become Cisco's largest distributor in Europe, with revenues above $140M, and was acquired by Datatec.

In 1995, Jos White and his brother founded Star Internet as one of the UK's first ISPs. Star is now one of the UK's largest ISPs and has expanded to become a broad-based cloud services provider.

In 2000 Jos White, again with his brother Ben, co-founded MessageLabs where he served as Chief Marketing Officer and later as President of the US region. MessageLabs became the market leader for messaging and web security services. In 2008 MessageLabs was acquired by Symantec for approximately $700M, marking the second largest transaction for a private company in the history of the IT security industry.

In 2009 Jos White co-founded Notion Capital, again with his brother Ben and three other partners. Notion invests in next generation cloud computing companies.

Pedro Santos: Tell me a bit about MessageLabs' history.

Jos White: The background is that my brother, Ben White, and I have founded four businesses. We founded our first one with Rory Sweet in 1993, which was called RBR Networks. Originally we were buying and selling second-hand IBM equipment, which is a horrible business with very, very small margins— this business required a lot of wheeling and dealing and definitely attracted its fair share of cowboys! . So, it wasn't really a technology business. But what it did is help us to come across the Cisco market very early on. - In 1993 one of our customers, BT, asked us for a Cisco router and we had no idea what it was. We were actually calling them “Kisko,” but we found it and supplied it to them and thought nothing of it. About a week later, BT faxed through this list of Cisco equipment—and again, it was just two of us in the office—I sourced it in the US and we supplied it to BT. I bought it about fifty percent off list price and I thought of trying to sell it to them at list price—it was about two hundred thousand pounds or something. They said, “Yeah, fine.” They didn't even question it.

So at that point we realized that something really big was happening in the market, which was a move away from the big, IBM mainframe systems with dumb terminals towards more of a PC-based wide area network. And this thing called the internet was emerging and Cisco seemed to be one of the companies that was driving this major shift in technology that happens every decade or so. At that point we decided to turn the company around and just focus on being a Cisco supplier.

At the time, Cisco didn't really have a presence in the UK, so the early buyers of Cisco were the telcos like BT, and they had to buy from Cisco in the US. The problem with that was that it required a six-to-eight-weeks lead time, so they needed a supplier that was local, who could supply things immediately. So, we became this kind of secondary supplier to the telcos and the early buyers of Cisco across Europe—like Siemens and Unisys, BT, and Deutch Telecom. … So, that was our real big breakthrough really.

We were turning over more than £1 million a month, within six months, in Cisco equipment. The thing just went completely crazy. And then we did direct deals with the company in the US that makes Cisco memory. … Cisco just puts their name on the memory. They don't make it themselves but they make very good margins on it or at least they did back then., And we did deals with the company that makes Cisco cables and accessories and things like that. The company just exploded and from that point on we were learning on the job and trying to manage tremendous growth.

And [then] we had a pretty rocky relationship with Cisco, because soon after we came into the market, they established their distribution model and we didn't fit into it. So they couldn't recognize our revenue and they didn't really like that. They sort of saw us as mavericks in the industry. They tried to shut us down. They tried to send legal letters to our customers. But if anything, in Europe—and I think this is one of the differences between Europe and in the US—our European customers didn't really like being told what to do by a US company. They didn't like being told who to buy from and being controlled in that way. So when Cisco tried to suggest to our customers they shouldn't buy from us, it made them even more loyal.. Europeans like to do their own thing.

But we had a pretty rocky relationship with Cisco [and] we knew that the company would never be valuable unless we had their support and endorsement. We eventually negotiated and they made us an authorized distributor in 1997. There are only four in the UK, so that is quite a big deal. We went on to become the largest Cisco supplier in Europe and our revenues were about £85 to £90 million in 1998 when we sold the business.

That was our first business. But at the same time, we set up one of the UK's first ISPs, which was called Star. We set up Star in 1995. I think we just liked the idea of having a recurring revenue business. The Cisco business was very much a case of every month you had to start again. It was a really aggressive sales-trading business. We were supplying Cisco equipment to the ISP industry, so we had a good early view of the ISP industry and we felt that most of the ISPs weren't doing a very good job. They were mainly focused on the consumer side or the large, corporate side. So, we set up Star to address the mid-market, the SMB market. We tried not just to provide a connection to the internet, but actually provide real solutions and real hand-holding to help small businesses get connected to the internet.

Santos: What type of solutions did you provide?

White: We released, with a single box, a solution to connect any network to the internet. It contained everything you need, like the mail server, a firewall, and a gateway. It was quite complicated to connect to the internet back then, so we tried to put it all into a single box. Then in 1998, we started looking into offering new services, one of which was an “in the cloud” antivirus service.

In 1998, the first virus that piggybacked on e-mail was released, which was called Melissa. And basically the virus problem changed overnight. Once viruses learned to piggyback on e-mail, the problem became much more significant because viruses could spread really rapidly. Traditional antivirus software was designed in a pre-internet kind of world. You downloaded the software, and every week or every month you downloaded new updates that protected you against a new threat. But it's very slow and reactive in nature.

So, we thought that maybe we could build an antivirus system within the fabric of the internet where we could recognize new viruses without needing an update, without needing an exact match, by developing a knowledge base of virus techniques and behavior. We recognized viruses by looking at the reputation of the sender, the movement pattern and within the email itself for any indications of a virus based on previous viruses we had seen. All viruses are derivative, so we were able to identify new ones based on what we had seen before and continually expand our knowledge base.

We patented a lot of based pattern recognition technologies as we were the first company to do this. We realized that when an e-mail contained a virus, it always followed a specific pattern of movement. This meant we could recognize new viruses instantly, without needing a new update, by forming a point score for every e-mail and stopping the e-mail if it went above a certain threshold. So, we were able to recognize and stop these new e-mail viruses before anybody else and this service just exploded. We realized we needed to set up a separate company to take advantage of it. So we set up MessageLabs in 2000 to raise more money, to scale up the antivirus technology and to really build up the business on a global scale. That's how MessageLabs came about.

We then realized, when the spam problem came along, we could deploy much of the same multilayered, e-mail scanning technology to spam, as we had for viruses. So, then we had two services. And we were the first company to deliver antispam and virus services in the cloud. It was just a much better way of addressing the problem and now everyone is doing it like this.

Santos: Did it start growing immediately?

White: The business grew very successfully. I moved to New York in 2002 to run MessageLabs in the US. That was an amazing experience for me. We had to go through a pretty steep learning curve of taking a European company to the US. We learned a lot, and the US, over time, became our largest market in terms of users.

We expanded on a global basis. By 2008 we had offices in fourteen countries. We were then scanning not just e-mail, but also web traffic and IM traffic. And we realized with e-mail, we had these data centers around the world processing e-mail and … strategically we were in a powerful position. There were additional services that we could offer while the e-mail was passing through. So we offered encryption and archiving services to expand the product range. But antivirus and antispam were always the core services.

So, by 2008 we had $160 million of revenue, and we were profitable, and we were still growing about twenty-five percent a year. We were actually the largest processor of e-mail in the world. We processed about three billion e-mails every day. We were gearing up for an IPO and had appointed bankers who would come in to every board meeting in 2008 and give us an upbeat report on how things were progressing.

But by about May 2008, the bankers came into our board meeting and said, “Look guys, we're not going to be able to IPO because of the problems in the economy.” You know, the downturn was starting, so unfortunately it just didn't happen. But we had used the fact that we were going to IPO to elevate discussions with potential buyers. What often happens in tech, people like to buy you before you IPO—like Skype actually.

So, we had three potential buyers, which were Symantec, Cisco, and IBM. Cisco and Symantec were quite far down the line, and we ended up doing a deal with Symantec in October 2008 for about five times the revenue. So we sold the business for about $700 million. That was, at the time, one of the largest exits in the European market and the second largest exit ever in the SaaS industry. A pretty significant exit.

Santos: Was the sale a preferable option, or would you have favored an IPO?

White: In a way, I would have liked to have seen the brand live on. I think we had a big enough vision and a big enough market to actually be the brand that consolidates. To be the consolidator rather than the acquired, but unfortunately the market timing was against us and it wasn't meant to be.

I worked for a few months in Symantec and then I left, had some time off, and then Ben and I, and three other guys, founded a VC called Notion Capital. We only invest in B2B, cloud-based businesses—really the market we've come from. The best way to add value and to be informed investors is to invest in the market where you have direct experience. Notion was set up in 2009. We've made eight investments and we are pretty excited about the portfolio that we have.

Just generally, we were huge believers in this megatrend of cloud-computing. It's a big sort of a tectonic shift in the tech landscape, and we want to try and take advantage of that by backing multiple businesses that are going to play a part in this transition.

Santos: Going back to MessageLabs, where were you thinking of doing the IPO? In the UK? In the US?

White: We had a big debate about this. I was in the US, so my preference was always a bit more to do it in the US. But I think that the bulk of our business, most of the management team, the largest amount of revenues and profits—because we did have more users in the US, but they weren't paying us as much as users in Europe pay. You usually cannot charge as much for your service in the US, so you have to make it up on scale. Initially, the US can be a loss leader until you really build up the scale. So we did have more users in the US than anywhere else, but we still had Europe as our largest market in terms of revenue and profit. And most of our senior management team were still in the UK. And our operation center and everything. So we felt that the bulk of the business was still in Europe and, therefore, it didn't make sense to IPO in the US because you can become a bit of an orphan. I think that the rest of the management team would have had to move to the US and start to be much more of a US business and we didn't think that made sense.

We were going to go out in London. Our bankers were Citi and JP Morgan and we were working with their teams in the UK. There is not nearly as much of an understanding about the technology sector in Europe. There aren't as many analysts, not as much appetite for growth, vs. profits and fundamental financial performance. We definitely would have got a better value in the US, but we would have had to really change the face of the business to be more US-facing, and we didn't think that made sense.

Santos: Can you drill down a bit more on the move to the US and its steep learning curve, coming from a European background?

White: I think, initially, I would sit there in front of a potential customer, Bank of New York, for example. Maybe I'm with another British guy, and you can see them looking at us slightly puzzled and thinking, “Hang on, you're a technology business, and you are trying to sell to us, and you are from … the UK?” You can see them thinking, “Shouldn't this be the other way around?”

I think that Europe has a lot of credibility in certain sectors, particularly media and the creative industry, but I think that in technology, generally, most of the world's biggest companies were founded in the US and, therefore, the expectation in the US market is that in technology, they are going to be talking and buying from US companies. When you are not a US company, that can be difficult because you are trying to break a perception. So I think it's important to become a US team in the US market. I don't think you can just bring some people over from Europe and just set up a sales operation.

We actually really invested in a self-sufficient management team in the US. They were mostly US nationals. We also positioned ourselves as a global company with locations in the US and Europe, rather than a UK company that was expanding. We very much changed our message to be, “we are a global company.”

Our US offices were in New York. We had a pretty senior and relatively autonomous US management team. I think it was a learning curve to be more of a US company and positioning ourselves as a global company rather than “this little company from the UK that is trying to expand into new markets.”

Another thing we learned is that on pricing you can't charge as much over here [the United States], and it's a market where you charge less, but you hope to make it up on scale. It's such a big market, but if the US is not your home market, then you can get caught in between not charging as much but not actually achieving the scale because you're not a US company. So, you can end up in a loss-making position. I think you need to be prepared to make a pretty big investment in the US and you need to be prepared to build up the business for several years, in some instances, before you're going to make money. You need to be prepared to commit to that kind of investment and timeframe if you want things to turn out well for you here.

Santos: Going back to the beginning of the company, when it was founded in 2000, you said you raised some capital, £25 million. Did you do it in the UK, Europe or the US?

White: We raised it in the US. We'd made up our minds; we wanted to raise money from US VCs. We thought that it would give us more credibility and it would also help with our US market entry. We did a couple of trips out to the US and we ended up going with two US VCs. One was Catalyst and the other Madison Dearborn. And I think it was the right thing to do.

Santos: Yes, especially if it helps in the credibility part.

White: Yeah, and back then, the VC market in Europe was relatively young. It's a bit more built out now. But we were raising money at an amazing time as well. I mean, when we were raising money, MessageLabs was only one year old, and we were able to achieve a pretty significant valuation for the business because it was the dot-com era and valuations were very high. So we were able, to a certain extent, to take advantage of that. And I think, to be honest, the valuation was a little over-inflated and it gave us a difficult couple of years once the dot-com crash, and managing things with our investors.

But we always built MessageLabs to not just be a hype-driven business, but to be a solid business that could make a lot of money. So we were able to get through the dot-com crash and come out the other side with a very strong business. But, we had a pretty hard couple of years after the dot-com crash. At times a valuation can be a stone around your neck. If you push for a valuation that is too high, it sometimes can be difficult. It's an interesting balance to get that right.

Santos: After that did you need to raise any more capital?

White: We never raised any more. Star and MessageLabs were in the same group. Star had raised £10 million in 1999. Star was profitable pretty much [by] that time so, we were able to really focus on MessageLabs and we were relatively good at managing our cash. And, again, I think that European companies are better at bootstrapping and better at managing their cash because they normally don't raise as much money, so they sort of have to learn to be better at bootstrapping and cash management—so that sometimes can be an advantage, I think.

A US company, you know, sometimes when you raise too much money you can become a bit like a trust-fund guy. You don't really appreciate the money and you're not really building for profitability and I think that can be dangerous. We actually had the situation, which I often talk about, which is MessageLabs was underfunded compared to our main US competitor, Postini.

Postini was founded at the same time. They were founded in the Valley, they raised more money, and we ended up being twice their size. So, it shows that it can be done. That a European company can take on a company from the Valley, with less money, and still out-execute the US competitor. We were very proud of that.

Santos: What do you think were the main differentiators that made you become double the size?

White: One of the key things was our background in security. Our background was in viruses and malware and really having that depth of security expertise and technology that delivered a very high quality of service. So, for example, we had a 100% guarantee with our service, so if a customer ever received a virus, then we would pay out a portion of their contract because we were so confident in the effectiveness of our service.

And because we were recognized as a true security company delivering a really, really good service, we were able to charge more than our competitors. When customers challenged the price, we would say, “Well, if someone offered you cut-price brain surgery, would you go for that?”

And they would normally say, “Well, no, I probably wouldn't.”

"And why would you do that?”

"Well, I would want to be sure of the reputation and the track record and everything else of the provider.” So, that's what MessageLabs is. Security can bring down the organization. It's too important to cut the price with your vendor. You should go for the premium player.

So, I think we were very good at that. With Postini, their background was more on spam and e-mail management, so they were never able to charge as much and they were never able to really be positioned as a true security company. They just resold other security software. So, I think we were just positioned differently in the market and we were able to charge more, to drive a much higher ARPU.¹

But I think also we were pretty good at sales and marketing. We were good at entering new markets, which again, I think it can be a strength for European companies. You can get good at entering new markets and understanding different cultures, languages, and stuff because in Europe, you have to be good at entering new markets because your own market is never going to be big enough on its own. Whereas companies in the US are often not good at entering new markets. So, I think Postini struggled outside of the US, whereas we entered new markets pretty successfully.

And we were very good at managing the brand and positioning MessageLabs as a premium brand and company that appeared to be much bigger than it actually was. And we were very aggressive. We were very good with our sales strategy, and building the sales organization. So I think they were also key things.

Santos: What were the biggest issues you had growing so rapidly? The growth pains?

White: The biggest issue we had was that our network was designed in a little, old office in the middle of nowhere in England, and then suddenly we became the largest e-mail processor in the world. Our architecture hadn't been designed to process such a huge amount of e-mail, and to be load balancing that e-mail, and to be making decisions on whether to pass an e-mail onto the customer or whether to archive the e-mail or whatever. So we had to keep up with not only the growth of the business but also the growth of e-mail and the growth of spam.

It was sort of this perfect storm because the company was growing, e-mail use was growing, viruses and spam was growing. So we got to this situation where, in 2003/2004, our network was really under pressure from the load [of] trying to process such huge volumes of e-mail. It got to the situation where, for about eighteen months, every time there was a big virus, our network would slow down and our delivery of e-mail would slow down. Sometimes customers' delivery of e-mail would take one hour or two hours to deliver. So, we would be saying to our customers, “Well, you're not receiving viruses.” To which they would say, “Well, we're not bloody getting e-mails!”

__________

So, we had real problems. I would be on the phone with one customer after the other for hours and hours. That was a really tense time because if you start putting significant delays in the delivery of e-mail, customers are going to leave. I think you can do it once, but if you start to do it more than once, customers are going to leave.

I think that managing that time while we re-architected the service to process things more efficiently where we could load balance across all our data centers was a challenging time for the business. That was a very nervous time, a very difficult time for us, and definitely the most stressful time that we had.

You know, we made lots of mistakes and that happens when you're growing so quickly. I think we made hiring mistakes, and we made mistakes of thinking that hiring someone is better than hiring no one— which is always wrong. In the early days, we really had to invest the time and everything else into getting the senior positions right. Because, if you get the senior positions right, that kind of sets the gene pool for the organization. And I don't think we always did that. Sometimes we rushed decisions or said that we were just better to take on lots of people rather than just the right person. So I think that sometimes we rushed decisions on recruitment rather than really taking the time on the key positions. And that caused some problems for us.

And then in the US, initially we entered the US with a fairly small budget and we just thought we would have a sales team out there and see if we can do it that way. And it just doesn't work. I think that in the US you really have to make a full investment into the market. You need to have a fairly autonomous management team. You need to be prepared to look at spending money for some time before delivering any profitability. So, our second go at the US worked well, but our first go really didn't work very well. So, that was a big lesson as well.

Santos: You eventually invested $15 million to move to the US, right?

White: Yes, I think it was something like that. Before the business broke even, I think it probably cost us something in that region. It cost us a lot and it took a bit longer than we expected it to start to break even. It's a difficult market because on one side you are selling to these huge customers—Citi, AXA and Motorola, [companies] like that were customers. Big, big customers. We had big customers and a big user-base in the US, but when you're selling at a lower price, it takes time for that to translate into actual profits. And that was a real lesson for us. We had smaller margins in the US.

Santos: And what were the lucky breaks along the way?

White: I think you always need a bit of luck. I think that that is often why successful entrepreneurs actually come across as quite humble. Because I think that any successful entrepreneur knows that it was a combination of skill and attitude, with luck, that really leads to success. And there are very fine lines between success and failure, and you definitely need a little bit of luck.

And I think that's why you see entrepreneurs being quite humble because they know that it was a combination of all those things that led to their success and that it could have gone in a different direction, no question. We certainly had some luck along the way. I think that one of our biggest pieces of luck was that our original office was in a place called Cirencester, which is basically a kind of small farming town in Gloucestershire in England. It has absolutely nothing to do with technology at all but in Cirencester, by complete coincidence, was an IT training company called QA. And they were a very high-level training company and they liked being in Cirencester because it was a good place for people to come away from the office and away from cities to concentrate on training.

And they did technical training and they had a very good reputation for doing high level technical training, so all of our three key technical people came from QA. Our CTO, Mark Sunner, was one of the senior trainers there. … Our Chief of Malware and Chief Architect also came from QA. QA had an amazing recruitment program and they attracted people who were very senior, very proven technologists, and so we were able to piggyback on that a little bit. So, I think that finding those three people in the middle of nowhere, on our doorstep, was definitely a big piece of luck that was very helpful for us.

I think that raising the money in the dot-com boom and being able to raise lots of money so that we didn't have to worry about it again was lucky. So, that was a good bit of luck. And another thing, which was partly luck, was that we set up MessageLabs in January of 2000 and we were the first company to stop the LoveBug virus. We actually named the LoveBug virus and that was May of 2000.

Little old MessageLabs with only, at the time, ten or twenty people in it. The timing of the LoveBug virus just couldn't have been any better. We were on the front page of all the newspapers as the first company to stop the virus, the company that named the virus. The timing for that, it just put us on the map right when we needed it.

I remember that the Daily Telegraph came up to our office and said, “Can we take a photo of the whole company, because we want to put it on the front of the newspaper?” So, I got the whole company out and there was literally about ten people, and [the journalist] said, “No, no, no. Can you bring the whole company out?” I quickly said that we thought we'd just bring out the engineers because they were really the guys that stopped the virus. That we left the sales and marketing and everybody else inside because they are just too busy dealing with the sales inquiries. But actually, it was the entire company at the time. So the Love Bug virus was really good timing for us and that worked really, really well.

Santos: Do you have any other aspects that you want to highlight?

White: I think it's worth just saying that the way that my brother and I work, as brothers, is worth touching on. So, my brother is an amazing kind of creator, or innovator. He's actually heavily dyslexic and he was expelled from about four schools. And he is a bit of a lunatic, really. But very often the people that can really invent things think about things very, very differently.

When I think about how I can improve on something, I normally take all of the context that surrounds me and then I think how I can improve on. Whereas a true inventor is able to take themselves out of what surrounds them completely and think about things entirely differently. Thinking about the future and not being informed by what is already here, but really, genuinely thinking about new solutions to problems.

And often you need a different kind of mindset. You need a different kind of intellect or a different kind of way of seeing the world to be that true inventor. And Ben I think has that ability that is very difficult to define and it's often people who fail at school and are very colorful characters, and real eccentrics or whatever, that can do that. And Ben can really do that. I actually have a background in English literature, so I was not in technology, but I was always able to take Ben's ideas and turn them into actual strategies and turn them into products. So, I think that we work very well together in that way. And I think that is one of the main reasons why we have been successful.

Santos: Did he come up with the actual idea for the virus scanner, or was it something that just grew out of Star team?

White: I think that Ben really thought about it to start with. He just kept challenging the technical guys, saying that there must be a better way to do this, to address this virus problem. And antivirus software just seems so antiquated. Seems like it doesn't work anymore. We used to call it the world's biggest protection racket! There must be a better way. Ben always uses the analogy that, with your water, you know that your water is filtered by your water company closer to the source, so by the time you turn on your tap, your water as already been filtered. Whereas, what was happening to viruses was that everybody was kind of having to boil their own water. So Ben was thinking, why can't we be like a water company? Why can't we filter e-mail in the fabric of the internet like a water company? So, by the time it reaches organizations and it reaches individuals, that it has already been filtered and individual users don't have to worry about it. And that was really kind of revolutionary at the time - we were years ahead of our time That high-level concept was pretty much Ben's idea, and then our brilliant technical brains came up with a way to deliver it.